7 Reasons to Buy Housing Stocks (or a New Home) Now

by Jeff Reeves | May 13, 2010 7:04 am

Yes, the housing market has been less than pleasant over the last two years. Yes, foreclosures are still a problem. Yes, high unemployment is weighing on Americans’ ability to buy a new home or boost existing home sales. But that’s not the whole story.

The bottom line is that the housing market has to hit bottom eventually. And a number of new data points in the past two weeks indicate that home sales and home prices may very well be on the rebound.

• Foreclosures down: According to a report today, foreclosure filings dropped 2% in April 2010 compared with April 2009. That’s the first annual decrease in more than five years, according to report issuer RealtyTrac. Specifically, just short of 34,000 foreclosure filings were reported in April, down 9% from March.
• New home sales up: Sales of newly built homes leaped 27% percent in March, according to a report released on April 27. That was the largest monthly gain in nearly a half century, according to the Commerce Department. The seasonally adjusted annual rate of new home sales was 411,000 on the month, reversing February’s record low and far exceeding the expectations on Wall Street.
• Housing stocks are booming: Wall Street seems to think the bottom is here, judging by the performance of housing stocks. Just look at the SPDR S&P Homebuilders ETF (XHB), which includes components include homebuilders like Lennar Corp. (NYSE: LEN[1]) and building supply stocks like Owens Corning (NYSE: OC[2]) and USG Corp. (NYSE: USG[3]). As of today’s market open, the XHB ETF is up 25% year-to-date, nearly six times better than the 4.5% gain the Dow Jones!
• Few inexpensive homes: A fascinating CNN Money[4] report retails a shrinking supply of “starter homes.” CNN points out that while there is currently an eight-month supply of homes on the market, a typical backlog is about six moths. That’s not exactly a glut. And most shocking of all is that the inventory shrinks for homes under $300,000 – so much so that some regions are seeing bidding wars. For instance, the California Association of Realtors says homes under $300l have an inventory of just 3.2 months statewide, down from an already low 3.3 month supply 12 months ago.
• Home prices rising:  According to a recent National Association of Realtors report, metropolitan housing markets saw prices edge up again in the first quarter over last year. Specifically, 91 out of 152 metropolitan areas saw median prices for existing single-family houses increase. That’s a considerable improvement from Q4 of 2009, when just 67 markets reported year-over-year price increases.
• Labor market improving: We all know you can’t pay the mortgage if you don’t have a job. Well today we learned that new claims for unemployment benefits dipped for the fourth straight week. Though the weekly numbers aren’t all that grand, the more indicatave four-week average showed considerable decline. Those dropping jobless claims mirror job creation improvements. Non-farm payroll jobs rose by 290,000 in April and are up 573,000 since December.
• Low interest rates: The rate on a fixed 30-year mortgage continues to slide after a short uptick at the beginning of April, cruising around 5.0% nationwide. That’s a very attractive rate for prospective homebuyers that can save them thousands over the life of a mortgage if they lock in the current interest rates. Though the jury is out on how long those rates will last, it will definitely help housing prices and home sales in the short term.

As of this writing, Jeff Reeves did not own positions in any of the stocks named here.

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