Is This the Beginning of Another Leg Higher for Housing Stocks?

Housing stocks were some of the biggest winners last year, with many of the best-in-breed companies enjoying huge gains in 2012.

Case in point: The SPDR S&P Homebuilders ETF (NYSE:XHB) — made up of homebuilders and other housing-related stocks — saw its share price increase nearly 56% in 2012, a stellar performance fueled by improved metrics in the space, as well as continued low mortgage interest rates and a slowly improving economy.

The climb in XHB in 2012 was impressive, but more impressive still was the move higher in industry stalwarts. Among some of the more outstanding performances last year:

  • D.R. Horton (NYSE:DHI), +57%
  • Toll Brothers (NYSE:TOL), +58%;
  • PulteGroup (NYSE:PHM) +188% surge

Other stalwarts in the housing-related space were home improvement giant and Dow component Home Depot (NYSE:HD), which saw a rise of 47% in 2012, and Lumber Liquidators (NYSE:LL), which experienced an amazing 199% run-up last year.

Yet for all of the euphoria in the sector in 2012, the stocks haven’t been at all impressive this year. Despite a very bullish start to the year in the general market, housing stocks have largely lost their red-hot mojo.

For example, XHB is actually down 1.2% year-to-date through the Feb. 25 close. Toll Brothers’ shares also are off more than 1% in 2013, while PulteGroup has seen its stock price fall more than 3% in 2013 through Feb. 25. Home Depot shares have managed to stay in the black this year, albeit only slightly.

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The chart here of XHB shows the recent slide in the homebuilder space, with the fund recently sinking below the technically significant 50-day moving average.

For investors who placed bullish bets on the housing space, the recent slide in the sector could be over, courtesy of new metrics released today that suggest housing is still humming.

This morning, the Commerce Department said sales of new U.S. single-family homes surged to their highest level in four-and-a-half years in January. Sales during the first month of 2013 climbed 15.6% to a seasonally adjusted annual rate of 437,000 units. That’s the highest level since July 2008. Moreover, the percentage gain in the metric was the largest since April 1993.

We also got positive data from the S&P/Case Shiller index, which showed that U.S. home prices finished 2012 with the biggest annual gain in more than six years. The composite index of 20 metropolitan areas showed home prices rose 6.8% in the year to December — a number that represents the best year-over-year gain since July 2006, which is right before the housing market cratered. In December, the S&P/Case Shiller index climbed 0.9%, well above estimates for a rise of 0.5%.

In addition to the good macro housing data, today we also saw strong fourth-quarter earnings from bellwether Home Depot. The company reported that fiscal fourth-quarter net income was up 32%, handily besting Wall Street expectations. Revenue also came in strong, rising 14% thanks to strong U.S. sales and increased spending related to Superstorm Sandy cleanup efforts. Not surprisingly, HD shares spiked about 6% midway through Tuesday’s trade.

For homebuilders and related housing stocks, the macro data in housing and the strong earnings from Home Depot could just be the catalyst for another leg higher in the space.

For investors and traders not yet long the sector, now could be the right time to move some money back into housing.

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.

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