Poised for Comeback – Natl focus

Posted on August 28th, 2009 in All Articles.

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Friday, August 28, 2009
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Housing Market Stabilization on Track
by Mike Larson

Dear Subscriber,
Mike Larson

Almost four months ago, I made one of the most dramatic shifts in my investment outlook ever. After warning — in advance — that we would experience a devastating housing and mortgage market crash … and after repeatedly refuting all the early — and wrong — bottom callers during the four-year collapse, I wrote the following in my Money and Markets column four months ago:

“It’s time to signal another important shift in my thoughts on the housing market. Namely, that the nexus of the real estate downturn is shifting and that the residential market is poised to stabilize in the coming quarters.”

I went on to say the market wouldn’t turn on a dime. My forecast: Home prices would continue to fall, but at a more gradual pace, while sales would gradually stabilize and inventory for sale would gradually come down.

So where do things stand? Do I deserve a passing grade?

Sales … Starts … Home Builder Sentiment?
It’s All Telling the Same Story …

Here’s a brief recap:

* New home sales rose 9.6 percent in July to a seasonally adjusted annual rate (SAAR) of 433,000. There were gains in three out of four regions in the country. Meanwhile, the raw number of homes for sale dropped to 271,000 — the lowest level going all the way back to 1993. And yet, median home prices were STILL down 11.5 percent year-over-year.

* What about the existing, or “used,” home market? Sales gained 7.2 percent to a 5.24 million SAAR. That was the highest since August 2007. The number of homes on the market is still way too high, but it did fall almost 11 percent from a year ago. Prices were off 15.1 percent.

Construction of single-family homes is trending upwards.
Construction of single-family homes is trending upwards.

* S&P/Case-Shiller home price index? Prices are down 15.4 percent from a year earlier in June. But that was an improvement from the 19 percent rate of decline seen a few months ago.

* Housing construction? Everybody flipped over the fact that “headline” housing starts missed expectations in July. But the weakness was all in the multifamily (apartment, condo, etc.) segment. Construction of “core” single-family homes rose for the fifth month in a row, while permit activity shot up by almost 6 percent.

* Home builder sentiment? Another good number. The National Association of Home Builders index rose another point to 18 in August, the highest since June 2008. We saw gains in three out of four regions of the country.

I’d call that a pretty decent fit with my May 8 forecast. Most importantly, for investors like you, I said you simply had to get out of the way if you were “short” the sector. The easy money, as they say, had been made.

The Philadelphia Housing Index (HGX), which consists of 19 home builders, construction suppliers, and mortgage-services firms, closed at 93.97 the day my piece was published. It’s up about 16 percent since then.