Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
While you were fretting in the fourth quarter you might have missed the 3rd? 5th? 8th? “housing has bottomed, no really!” rally. Keep in mind the housing market (for stocks) is really multiple markets – we have stand alone homes as we traditionally think of, multi-unit housing (condos/apartments), and then the companies involved in furnishing (or in much of America’s case due to foreclosures, refurbishing). We’ve been pointing out the positive trends in the apartment market for the past two years, and it continues:
- In the last quarter of 2011, the apartment sector saw its largest quarterly increase in occupied stock of the year, according to Reis Inc. The vacancy rate dropped to 5.2%, the lowest since 2001 and lower than the last cyclical drop in 2006.
- “Higher quality properties in the most desirable locations posted rent gains in excess of 5-10%, while class B/C properties, catering to lower income tenants, found it relatively more difficult to raise rents,” notes Victor Calanog, head of research at Reis.
Indeed I see no end to this anytime soon as a lot of former home owners (I use the term very loosely for the many who never put a dime down towards howe ownership with their 100-125%+ LTV mortgages) are pushed back into the rental market, while the lack of household formation due to lack of employment and/or underemployment favors renting over home ownership. This is even happening as the cost of home ownership is now below that of renting in many locales.
I can also get behind the refurbish thesis as not only is foreclosed housing stock in need of repair/upgrading, but many now seeing they are underwater and stuck in their current home for a long time will turn to upgrading it. However, the money flowing into homebuilder stocks themselves I am more suspect of, as the need for more housing stock in this nation is obviously … weak. But in this world where ETFs dominate individual stock trading, when money flows into SPDR S&P Homebuilders ETF (XHB) – than of course EVERY stock in it must go up together, regardless of individual merit. Indeed just about every homebuilder stock – except those with potential viability issues, has almost the exact same chart. It would be humorous if not for the fact it represents so much of what is wrong in this market.
But taking a step back you can see the big move in XHB since the October lows (now approaching 50% gains) – and as you scan through the many subcomponents they are almost all moving in lock step. So we’ll see in 6 months or so if this is the real bottom – at least for the stocks if not the real estate market, after many false starts the past 4 years.
Fund Top Holdings
| NAME | WEIGHT | TOTAL MKT CAP M | SHARES HELD |
|---|---|---|---|
| Masco Corp | 4.63% | $ 4,129.01 | 4,146,141 |
| Select Comfort Corp | 4.24% | $ 1,313.35 | 1,875,259 |
| Pulte Group Inc | 4.19% | $ 2,694.78 | 6,160,077 |
| Owens Corning New | 4.18% | $ 3,778.80 | 1,382,937 |
| Tempur Pedic Intl Inc | 4.16% | $ 3,837.18 | 739,022 |
| Home Depot Inc | 4.03% | $ 66,426.16 | 967,718 |
| Pier 1 Imports Inc | 4.01% | $ 1,618.05 | 2,812,954 |
| Toll Brothers Inc | 4.00% | $ 3,671.70 | 1,874,494 |
| Nvr Inc | 3.98% | $ 3,557.84 | 57,601 |
| Lennar Corp | 3.98% | $ 3,233.99 | 1,982,157 |
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
