Listen up people, because I’m only going to say this once. The U.S. housing market is in a depression. Not a recession, a depression. That was communicated to me by Captain Obvious, obviously.
Homebuilders, as represented by ITB, have gotten hammered (pardon the pun), dropping -75.30% from 1/26/07 through yesterday. The S&P is down -35.90% in the same time period.
Yeah, sure, existing home sales unexpectedly increased in December, but the recovery in housing, and demand for housing is still anemic, given the fact that people are losing jobs like pagan party planners who get religion. (Did that make sense?).
In addition, go visit with any of the CEOs at DHI, TOL, KBH, etc., and see if they’re remodeling THEIR offices (even though they could, at cost). After security handily whisks you out of the building, you will see that, no, the mood is somber, with a touch of desperation. Their businesses are eroding and overall, sentiment is very depressed. Like Christmas in Tehran.
Having said that, the housing market, and specifically the homebuilding stocks, should be watched closely for signs of a recovery. Homebuilders are “leading edge”, meaning they turn up well in advance—before the broader economy starts showing a pulse. One only need look at the performance of homebuilding stocks relative to the S&P. If you care to pull up the charts, you will see that most homebuilding stocks peaked mid-year 2005—well in advance of “the recession” we find ourselves in, and the October 2007 peak in stocks. Here’s one example…behold, I give you:
Through yesterday, DHI was up nicely from it’s 11/20/08 close of $4.34.
Additionally, if you look at the price performance of ITB vs. SPY more recently, you will see that ITB has actually outperformed SPY since the November 20, 2008 low, returning 36.11% vs. 16.77% for SPY. This is an interesting development. While it doesn’t signal that the housing market is recovering, it may be telling us that the market may be bottoming.
A bottom in homebuilder stocks is definitely something to keep an eye on, as it may signal that a bottom in the overall stock market might just be down the road. But just how far, is anybody’s guess right now.
Just saying……
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