Mortgage Activity No Reason to Rally

Seasonal influences are still at play in the weekly mortgage application data produced by the Mortgage Bankers Association (MBA), but soon, we should see real improvement. That said, the latest reported increase is no reason to get giddy about a real estate recovery.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

No Reason to Rally

Over the course of the last several weeks, we’ve continuously pointed out the seasonal noise we see in the data produced within many economic metrics. One of the data points we’ve keyed on has been the MBA’s Weekly Applications Survey. Activity dropped off significantly in the weeks of December, as Americans were too busy shopping, preparing their homes, visiting with friends, baking and cooking to spend time applying for a mortgage. Even despite the lowest mortgage rates of the year, they kept from refinancing, and certainly there were some refinancing opportunities created by those historical troughs.

However, now that we’re fully immersed in 2012, the data should begin to reflect economic value adding opportunities like those offered in the mortgage market. The latest period, reported today, still included the New Year’s Day holiday, and so is not clean of noise. For the week ended January 6, though, the MBA’s Market Composite Index (of mortgage activity) picked up 4.5% on a seasonally adjusted basis.

Besides discussing the seasonal influences on data in recent weeks, we’ve also discussed the imperfect work of seasonal adjustment, especially in dynamic periods like the current times. You can see just how hard it must be to make this adjustment based on historical data by simply looking at the unadjusted change, which this week marked a 34.4% increase against the week just prior.

We’ve noted that three-day holidays likely give adjusters a problem because they fail to fully account for the soft business activity that occurs the day before the weekend begins and the day after the holiday. There is certainly a slacking of business activity during those crossover periods as people prepare for the holiday and also return from a tiring or relaxing weekend and reenter into “work mode.”

Alas, all that noise will be going away over the weeks ahead, and the market should begin to take advantage of low mortgage rates, though depending upon weather now. Many strategists, economists and housing specialists are pointing to a true spring selling season this year, given supply rundown and employment improvement (so called). I’m a skeptic with regard to labor, again due to seasonal ringers in the data and other issues described in my labor market work.

Rounding out the most recent week’s data for financial sector and housing enthusiasts, the seasonally adjusted Purchase Index increased 8.1%. Remember, the Purchase Index measures activity tied to the purchase of a home. Homebuilder investors will likely add this news to their lists of reasons to rally the industry’s shares, but it’s not a solid data point to build on in that regard. Filling in the rest of the data, the unadjusted Purchase Index increased 41.9%. The MBA’s Refinance Index increased 3.3% from the week before.

Take note now, dear smoke and mirror crew, because what is useful here is the year-to-year comparisons. In that regard, the Purchase Index was severely lower against the prior year period, down 17.9%. That doesn’t sound like a reason to buy homebuilders to me, but you won’t find that information in the current frenzied flurry of news on the industry, except from me. I’ll have more to say on the homebuilders specifically in the near future, so stay tuned.

Homebuilders are up again today despite insight like this, with the SPDR S&P Homebuilders (NYSE: XHB) up 1.4% in late afternoon trading Wednesday. The shares of K.B. Home (NYSE: KBH) and Hovnanian (NYSE: HOV) are up near 13% on the day, with shares of Lennar (NYSE: LEN) up 6.1% partly on its own news. Financials are not missing a beat either, with big home financer Bank of America (NYSE: BAC) up 3.3% and the Financial Select Sector SPDR (NYSE: XLF) up 0.8%.

Be warned though, because the latest days' rise has been driven more by greed than by reason, in my view. Don't label me as a perennial pessimist though, because I suggested investors get into homebuilders last year. I see the latest move as indicative of subtle signs for housing, ample hope for investor profit and complete ignorance of the importance of Europe to the U.S. economy and the growth of emerging markets.

Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), BB&T (NYSE: BBT), CIT (NYSE: CIT), Bank United (NYSE: BKU), First Citizens (OTC: FCNCA.PK), Synovus (NYSE: SNV), United Bankshares (Nasdaq: UBSI), Hampton Roads Bankshares (Nasdaq: HMPR), WesBanco (Nasdaq: WSBC), City Holding (Nasdaq: CHCO), Sandy Spring (Nasdaq: SASR), First Citizens (OTC: FCBN.OB), SCBT Financial (Nasdaq: SCBT), Wilmington Trust (NYSE: WL), WSFS Financial (Nasdaq: WSFS), Southside Bancshares (Nasdaq: SBSI), Stellar One (Nasdaq: STEL), Union First Market (Nasdaq: UBSH), Eagle Bancorp (Nasdaq: EGBN), First Bancorp (Nasdaq: FBNC), Ameris (Nasdaq: ABCB), The Bancorp (Nasdaq: TBBK), First Community (Nasdaq: FCBC), Capital City (Nasdaq: CCBG), Financial Institutions (Nasdaq: FISI), National Bankshares (Nasdaq: NKSH), Citizens & Northern (Nasdaq: CZNC), Charter Financial (Nasdaq: CHFN), Seacoast Banking (Nasdaq: SBCF), TIB Financial (Nasdaq: TIBB), American National (Nasdaq: AMNB), United Community (Nasdaq: UCBI), Middleburg Financial (Nasdaq: MBRG), Heritage Financial (Nasdaq: HBOS), Zions Bancorp (Nasdaq: ZION), East West Bancorp (Nasdaq: EWBC), City National (NYSE: CYN), Bank of Hawaii (NYSE: BOH), SVB Financial (Nasdaq: SIVB), Westamerica (Nasdaq: WABC), Cathay General (Nasdaq: CATY), Umpqua (Nasdaq: UMPQ), Glacier Bancorp (Nasdaq: GBCI), Pacific Capital (Nasdaq: PCBC), PacWest (Nasdaq: PACW), Western Alliance (NYSE: WAL), First National Alaska (OTC: FBAK.OB), First Interstate Bancsystem (Nasdaq: FIBK), Nara (Nasdaq: NARA), West Coast (Nasdaq: WCBO), TriCo (Nasdaq: TCBK), Territorial (Nasdaq: TBNK), Washington Banking (Nasdaq: WCBO), Bank of Marin (Nasdaq: BMRC), Hanmi (Nasdaq: HAFC), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), United Bankshares (Nasdaq: UBSI), Bank of New York Mellon (NYSE: BK), MB Financial (Nasdaq: MBFI), Astoria Financial (NYSE: AF), New York Community (NYSE: NYB), Hudson City (Nasdaq: HCBK), People’s United (Nasdaq: PBCT), First Niagra (Nasdaq: FNFG), Capitol Federal (Nasdaq: CFFN), Washington Federal (Nasdaq: WFSL), Investor’s Bancorp (Nasdaq: ISBC), Northwest Bankshares (Nasdaq: NWBI), Sterling Financial (Nasdaq: STSA), Ocwen (NYSE: OCN), Flagstar (NYSE: FBC), Provident (NYSE: PFS), Colombia Banking (Nasdaq: COLB), Kearny (Nasdaq: KRNY), Brookline (Nasdaq: BRKL), Dime Community (Nasdaq: DCOM), Flushing Financial (Nasdaq: FFIC), Danvers (Nasdaq: DNBK).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Housing Stocks Lifted by Construction Spending Data

Construction Spending data was reported Tuesday and was embraced and propagated by real estate agents and housing longs. However, your sometimes hated, typically post-profit loved, and always critically analytical blogger here finds good reason to temper enthusiasm. That said, there are interesting trends developing in housing and other construction sectors.

Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Construction Spending Rise

Construction Spending was reported 1.2% higher in November, exceeding economists’ expectations for a 0.5% increase. “Woo hoo,” exclaimed the once high flying mortgage broker now working at Home Depot (NYSE: HD) in order to make the electric bill. “Alright,” declared the Ryland Group (NYSE: RYL) sales representative who’s hours have been cut to part-time, and who delivers pizza on the side. “Jump on it,” announced the reporter/stock-picker whose ratings climb on sensationalism.

Yours truly, however, has another view, and considering the unbiased nature of that view, it might be worth noting. Taking a closer look at the economic report produced by the U.S. Census Bureau Tuesday, we find that the growth reported for November benefited tremendously from a revision to the prior month result. Initially noted for 0.8% growth, October’s construction spending was revised significantly downward, now showing a 0.2% decrease in activity. Well, when you cut the base of your growth calculation, you are certain to get better growth than what economists based their forecasts upon.

Now, the shares of homebuilders rallied significantly on the news, with builders Hovnanian (NYSE: HOV) and PulteGroup (NYSE: PHM) jumping 6.9% and 3.3%, respectively. K.B. Home (NYSE: KBH) climbed 3%, while D.R. Horton (NYSE: DHI) and Toll Brothers (NYSE: TOL) rose 2.9% each. Beazer (NYSE: BZH) rose 2.4% and Lennar (NYSE: LEN) edged higher 1.2%.

In the past I’ve noted multi-family home growth, and have warned that it is not a good sign for the economy to generate a nation full of Pottersville renter suckers. However, this report shows good growth in single-family home construction, which was up 1.5% in November, though on a seasonally adjusted basis. In fact, looking at the trend of the past five months we see a generally improving market.

Eventually, new home construction was going to have to improve, driven by lack of supply after a period lasting so long with so little new construction. The population continues to grow, hard working immigrants enter the market on job offers, and home demand creeps higher. What has kept this natural driver from making an impact for so long has been the usual suspects: the foreclosure overhang of existing homes for sale cheaper than new homes; tight lending standards keeping once approvable buyers out of the market; plus a good number of more recent buyers sitting on underwater mortgages. Eventually, though this was going to be absorbed, and perhaps we are starting to see some of that finally. My concern of late, which has affected my view for housing, is a macroeconomic stumbling block I see ahead driving new recession and holding up a housing recovery.

Multi-family construction also increased 1.3% in November, and so Potter’s slums continue to find new suckers. The five-month trend for the multi-family segment is also one depicting increasing demand, though in a less fluid manner. On a year-to-year basis, new single family home construction was up 2.5%, while multi-family projects were up 4.1%. It’s here where you can more clearly see the damage to home ownership in this difficult economic hangover and the beneficiary, the multi-family segment.

Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Housing Starts for the Suckers in Pottersville

The popular press, radio and television media celebrated the “strong housing starts” reported for November Tuesday. The shares of homebuilders had a good time too, with the SPDR S&P Homebuilders (NYSE: XHB) up 5.3%. However, after a look at the report, I say bah humbug! That’s because while housing starts ran at a higher rate, they occurred in a specific segment of the market that I suggest offers few good tidings for the real estate market. It’s a great sign for the likes of Mr. Potter, from It’s a Wonderful Life though.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Housing Starts for the Suckers in Pottersville

Housing Starts rose a strong 9.3% over October’s revised rate and an astounding 24.3% over last year’s sad affair. Building Permits ran at a 5.7% higher rate than in October and posted an impressive 20.7% increase over the prior year period. Yet, Starts at an annual rate of 685K and Permits at a rate of 681K were far less impressive after closer inspection of the data.

The reason for my lack of enthusiasm should be obvious, but is clearly not to an undiscerning majority, nor to investors in Hovnanian (NYSE: HOV), PulteGroup (NYSE: PHM) or Beazer Homes (NYSE: BZH), who all enjoyed double-digit gains Tuesday. However, I expect the gains in homebuilders will prove fleeting. You see, most of the activity occurred in multi-family housing, not in single-family homes. Single-Family Housing Starts only increased 2.3% over October’s rate, to 447K, and Single-Family Home Permits only rose by 1.6% over October’s rate, to 435K.

Multi-family projects could be intended to house renters. A housing start measures the start of construction of a project intended for residential use. The properties do not necessarily need to be presold. Therefore, the 32.2% increase in structures intended to house five or more family units may very likely be for a Pottersville-like purpose, to house the “suckers in Potter’s slums,” from the famed and seasonally appropriate film. We should not be surprised, given today’s higher credit standards, increased levels of unemployment and underemployment, and a population less likely to attain home ownership. This is not something to celebrate, though, not in my view.

Single-family starts were on the rise in the Northeast and the West though, increasing 35.7% and 10.7%, respectively. Single-family starts in the Midwest and the South fell 14.5% and 1.3%, respectively. Multi-family projects were on the sharp rise in both the Northeast and West as well, though, so there appears to perhaps be a housing shortage being filled. It makes sense that distressed property inventory would first be absorbed by the population dense Northeast and West. Generally speaking, this is a development that should be expected, given the length of the period with little construction and the continued growth and maturation of the population. However, it’s too early, and the data is too limited to make such a call.

Besides, with our economic view, and the related stumbling block we see for housing over the near-term, any green shoot that may sprout should be quickly dried out. In conclusion, I’ll hold my excitement for when single-family starts initiate a rising trend, and more importantly, when economic healing drives increased general demand for housing.

Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

A Closer More Painful Look at Housing

There seemed not much we could glean from the New Home Sales data for October generally speaking, but after a more painful closer look, there are nooks full of grime and crannies full of malaise worth discussing after all.

Our founder, Markos Kaminis, earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

A Look at Housing

In recent reports on real estate and homebuilders, we noted that the global macroeconomic meltdown would not likely leave out homebuilders. We were wondering this week if our detractors, a group basically consisting of homebuilder long positions today, noted the apocalyptic warning from the OECD Monday or Fitch’s U.S. outlook downgrade Tuesday. Well, they’ll argue that the efficient stock market blew off the news, with the Dow up both Monday and Tuesday on record Black Friday and Cyber Monday retail sales. Housing stocks rallied as well, with PulteGroup (NYSE: PHM) up 2.5% Tuesday, K.B. Home (NYSE: KBH) up 0.9%, Toll Brothers (NYSE: TOL) 0.5% higher and D.R. Horton (NYSE: DHI) increasing 0.3%. Now I’ll tell you why I think the week’s stock buyers will regret it down the road.

October’s New Home Sales were reported at the start of the week, and not much was made of the news. There was good reason for that; it’s because not much changed generally speaking. The annual pace of new home sales rose 1.3% month-to-month, to 307K, from a revised September pace of 303K. The sales pace was 8.9% greater than the year ago period, thanks to the low bar set when housing was left to its own devices absent of the First-Time Homebuyer Tax Incentive. I should note that this last bit of information is overlooked by the biased among us.

Economists were looking for a sales pace of 310K, so 3,000 more than the actual result. Clearly, the miss was insignificant. In fact, the entirety of the report seemed insignificant, except to regional markets and discerning eyes. Breaking the data down, we see that sales in the Midwest were red hot, surging 22.2% over September’s pace and 37.5% above the prior year rate. I expect this has at least something to do with the energy boom in North Dakota, if not all to do with it. That’s because the biggest barrier to growth in the state’s energy production boom has been inadequate housing capacity. Still, this is great news for the local housing market and builders participating there. This gem in the rough report is missed by reporters purposed to push a position or by the popular press’ pumping of paper. It’s the independent voice with a core competency of discernment that adds value. By the way, we take and need donations, so please do support our effort through these difficult times via the "donation" tab atop our Wall Street Greek blog.

The western region of the nation also enjoyed a surge in activity (+14.9%), taking it to a level not seen since the spring. The Northeast was even with September’s pace, but the South reported a 9.5% drop off.

Another noteworthy tidbit was the dip in housing inventory to 6.3 months, down from 6.4 in September. Supply was 8.5 months a year ago. You would think that we would eventually reach a point of equilibrium. Month-in and month-out this development in inventory is viewed positively, seen as another step toward growth revival. At some point, inadequate supply and absent production should leave a housing shortage. That’s not the case though in a nation that is not creating jobs. Rather, empty nester homes are refilling with an increasing number of family members, children returned from college or Iraq, and brothers returned from Wall Street or prison, etc.

The final data point most often observed here is the home price information. Like seen in the S&P Case Shiller data, though in this case it’s timely, new home prices fell. Obviously, that’s not a good sign for real estate nor for homebuilders. But stock valuations have an important component reflecting future expectations, the longs will remind us. Well then it would seem fiat currency dilution for the sake of debt digestion will simply result in the penalization of all the world for the faults of those who partook in excessive leverage and who were possessed by greed. That’s not good for the homeownership rate either my friends. However, I have one caveat for you real estate survivors: if you already own your own home, then that hard asset with the extra benefit of utility value, including the ability to rent it or to provide you with shelter, will benefit from the inflation I see ahead.

In conclusion, it would seem this mundane report with seemingly stagnant data did prove quite interesting after closer inspection.

Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Dark Clouds Loom Over Real Estate Horizon

The last two days’ housing data offered a positive tone, but we reiterate our cautionary stance. Our reasoning for real estate investors to view current activity with caution has all to do with our view for tomorrow. We think the tone of the next year (to decade) will reflect a new and more biting, and deeper, recession than the last. The result of such a scenario would not save housing, though the inflation we should see would support real estate holders’ wealth and offer the intangible we under value now, shelter.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Dark Clouds Loom Over Real Estate

The Housing Market Index was reported Wednesday and Housing Starts were reported Thursday, each offering its own version of good news. Of course, that “good news” was only so on a relative basis, as the data continues to reflect a horrible day on an absolute measure. Housing stocks were enthused on the news Wednesday, with the group of shares we watch, including Toll Brothers (NYSE: TOL), K.B. Homes (NYSE: KBH), Beazer Homes (NYSE: BZH), D.R. Horton (NYSE: DHI), Lennar (NYSE: LEN), Hovnanian (NYSE: HOV), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB) each rising. But, despite a solid data follow up Thursday, the stocks soured into the close. That had everything to do with reality, and the really bad looking clouds that we see on our economic horizon, not to mention the geopolitical vista.

The Housing Market Index, which is a measure of the mood of homebuilders, improved three points to a mark of 20. Such a spirited move could not be ignored by housing investors, since they figured it must reflect better business, which should eventually be noted in EPS results. That three point gain was the second consecutive of its sort, adding further impetus to homebuilder investors. But the absolute value at 20, deeply under the water mark of neutrality which is set at 50, still reflects dire circumstances. We covered this report in depth in our article, Home Builders and Their Shareholders are Drinking the Kool-Aid.

Similarly, markets have been pleasantly surprised by renewed growth in home sales during the second half of this year. That’s pathetic in my view, as I’ve been foretelling of this turnaround since the beginning of 2011. It’s simple math really. A low bar was set post the expiration of government incentive programs, and so it is now easily surmounted in this comparable period. Yet, homebuilders, who we suspect don’t read us often, also appear to be buying into this “surprise,” as reflected in their more positive (though still sad) perspective.

Housing Starts, reported Thursday for the month of October, also offered enthusing data despite the annual rate of Starts drifting 0.3% below September’s revised mark. In reaching 628K, the result far exceeded the expectations of economists surveyed by Bloomberg, who had set their consensus view at 605K. Moreover, Starts of single-family homes, which are seen as the purest measure of the home market, increased 3.9%. And, of course, when compared to the prior year period, Starts advanced 16.5%. Adding to the flow of good news, Building Permits filed for October exceeded September by 10.9%. This is a forward looking indicator, and so the outlook is enthusing.

So, then, why do you suppose housing stocks were lower Thursday? It had everything to do with the economy. Fitch’s report, which warned that U.S. banks were at risk of catching the fever that haunts Europe, stopped dead in its tracks all Wall Street hope. Indeed, I agree, and I see most of our supports falling out from underneath us. To name a few…

Our Federal Reserve fuel tanks, which kept us cruising on little natural reason, are running dry now. Meanwhile, our nascent manufacturing renewal should run out of steam as China also inevitably feels the effects of the global slowdown and discovers it has a few asset bubbles of its own. Regarding our manufacturing slippage, that’s in the cases where China does not already compete against us after copying technology and process, as in the solar industry. The global nature of this crisis, with softness (to be kind) across its surest consumer markets (U.S., Europe and Japan), despite the latest miraculous period of modest economic growth, puts all participants in the hole, including the BRIC nations, believe it or not.

I do not believe our consumer debt problems, now shifted to the public sector, will be escaped. That Great Depression Capitol Hill and Ben Bernanke are so proud of evading may only have been pushed forward. I expect this will be understood as history unfolds.

Housing would not escape a dip again into recession, especially the sort of economic environment depicted above. Homebuilders will not thrive in such a day, but homeowners may find an ironic source of solace. That underwater mortgage may yet swim again, because the demise of the dollar will give it buoyancy.

Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Homebuilder Mood Slightly Less Suicidal

The National Association of Home Builders (NAHB) Tuesday reported its Housing Market Index. The metric is a measure of the mood of homebuilders, and has been mired in the mud where home foundations might otherwise be for years now. The popular press jumped on the news of improvement in the index, but failed to note, except in the details few Americans likely read, that the absolute value of the Housing Market Index is still dreadful.

Our founder, Markos Kaminis, earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: Nasdaq: ITIC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Homebuilder Mood Slightly Less Suicidal

The NAHB/Wells Fargo Housing Market Index (HMI) improved by four points to a mark of 18 in October. That information alone set the real estate wire on fire Tuesday with news of “good news in housing.” While I’ve been forecasting growth in real estate for the second half of 2011, until noting this year that economic complications would stall the real estate recovery, I must point out that the homebuilder mood is not sanguine; suicidal would be a better description for homebuilders, though perhaps slightly less so this month. You see, the divider between a positive and negative mood is set at an index reading of 50. While my math is not as sharp as it once was, I can say pretty confidently that October’s reading of 18 is still deeply discounted to that break-point.

Now that I’ve made that important point, I have to note why the positive change still matters. It’s because “change,” or delta as mathematicians might refer to it, matters to the stock market. I favor delta myself in decision making, as it is a catalyst for profit in my view. That said, can we really say there’s a spark in housing based on this latest measure of the homebuilder mood? I think not, and even if it were, it would soon be smothered out by an economic situation that is at least less enthusing and possibly even defusing.

Looking more closely at the data, the report shows improvement across most of the spectrum of sub-measures. The HMI’s component measure for current sales activity shows a four point improvement to a mark of 18. The gauge counting prospective buyer traffic rose three points to a reading of 14. Where we really see the most robust change in the data, though, is in expectations. When surveyed regarding where homebuilders saw things going over the next six months, well that resultant component index gained seven points to a mark of 24. So what’s got homebuilders hopeful now?

I think they’re basically buying into the numbers. We’re seeing year-over-year results beating many of last year’s low bar marks. It’s amazing to me that it takes this actuality for people, including homebuilders and many of my readers, to realize it. We’ve been forecasting it since the start of the year here, and I’ve found mostly resistance to my “growth” statements. But what you have to understand is that, one, the base for growth is at a dramatic low point, and that, two, the growth we’re forecasting is nothing to write home about. Yet, it’s growth nonetheless. I suppose the clearing away of the negative trend, or the delta, helps sentiment, however surely it should have been expected.

My view regarding this measure is that its great dependence on the views of smaller builders, which are greater in number and which have suffered more than the larger, publicly traded players, who have easier access to capital, has weighed on it. Thus, it’s been mired in this mud of low-teen readings for months. Whenever it has changed, it’s been mostly due to expectations, not significant changes in real sales activity or traffic.

As we look regionally, we see the largest market of the Northeast stuck at a reading of 15. I suppose that is because of the well developed nature of the region. In the West, the component reading improved by nine points to a mark of 21. The Midwest and South saw increases of four points, to readings of 15 and 19, respectively.

The report and the reporters of the report have noted all the usual suspects behind the absolute low level of confidence, including the weight of foreclosures on appraisal values and competitive properties, and the obstacle of tighter lending criteria. When seeking a reason for the gains made this month on a relative basis, those same scribblers attributed the move to record low mortgage rates. Certainly, the lower rates fall, the more folks qualify for homeownership. Still, the real barriers to this housing recovery are the result of our economic illness, including high unemployment and the hangover we must bear due to our previous housing overindulgences. Therefore, I say temper your enthusiasm until the latest economic stumbling blocks are cleared away.

Stocks of homebuilders reacted to the news just the same, with the shares of Toll Brothers (NYSE: TOL) up 9.9%; Hovnanian (NYSE: HOV) +6.7%; D.R. Horton (NYSE: DHI) +8.5%; Lennar (NYSE: LEN) +7.9%; Beazer (NYSE: BZH) +11.3%; and K.B. Homes (NYSE: KBH) up 8.1% at about two hours ahead of the close.

Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Homebuilder Sentiment Stinks Like Usual

What should have contributed little to the stock market slide this past week perhaps weighed on the minds of traders as news flow flooded in. Homebuilders have been depressed for years now, but the latest data served as a reminder of the long-standing stillness in housing.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Homebuilder Sentiment Stinks

Homebuilders have been in the dumps for what seems like my entire post-pubescence. The reason is obvious, I hope. Besides the disastrous shake-up of our housing finance industry, the remnants of the implosion remain. Excessive under-employment, a guarded lending environment, a flood of distressed properties and underwater homeowners have effectively drowned the real estate market for several years now.

The Housing Market Index’s sad state, though, has a second driver of doom. It’s the fact that the competitive landscape is made up of a great many small to mid-sized builders, most of which were overleveraged at the height of housing. Their sin of greed has since been replaced by despair as a result. So when the guys weigh in, perhaps from a barstool or a street curb (I can say so, since I’m sitting next to them), the effect is overwhelming on this index.

September’s reading showed a one point decline to a morbid mark of 14; imagine that 50 separates positive sentiment from negative, and contemplate just how far down in the dumps builders are. Yet, there’s nothing new in this data. The index has hovered in the rancid range of 13 to 16 for six months now. The National Association of Home Builders (NAHB) Chairman, Bob Nielsen, added that the recent economic and market upheaval has only served to drive the few hopeful homebuilders into the pessimistic pool. That fact was illustrated in the index which reflects builders’ views for the next six months, as it fell by 2 points to 17. The measure of current sales conditions dropped by a point to 14, while traffic of prospective buyers was seen lower, with that index down a point to 11.

Regionally speaking, the Northeast and South both saw two point declines (to 15), as the West collapsed three points (to 12). However, there was some good news in the homebuilder view, as the Midwest index improved by a point, to a still clearly terrible absolute level of 11. Also, the NAHB chief said that about a dozen metropolitan areas were showing signs of life.

On net, the HMI report would have contributed nothing to stock market activity this past week, since it was simply as bad as usual. But when market sentiment is overwhelmingly negative, well then it piles on.

This article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Look to Government Now for Guidance

New Home Sales data were reported for July this week, and while the news was not much different than in the recent past, it received a good bit of attention nonetheless. The reason for the attention was a 0.7% decrease in the annual pace of sales from June through July. With a coinciding monthly decline in the pace of Existing Home Sales, a much more important market, concern is brewing about a new stumble for housing. While every forecast I’ve made has been qualified against the possibility of economic deterioration that appears to be developing in America and abroad, I still think too much is being made of the July New Home Sales data. Instead, both stock market and real estate investors would be better served looking to the economy, and at this point, especially to economic reinforcement efforts for guidance, as consumers and investors are suffering today from cold feet and uncertainty. If not cured quickly, I see a self-fulfilling prophecy taking us into recession.



Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.



Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG, NYSE: JPM, NYSE: GS, NYSE: C, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: PNC, NYSE: STT, NYSE: JNS, Nasdaq: TROW, NYSE: GE, NYSE: WMT, NYSE: MCD, NYSE: AA, NYSE: AXP, NYSE: BA, NYSE: CAT, Nasdaq: CSCO, NYSE: CVX, NYSE: DD, NYSE: DIS, NYSE: HD, NYSE: HPQ, NYSE: IBM, Nasdaq: INTC, NYSE: JNJ, NYSE: KFT, NYSE: KO, NYSE: MMM, NYSE: MRK, Nasdaq: MSFT, NYSE: PFE, NYSE: PG, NYSE: T, NYSE: TRV, NYSE: UTX, NYSE: VZ, NYSE: XOM.

Look to Government Now for Guidance

The U.S. Department of Housing and Urban Development reported that the annual pace of New Home Sales slipped to 298K in July, down from 300K in June. Neither enthusing, June’s sales pace was revised down to 300K, from an initially reported rate of 312K. Thus, the monthly decline felt more like a 4.5% drop.



Real estate enthusiasts should not lose site of the fact that this July’s 298K sales pace remained 6.8% above last July’s pace of 279K. Some will say that last year’s activity came in the absence of the just expired First-Time Homebuyer Tax Incentive, and so was especially soft. They’ll point to this as the driver of the year-over-year growth in Existing Home Sales as well last month, which conflicted with the month-over-month slippage. They will be partly correct in saying so, but I continue to see a solid plateau here for housing, with one significant risk. Barring a jarring economic catalyst (read recession), which is at least 50% likely now, home prices and sales levels have a natural floor under them, in my view.



August will again offer an easy year-over-year comparable for New Home Sales, this time 278K, but September’s sales reached 316K last year. Though, October and November brought lower rates of 282K and 287K, respectively. So, the next few months will show us clearly where we stand in housing, as unnatural, synthetic catalysts will be clear of the equation. But new home sales data is not yet the place to look for real estate recovery, due to the burden of the inventory of distressed properties that abound and the relative value found in the existing home market.



One thing real estate investors should keep in mind is that the worse the economy gets, or more favorable to the general situation, the worse it is perceived to be, the better housing affordability becomes. Mortgage rates touched a record low during the latest market upheaval. Of course, recession is a net negative for housing, as unemployment would likely increase, average incomes would decrease, and the ability of consumers to spend would be limited. Consumers have already stopped spending, based on my observations, and so a self-fulfilling prophecy may play out, bringing recession and all its nastiness.



As far as last month’s New Home data went, much was made of the decrease in the median home price for homes sold through the period. The median price fell 6.3%, to $222K, from $236,800 in June. But, the average price of a new home sale actually rose a bit to 272,300, from 272K in June. Very few homes are for sale now, and so homebuilders are not so much pressured to unload inventory for the sake of managing a debt burden as perhaps they had been in past years. Even as the sales pace declined last month, months’ inventory stuck at 6.6 in July. That’s an indicator of the conservatism of builders now, and also the bare bottom levels of activity we reside within. The actual number of homes for sale declined to 165K in July, from 166K in June.



In conclusion, I believe too much was made of the decline in New Home Sales, mainly due to a dearth of other economic data on the day of its release. And, the new home arena is not the place to look for guidance anyway. Keep your eyes instead focused on the economy, and hopefully new catalysts from the fiscal end within President Obama’s upcoming game plan, and also on the monetary side within Ben Bernanke’s upcoming speech. The market is now starving for hope, and great pains have already been born. However, if consumer and investor confidence are not supported and fueled, our economy is destined for recession and our real estate marketplace is set to find a lower plateau.



Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), TD Bank (NYSE: TD), PNC Bank (NYSE: PNC), State Street (NYSE: STT), Janus (NYSE: JNS), T. Rowe Price (Nasdaq: TROW), General Electric (NYSE: GE), Wal-Mart (NYSE: WMT), McDonald's (NYSE: MCD), Alcoa (NYSE: AA), American Express (NYSE: AXP), Boeing (NYSE: BA), Caterpillar (NYSE: CAT), Cisco Systems (Nasdaq: CSCO), Chevron (NYSE: CVX), DuPont (NYSE: DD), Walt Disney (NYSE: DIS), Home Depot (NYSE: HD), Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM), Intel (Nasdaq: INTC), Johnson & Johnson (NYSE: JNJ), Kraft (NYSE: KFT), Coca-Cola (NYSE: KO), 3M (NYSE: MMM), Merck (NYSE: MRK), Microsoft (Nasdaq: MSFT), Pfizer (NYSE: PFE), Procter & Gamble (NYSE: PG), AT&T (NYSE: T), Travelers (NYSE: TRV), United Technologies (NYSE: UTX), Verizon (NYSE: VZ), Exxon Mobil (NYSE: XOM).



Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Did You Notice the Housing Growth

The latest Housing Starts data from the U.S. Census Bureau's Department of Housing and Urban Development showed housing market growth against the prior year period. That is the growth that I have been forecasting here against a tidal wave of criticism for nearly a half year now. There it is, manifest before you, so deal with it detractors!



Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.



Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Did You Notice the Housing Growth?

Through most of this year, I’ve been forecasting the turn in housing that is unfolding now before the eyes of all. Yet, I’ve faced a tidal wave of criticism from the herd, the same cattle that bought deep into the real estate bubble when I was screaming warnings to deaf ears. So, as the government reports the turn from contraction to growth, I’m making sure to remind detractors where they heard it first.



The Housing Starts data for July showed a 1.5% decline versus June of 2011, but the level of activity at an annual pace of 604K, still measured 9.8% higher than last year. The prior year comparables have suddenly gone from challenging to easy game. That’s certainly due to the expiration of the tax credit program in the spring of 2010, and the absence of incentive driven activity in the 2010 comps now.



As you can see by the month-to-month comparison, which is seasonally adjusted, it does not reflect a generally robust recovery in housing. But, it does reflect growth, a point I tried desperately to make time and again this year. More recently, I have been qualifying those growth forecasts for the full year of 2011 to the risk of political bumbling with regard to the debt ceiling and the risk of US sovereign debt rating downgrade. Thus, it is now unclear whether the remainder of the year will be strong enough to provide for full year growth, but it will be close to it. I think I can say with certainty that the second half of this year will provide growth over the second half of 2010 across housing metrics.



Take note also of the Building Permit results, which indicate activity is still on pace for gains. In July, Building Permits ran at an annual rate of 597K, 3.2% short of the revised June level of activity, but still 3.8% better than July of last year. Housing Completions also performed well on a year-over-year basis, running at an annual rate of 636K, which was both above this June (569K) and last July (581K).



It’s important to note as well that single-family home construction, excluding multi-family projects, performed relatively well. While Starts were 4.9% below June’s activity, Permits ran 0.5% higher and Completions were 6.1% above the previous month.



On a regional basis, the best Housing Starts news was seen in the Northeast region of the country. Starts were up 34.7% over June, and 27.6% over last July, but much of the gains were in multi-family projects. Single family starts increased 7.5% over June, but were down 15.7% against last July in the congested Northeast. However, permitting was down in the Northeast, except for in single-family projects. Permits were 18.3% lower than June, while 7.9% short of July of last year. Single family project permitting was up 2.9% against June, but down 16.3% against July of 2010.



Starts activity was especially soft in the Midwest, where they measured 37.7% short of June of this year and 17.4% below July of last year. Single family starts were down 22.6% against June and 14.5% against July of last year. Starts in the West and South were less robust in change, with the South seeing a 5.6% increase and the West seeing a 3.0% decrease.



The big take-away from the report was missed by every major publisher, that we have turned the corner in housing. We will come close to seeing yearly growth for 2011, and we will certainly see the second half of this year outpace the second half of last year. Whether housing double-dips in the near-term or not may be more closely tied to the government’s inability to provide further stimulus to a still ill economy. In other words, recession renders all housing bets void.



Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).



Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Real Estate Insights from Homebuilders and Us in August

The National Association of Home Builders (NAHB) reported its Housing Market Index for August. This is a measure of homebuilder sentiment, and as you might expect, it has reflected a miserable mood for an extended period. However, this month’s report offered some insight from the mouths of builders and inspired some theorizing on our part as well.



Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.



Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Real Estate Insights from Homebuilders and Us in August

The NAHB Housing Market Index held at a miniscule mark of 15 in August, reflecting the ongoing misery of homebuilders. In the past, we’ve noted that this measure should lag other metrics tied to Real Estate, and it has generally missed the recent slight rebound seen in other measures. We see the reason for this as two-pronged. One big reason is that the new home market should lag existing home sales recovery, simply due to the degree of distressed property and related value available in the overall market as a result. Secondly, the index surveys a broad range of home builders, including a significant number of smaller distressed operators, who may never enjoy recovery. As we’ve mentioned previously, this creates opportunity for larger well-capitalized and often publicly traded builders to gain market share. But any enthusiasm seen in those larger builders will be watered down by the many smaller builders expressing their negative views in this survey.



Before we get to the insight we’ve garnered from the latest report, let’s review the data details. First of all, a reading of 50 would reflect a positive mood, so at 15 the index really does portray the pure misery of construction. On a regional basis, a better mood was seen in the Northeast segment index (+4 to 19) and West (+1 to 15), while the South held steady at 17 and the Midwest fell 2 points to 10.



The weakness actually reflects improved current conditions being offset by reduced expectations for the future. Home builders saw better traffic in August, with that component index gaining a point to 13. They also rated current sales conditions better, with that component index gaining a point to 16. As one might expect, and as seen across several consumer sentiment measures, the component index measuring builder expectations for sales conditions six months down the road deteriorated two points to 19. We can mostly blame Washington for this, with some attribution going to S&P and European economic issues, in my view.



One intriguing insight offered by the HMI was that 41% of respondents indicated that they had lost sales contracts due to buyers’ inability to sell their current home. This speaks to the bifurcation of our economy, between the employed and underemployed. So, this is an example of the unemployed impact on the broader marketplace, where it impedes the fluid economic progression of the employed, or the healthy market participants. But, where an old home must be sold cheaper than preferable, a new home is also acquired at better value, so I’m not sure the argument here is not limited to the psychological.



This does not speak to another factor holding up the employed from buying homes, and that is uncertainty. The employed remain worried about their own job security, which they see tied to overall U.S. economic health. This drives concern about the purchase of a home, because if the employed man or woman’s own independent situation changes they could be left without means to maintain their progressive or newly extended lifestyle. Another important concern of the employed and capital unconstrained is their worry about the future of the real estate market, specifically the risk of losing value post closing. Nobody wants an underwater mortgage or to lose value, despite its being tied to a tangible asset with utility.



I heard a real estate player on Bloomberg radio suggest that if our government or private organizations could alleviate that concern, suppose by insuring against the risk of real estate value decline, then that might lead an important number of prospective buyers off the fence and give traction to the real estate market. But this does not play to the capitalist tune; instead the government should find ways to normalize market conditions by alleviating uncertainty where it can manage it. Given that the U.S. government is now capital constrained, creative ideas like the aforementioned may be impossible anyhow.



If record low interest rates and deeply discounted home prices from their peak cannot bring buyers to the floor in a more significant way, perhaps only time will, as market factors like lending and employment heal. In other words, the housing market might not be capable of healing in a meaningful way until the economy does, and so the effects of direct stimulus are limited. Still, the disruptive relics of the real estate bubble, including the inventory overhang, must be cleared to allow economic improvement to more effectively flow through to real estate.



Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).



Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Home Builder's Enthused by Economists' Forecasts

The latest Housing Market Index data reported by the National Association of Home Builders (NAHB) in conjunction with Wells Fargo (NYSE: WFC) seems to reflect a more hopeful mood among residential builders. While this report does not yet illustrate a healing new home market, it still offers positive reinforcement for real estate prices and sales growth views.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Home Builder’s Enthused by Economists’ Forecasts

After dipping three points in June, on spring buying season hopes that went unfulfilled, the Housing Market Index rose two points in July, to a mark of 15. It’s still a sad level on an absolute basis, as 50 marks break-even between good and bad conditions and expectations. Yet, as students of securities markets know, change in trend and velocity of growth matter to stock movement, so investors in the shares of home builders should also find the opportunity I see for hard real estate. That said, as far as the home builders go, I still believe nimble trading and selective stock investment are appropriate. In other words, stock performance may vary from builder to builder, especially around earnings season when reality is compared against hope. Still, generally, I also see rise for the industry’s shares in 2011, barring catastrophic U.S. government failure to pass debt ceiling legislation in time.

It should be understood that new construction may lag existing home sales growth, given the constraints that are now well-embedded in the marketplace (tight lending, distressed property inventory). Still, it appears to me that home builders are prospectively contemplating a housing outlook that is shifting from contraction to growth, albeit miniscule year-to-year appreciation from a low relative base of housing sales.

This seems apparent based on the details of the Housing Market Index Report, which shows builders reporting the traffic of prospective buyers at about the same level as in June (component index reading of 12). The important driver of the overall index gain is the same one that drove early year improvement, hope. The HMI component gauging expectations over the next six months jumped seven points to a mark of 22 in July. My feeling is that this also pulled the view of current conditions higher among builders, as that component inched upward two points to 15. So I think builders are well aware of the many economists and industry organization forecasts seeing a turn toward year-over-year sales growth in or around the second half of 2011.

As far as regional results go, the most confidence was found in the South and West parts of the nation. Each of the two regional indexes saw two point improvement, with the South doing a bit better at a mark of 17 and the West still languishing at 14. The Northeast actually posted a two point decline to a mark of 15, and the Midwest improved just a point to 12. So, the most prospective markets exhibited the greatest change in hope.

As always, I remind readers that this index includes many smaller builders who are in a tougher spot than large well-capitalized builders. Their mood is going to be inherently worse than the larger builders, yet their voice is loudly heard in this data. This must be kept in mind when looking at the absolute level of misery the readings announce. In conclusion, I view the positive change here the most important takeaway, and believe it is supportive of my case for improving home prices and home sales through the rest of the year, as it is based on informed survey participants. Finally, I continue to qualify all positive forecasts against the risk tied to the U.S. government’s negligent handling of our nation’s credit rating, which is tied to the debt ceiling legislation and pending default on debt payments.



Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.