Monday, April 28, 2008

Housing stock: looking good

- I just read a really frightening piece entitled "The Coming Mortgage Meltdown." And I think to myself, "Yeah, but the market has to know all about this and more." So I have to wonder, am I seeing things? C'mon, Mr. Market, don't play tricks with me. No these aren't tricks, they're charts, and charts, unlike politicians and Fed statisticians, don't lie.

So I punch out the chart below, XHB (I follow this chart closely), and darned if it doesn't look as though it's turned bullish. XHB is the S&P's Homebuilders exchange traded fund. Could the homebuilders be turning bullish in the midst of a time of countless foreclosures and widespread bearishness in housing?

XHB turned up in January, and as of today I see that XHB has rallied above both its 200-day and 50-day moving averages. That doesn't seem logical or possible, not in the current state of real estate pessimism. I need more proof.

The D-J US Real Estate Index Fund is turning up as well. It turned up from a January low, and as of today's close, IYR is above both its 50-day and 200-day moving averages.

Could the stock market be telling us that it has discounted the worst of the housing disaster -- and that real estate is fated to turn up in the months ahead? That would be counter to all the bearish housing talk that is now filling the newspaper and TV. Is this possible? Yes, it's possible. And what a bullish shocker that would be.

This whole real estate situation is so important for the economy and so opposite to what we read and hear. ICF the iShares for the Cohen & Steers Realty Major Index Fund. This Index represents the relatively large and liquid real estate investment trusts. The chart is as bullish as it can be. Hey, the sun may be rising on the whole housing and real estate picture. If so, you probably won't hear about it until maybe this summer. Remember, the market is always first to see a turn.


Blogger Robert said...

I recall the quote from someone famous -- "The market can remain irrational longer than you can remain solvent."

I think the market is absolutely clueless on how bad this is going to get, what with mortgage rate resets peaking in Q3 of this year. Once resets occur, NODs and foreclosures will obviously get much worse into '09, forcing banks to discount the tons of homes they have now, and will continue to get as people either can't or WON'T pay for rapidly depreciating assets. No way builders are at the bottom here, since the shear # of homes coming back on market will drown everyone, including builders. Jingle mail is becoming the norm and inventory will kill new home builders.

11:16 AM  
Anonymous rootvg said...

You know as well as I do that prices have to revert to the mean. People can't continue buying homes (or cars, or big screen televisions or anything else) they can't afford.

Just because people who live in Alamo and Danville and elsewhere in the SF Bay Area have told themselves they can get away with living beyond their means on a long term basis doesn't mean they actually can.

There are some very serious, gut wrenching macroeconomic changes coming down the pike. The pace of Baby Boomer retirements is becoming relentless, as predicted. All these geezers are looking to cash out their homes and retire in the Cayman Islands, but there are only so many Generation Xers with inherited money or professional credentials that would permit them to buy or even finance a million dollar home.

You're all looking for the greater fool, and I suppose that's what a lot of our economy has come to be about but I'm telling you there are only so many. I won't be one of them.

When you get to where you're going lose the property you bought because your mortgage flipped and have to sell it short, come see me. I'll be there.

5:32 PM  
Anonymous Anonymous said...

You wrote about East Palo Alto housing market a while ago. I wonder if you've been following what's going on there now. I was shocked to see on Trulia how many listings (non-repos) are really low - back to early '99 prices and before. For instance 2569 Annapolis St listed at $285,000 with prior sales history of 630k July 06 - or - 1028 Alberni St listed for 289k prior sales history of 500k Jan '05; 600k Aug '05 and 420k Jan '08. Pretty shocking losses and no one seems to be writing about it. Lakewood area in Sunnyvale is also way down. What are your thoughts?

1:06 AM  
Anonymous Anonymous said...

The rich will get richer and the poor will get poorer. No more Middle Class. How will we Survive ?

11:36 PM  

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