Will housing pull us out of recession again? Bull run on stocks making it look …

Joe Harbert

By Orlando Lee Rodriguez

With US stocks collectively in the midst of their largest Bull Run since 2007, the focus of media attention has been on how far past record highs can the Dow Jones Industrial Average (DJI) and the SP 500 (INX) go this year.

Friday, the SP closed above 1500 points for the first time since 2008, its eighth straight positive trading day. The Dow, meanwhile, closed at 13805.98 on Friday, edging closer to its all-time record high of 14164.53, a milestone reached in October of 2007.

But ever so quietly the performance of the Philadelphia Housing Sector Index (HGX), with strong earners like Lennar Corporation and Toll Brothers, have outdone the Dow, the SP and the NASDAQ combined.

“I have a 12 month hold rating on Toll Brothers,” said Williams Financial Group senior equity research analyst, David Neil Williams. “They’ve got deep management and land acquisition teams in each of their markets. City Living is a nice add, and it’s very beneficial going down the road, but I feel they have sufficient ability to drive their revenue based just off the single family residential sector.”

Toll Brothers who have been extremely active of late in the New York market acquiring $120 million worth of development sites, have seen their stock prices have risen almost 67 percent in the past year. Share prices of Lennar rose 106 percent in 2012 as the company saw net earnings of $679.1 million or $3.11 per share for 2012. Stock of DR Horton, Inc. rose 57 percent last year.

Since being relatively tied on June 22, 2012, the HGX, an index of 20 home-builders  mortgage companies and materials suppliers; has risen by 53 percent. Since July of 2011 the housing sector index has risen by 76.09 percent. In comparison the SP has gone up 11.86 percent, the Dow 16.23 percent and the NASDAQ 18.71 percent.

“People are being driven to real estate in search of returns,” said Joe Harbert, president of the eastern region for Colliers International. “We will see it continue as long as we see volatility in the stock market.”

For 2012 The National Association of Realtors reported a 19.2 percent increase in new single family home sales and is forecasting growth by 42.2 during 2013. That while supply levels have dropped 8.5 percent in December to 1.82 million existing homes, leaving an estimated four and a half month supply available nationwide.
This is the lowest inventory levels have been since May 2005.

“Overall sales are expected to stay on an upward trend,” said Gary Thomas, president of National Association of Realtors in a press release. “The biggest impact of tight inventory is upward pressure on home prices.”

Just like in New York’s class-A office market, demand is outweighing supply for residential homes nationwide, driving up prices and creating demand for new construction and jobs.

“Housing has taken us out of every recession,” said Michael D. Fascitelli, CEO of Vornado Realty Trust at the YMWREA January luncheon. “Construction jobs can’t be out-sourced, they have to be done here.”

Builder confidence, according to the National Association of Home Builders, has also risen, now for for eight consecutive months. According to the US Census Bureau and the Department of Housing and Urban Development, 813,400 housing units were authorized in 2012, a 30.3 percent increase over 2011. Housing starts are up 28.1 percent and completions up 11.4 percent for the year equaling more construction jobs.

“More jobs and more income will do more to support housing demand,” said Mark Zandi, chief economist at Moody’s Analytics. “Mortgage credit in particular will be more ample. I expect the RMBS market to be up and running again.”

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