The Numbers Lie: Housing is Strong!

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The housing market is coming back to life.

Millennials are moving out of their parent’s basements and starting families. Inventories are tight. Homebuilders are back in action after years of sitting on their hands. It’s prime home shopping season and buyers are out in droves…

But if you want to profit from the rebirth of the homebuilder sector, you need to ignore some bad press.

New home sales fell by 73,000 in April, well below consensus forecasts.The new data helped the financial media draw up some especially scary headlines about a home sales collapse. I guess we’re just supposed to ignore the fact that the April figures were a half a percent higher from the same period last year, even if they were off by double-digits from the red-hot March print. We can’t allow facts to get in the way of a good narrative.

The new data helped the financial media draw up some especially scary headlines about a home sales collapse. I suppose we’re just supposed to ignore the fact that the April figures were a half a percent higher from the same period last year, even if they were off by double-digits from the red-hot March print. We can’t allow facts to get in the way of a good narrative.

Truth is, if you’re worried about the health of the housing rebound after just one month of bad data, you probably aren’t paying attention to the stock market.

Despite reversing off its highs yesterday morning, the iShares U.S. Home Construction ETF (NYSE:ITB) is still up 20% year-to-date. Compare that to a gain of just 7% for the S&P 500…

Toss one month of bad data out the window. Our thesis is simple – and the stock market agrees.  The homebuilders have reached a critical tipping point.

Up until late last year, owning homebuilder stocks was dead money walking. Even after displaying renewed strength in 2017, investors are stuck on the same old housing narrative the financial media have pounded into our heads for the better part of a decade.

You might also recall that the U.S. homeownership rate recently dipped to its lowest level in more than 50 years. That doesn’t sound bullish at all. Heck, maybe no one will ever be able to afford to buy a house ever again!

But the charts are telling a much different story. Homebuilder stocks are in rally mode once again. And it’s time to pay close attention.

Remember, we’re a full decade removed from the housing bubble. And after ten years of little to no substantial gains from the homebuilders, it’s finally time for these stocks to get moving once again. Last year, a deluge of data made it clear that the housing market had finally stabilized. Yes, there are outliers—like outrageously high prices in San Francisco. But for most of the nation, the housing market is reverting to something that resembles normalcy.

A massive, secular shift is now in the works for the once-underperforming homebuilders. You’ve already seen the iShares U.S. Home Construction ETF (NYSE:ITB) walk all over the S&P and post new post-housing crisis highs.

As the homebuilders make up for lost time, they’ll reward savvy investors. Lucky for us, price leads the news. And there are plenty of homebuilder breakouts to choose from. Yesterday’s nasty data dump should create a nice buying opportunity for some of the strongest trends in the sector.

Sincerely,

Greg Guenthner
for The Daily Reckoning

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