Is it time to think about housing?


This article is not a recommendation and is intended for educational purposes only.

Housing stocks have been neglected this year, but that may change soon.

First, the industry seems to be in a good shape in terms of supply, demand and fundamentals. There’s a shortage of abodes out there and prices are on the rise. Most builders have also reported strong results for several quarters. There’s little excess leverage or debt, which is one of the benefits of surviving a bubble like we saw last decade.

Next, price action: The Philadelphia Housing Sector Index rallied almost 17 percent in the last three months of 2017 — its best quarter since early 2012 — as investors anticipated a brighter future. It then slid more than 7 percent at the start of this this year, but the pullback simply has brought the index back to its 200-day moving average. That’s often viewed as a long-term trend indicator.

Philadelphia Housing Index
Philadelphia Housing Index ($HGX) w moving averages

Then you have timing and the calendar. Springtime’s always important for homebuilders, and this year could be the busiest since last decade’s bubble. On top of that, some events in the news will likely draw attention back to the sector before April’s done:

  • Today: NAHB’s homebuilder confidence index slipped 1 point to 69, which was blamed on bad weather.
  • Tomorrow brings housing starts and building permits
  • Monday, April 23: Existing home sales
  • Tuesday, April 24: New home sales and the Case-Shiller index of house prices. Earnings from PulteGroup (PHM) and supplier Masco (MAS).
  • Thursday, April 26: Earnings from top builder D.R. Horton (DHI) and suppliers USG (USG) and Mohawk Industries (MHK).

In conclusion, housing had a rough start to the year, but the trend is positive and events on the horizon may lift sentiment in coming weeks.

Did you miss our special report on the sector two weeks ago? Click here for more.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.