Most of the housing market reports that you see in the news still come out on the down side. Generally speaking they are. Resales continue to be soft with MLS inventories hovering at high altitudes and builders are struggling with unsold homes and have cut back production. As an exception, a few areas are relatively stable or even on the upswing.
When you experience weakness in the numbers, you don't buy stock in that industry, right? Typically that's the way it is. However, in the last couple of days investors have decided it's a good time to purchase home builder paper. Their prices have been dragged way down this year due to the depressed market conditions and the difficulties the residential mortgage sector is going through. So they are pretty cheap now, ripe for the taking.
But you don't buy stock just because it's low. Another reason you'd embrace it is because you believe that the industry has solid basic fundamentals in place and is about to stage a nice recovery. And that's what the investors are evidently seeing and feeling. Large-cap builders with strong balance sheets like Pulte, Centex, Lennar and D.R. Horton are warmly welcoming the interest in them again and can't stop smiling as they've watched their values rising between 3 to 7%.
Just yesterday I wrote a post about the residential real estate investors now returning to the market which is a clear sign that the pros are seeing something that is worth their time. When you add the cautious climb of the builder stocks to that, maybe there is light at the end of the tunnel after all. One analyst reminds us that historically these stocks do rally well before the stats catch up to the fact that a genuine recovery is under way.