We are seeing more signs that the housing industry is bouncing along a bottom.
Housing starts declined 1% to an annualized pace of 581,000 last month. Building permits fell 1.8% to an annualized pace of 560,000. Conversely, Home Depot (HD) raised its full-year earnings guidance. (For more analysis on HD’s numbers, read Home Depot Weathering Downturn.)
The numbers follow a survey showing increased optimism on the part of builders. The National Association of Home Builders/Wells Fargo Housing Market Index reached 18 last month, its highest level since June 2008.
Behind the numbers are some cross-currents that often occur as a sector tries to find its legs.
Though housing starts fell, the drop reflected fewer multi-home units being built. Single-family starts were actually up slightly last month.
On the other hand, both builders and realtors are concerned about the first-time home buyer tax credit, which is due to expire on November 30. Re/Max International Chairman Dave Liniger predicted yesterday, “If the stimulus ends, or isn’t even extended, you will see the market drop again.”
In other words, despite the gradual improvement, a cloud of uncertainty continues to shade the entire real estate sector. This means investors should continue to use a high level of caution when looking at stocks such as D.R. Horton (DHI) and AvalonBay Communities (AVB). Investors should also be cautious with banks that have a high level of exposure to depressed markets, such as Zions Bancorporation (ZION).
Read the full analyst report on “HD”
Read the full analyst report on “DHI”
Read the full analyst report on “AVB”
Read the full analyst report on “ZION”
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