Wednesday, August 26, 2009

Another Sign Supporting The Housing Bottom

I have taken a lot of flack for supporting the notion that housing has bottomed. To clarify, I don't think it is the type of bottom like you get in the stock market, where home price appreciation is right around the corner. Rather I think that the pace of declines in the housing market has peaked, and that while prices are still soft, sales have certainly picked up and overall I think the worst is over.

I first started talking about this after the NAR Metro Home Sales report. Recently, we got more good news in the form of the much stronger than expected existing home sales report. And today, we get a third supporting datapoint in the July new homes sales report.

New home sales rose +9.6% in July, vastly higher than the consensus of +1.6%. This equates to an annual rate of 433,000 units. Inventories of new homes fell -11.8% to 7.5 months. I'm sure the housing bears will never declare a bottom has been reached, but I think that is exactly how we'll look back at this period.

There was also a positive durable goods report this morning, which showed July orders rose +4.9% (vs. +3.0% consensus), which is the best reading in two years. June figures were revised upwards also.

That durable goods report wasn't enough to keep the market from selling off near the open. The strong new home sales report pulled stocks back into positive territory, but they have since weakened again and all of the major indexes are now back in the red.

My colleague Doug Kass at did a great job of nailing the market bottom in March. Now he is back trying to make another bold call that the market has topped for the year. While anything is possible, I think the market will be higher than today's levels by year-end. But I wanted to pass this along nonetheless.

Asian markets were higher overnight, led by China; the dollar is higher, pressuring commodities; the 10-year yield is lower to 3.44%; and the VIX is only 0.6% higher to 25.08. I would think the VIX would be higher if this selloff is to have any teeth.

Trading comment: I have added a short S&P hedge (SDS) with a tight stop, as I do think the market is due for a pullback after this multi-day run. Yesterday I took some additional profits on our insurance etf (KIE) and added RIMM to our portfolios as well.

Lately, every time I have been looking for a pullback it has only lasted a few days. So we'll have to see if it's any different this time around. I still have considerable cash on the sidelines, so I am willing to wade back into getting more fully invested on the dips.



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