Expecting Improved Housing Starts

Economist are expecting April home starts to come in better then expected. According to Bloomberg, housing starts increased by 2% to an annual rate of 520,000 new homes.

This piece of economic news should be pretty well received for the overall market and especially for Homebuilder ETFs, such as iShares Dow Jones Home Construction Fund (ITB) and SPDR's S&P Homebuilder Fund (XHB), as a glimmer of good news.

Last week was the first week since the start of the March rally that resulted in a negative return, with the S&P 500 index closing at 882.88, down approximately 11% for the week. Last week's decline was a result of investors overall feeling that corporation earning ratios were skewed and the news of GM's and Chrysler's dealing closings dealt a vicious blow to the March market rally. The Housing Start numbers could prove to be just the right prescription to get the markets back on track.

The real estate market has been plagued with poor unemployment numbers, as well as escalating foreclosures, since 2007. In spite of all of this turmoil, these two funds have been able to participate in the March rally.

It appears that the stars are starting to align for these two funds; between March 6^th and May 15^th, XHB, returned 48.7% and ITB returned 58.14%.

Also, both funds' 50 day simple moving average(50 day) has crossed above its 100 day simple moving average(100 day), which is usually a signal of a positive trend formation. XHB's 50 day (11.33) crossed the 100 day (11.31) on May 8^th and ITB's 50 day (9.38) crossed its 100 day (9.31) on May 12^th.

The April home starts will further fuel hopes of a rebounding economy, especially if mortgage applications and jobless claims, due out later on this week, cooperate with better then expected results. These two funds could gain a second wind to continue this explosive rally from March lows.

Disclosure: No positions

Comments

[Accuriz:]

The seasonal uptick in housing starts will be a good indication that the housing market is stabilizing. However, until the oversupply of new construction is absorbed in Arizona, Florida and Nevada housing starts will remain weak. We need to examine housing starts by regions of the country and focus on the level of foreclosures in the markets affected the most by over development.

May 18 10:36 AM

[Jimmy K:]

Ira, "expecting Improved Housing Starts" or;
"lowest number of housing starts on record in history"?

May 19 03:02 PM

[HardwoodFlo...:]

Huh, must have written this before the news came out this morning.

May 19 03:16 PM

[User 417202:]

Well, there you go. It's the 20th of May and we know the real story, "Housing Starts at the LOWEST Point on RECORD". If you are in the business, you knew this already. It's just ugly out there.

How about an $8,000.00 tax credit for move-up home buyers? Why discriminate? Is that "fair housing". Many of the 1st time homebuyers we see want to use the credit as equity. Get real. Offer the insentive to those who can perform.

May 20 11:59 AM

[marketman54:]

The feel good sentiment for the markets and the home industry is total BULLSH*IT!

The housing industry is screwed for the next 5 years or more. 7 to 10 million people are gonna be out of work. How many more homes will go into foreclosure and come on the market.

New home buyers still have to come up with 20% down, how many people have this kind of money??

You can't sell your existing home, so you can't move up.

What about the problem with the Chinese drywall? The big home companies are gonna get sued and put out of business for using this product.

Housing industry, what housing industry?????

May 23 12:11 PM