With Housing So Affordable, Time to Go Long Homebuilders

The Case-Schiller Home Price Index is just one of the plethora of housing indicators due to be released this week. We bought homebuilders based on low supply and the prospect of high demand. In fact, last week the National Association of Homebuilders released its Housing Affordability Index.

Click to enlarge:

According to the NAHB, housing has never been more affordable in the history of the index. To be sure, the index only covers 1992-2009, but it does account for the housing boom and bust of the 2000’s.

The continued climb in existing home sales beating last month’s blistering pace, is quite bullish for the homebuilding sector. Additionally, St. Louis Fed Chief Bullard suggested that the Fed keep the MBS purchase program open past March. His comments should bolster the perception that homes will remain affordable for quite some time.

Disclosures: Long Hovnanian Enterprises (HOV), Pulte Homes (PHM), Toll Brothers (TOL)

Comments

[The Hammer]

A great deal of affordability is based on these historically low interest rates. If they change and go up there goes the so called affordability argument.
In many parts of the country affordability based on median incomes are not cheap. So do not asume affordability means across every part of the country. some of the 50-60% down areas median incomes to house prices is attractive.

2009 Nov 24 05:12 PM

[market ace]

This seems to be a case of cherry picking one stat that becomes meaningless when faced with reality.

The gov't is still paying people to buy homes and even that program is dying now.

With the unemployment/underempl... rate at 20+% and rising the market is doomed for a long time.

With FNM, FRE and banks turning foreclosures (still running over 300,000 per month for 8 ,omths now) into rental properties back to the borrowers supply is far out pacing demand.

With an estimated 7 million shadow inventory homes now owned by lenders from actual or ultimate foreclosure available used homes are about to swallow any new home market.

With thousands of homes available at $500 and up (with no bidders) the market for new homes is dead for a long time.

Home builder stocks are not the place to be.

2009 Nov 24 05:30 PM

[Dollarhane]

Yes - but do we see interest rates going up any time soon? My consensus guess is no. I agree that there is something to be said that furthering the tax credit all the way into March with low interest rates until then, there might well be some added value in the housing market.

In saying this, although credit may look good from one perspective I know for sure that there is another story behind the curtain. Main street is not completely stricken with the tight spreads that get thrown into the media that Wall Street is enjoying. Small businesses and blue collar workers are still finding it difficult to get that credit line at the bottom...


On Nov 24 05:12 PM The Hammer wrote:

> A great deal of affordability is based on these historically low
> interest rates. If they change and go up there goes the so called
> affordability argument.
> In many parts of the country affordability based on median incomes
> are not cheap. So do not asume affordability means across every
> part of the country. some of the 50-60% down areas median incomes
> to house prices is attractive.

2009 Nov 24 05:36 PM

[Davewmart]

What is the figure? Something like 9% of people who boughta house in the last year are already underwater, and 1 in 7 of people who have a mortgage are in arrears.
Sounds like a solid market to me.

2009 Nov 24 06:23 PM

[Gary A]

Affordability based upon low interest rates may not last. So when they go up your house could lose value. And 11 percent of all mortgages purchased in 2009 are underwater. Alt a is coming.

Still want to talk rosy talk author? Oh, and BTW, a small down cannot be comforting to lenders and investors.

2009 Nov 24 08:25 PM

[Gary A]

Massive alt a defaults start next May. The credit will be history then. People will be underwater in these homes being purchased today unless you don't think we are in a depression.


On Nov 24 05:36 PM JS Partners wrote:

> Yes - but do we see interest rates going up any time soon? My consensus
> guess is no. I agree that there is something to be said that furthering
> the tax credit all the way into March with low interest rates until
> then, there might well be some added value in the housing market.
>
>
> In saying this, although credit may look good from one perspective
> I know for sure that there is another story behind the curtain. Main
> street is not completely stricken with the tight spreads that get
> thrown into the media that Wall Street is enjoying. Small businesses
> and blue collar workers are still finding it difficult to get that
> credit line at the bottom...

2009 Nov 24 08:26 PM

[upgrading HOV]

hov will pass DHI, LEN and catch TOL and KBH
hov sales rised and ceo bullish finally after 3 years of being bearish.
time to buy HOV.. top pick HOV price target TRIPLES in few weeks.

2009 Nov 24 09:36 PM

[upgrading HOV]

HOV, DHI, LEN, TOL, KBH PHM pure plays.
wall st. been down playing housing by colluting with each other.
We know housing is the stock market. yet analysts pump up. google, apple, everyday while they scare all from housing only so you buy google and apple. analysts should all be shot and thrown in jail.
hedge always print bogus fear stories on housing . from here be long housing and ignor any bashers that cnbc throws on show. we know housing is the play... good luck and be long hov.. top pick hov.

2009 Nov 24 09:41 PM

[The EconomicJoker]

Homebuilders are going out of business left and right. What the !@#% is this guy talking about?

2009 Nov 24 11:35 PM

[Vaun]

I can't speak for home builders, but my father is a director for a large construction firm. Right now their numbers still look good and they're making money. However, they're not picking up any new work. They're going to be hit later.

2009 Nov 24 11:47 PM

[Bill S. Friend]

Obviously if you short an issue it makes sense to have someone long to buy the trade...

2009 Nov 25 02:29 AM

[john s. gordon]

existing stock of used homes will be a drag on the overall mkt 4 a long time.
worse in some places than others.
NV CA AZ FL hit the worst.
> jack

2009 Nov 25 08:42 AM

[Chancer]

I have to disagree on homebuilders- unless they are building apartments. I think the nation is overbuilt on: homes, office buildings, malls, and shopping centers. Only apartment buildings will have steady demand for the forseeable future.

The housing bubble was built on demand by borrowers who could not afford the homes they bought; and they are not coming back. They are renters. Demand right now is supported by government programs. What will happen when the tax credit expires 4/30/2010? Will housing fall off a cliff? Will the commercial plunge predicted to begin in Q2 of 2010 scare home buyers? Buyers are rushing to get the $8,000 tax credit. They might save much more in reduced prices after the credit and federal loan support ends.

2009 Nov 25 02:58 PM

[upgrading HOV]

HOUSING is the AMERICAN DREAM.
you bashing only suggest you a hedge that will get creamed knowing housing will regain all. i'm long housing also.


On Nov 24 11:35 PM The EconomicJoker wrote:

> Homebuilders are going out of business left and right. What the !@#%
> is this guy talking about?

2009 Nov 27 07:50 AM

[upgrading HOV]

BUY ALL U CAN NOW.. AVOID HEDGE CROOKS that print bogus stories... american dream is housing.. I'M ALSO long housing..


On Nov 25 04:55 AM chris coonan wrote:

> Your article is ridiculous. Go long homebuilders??? The industry
> has been hit by a nuclear bomb....if anything, it is a wait and see
> if the industry can recover moment. You should look at all the other
> metrics, surrounding the issue.

2009 Nov 27 07:51 AM

[upgrading HOV]

ADDING more HOUSING STOCKS. future is housing.all will regain all GARANTEED... buy all you can now.... ignor any neg. on housing that is all baked in.. BEST to come garanteed. LOADUP NOW. ... before HEDGE do.


On Nov 25 02:58 PM Chancer wrote:

> I have to disagree on homebuilders- unless they are building apartments.
> I think the nation is overbuilt on: homes, office buildings, malls,
> and shopping centers. Only apartment buildings will have steady demand
> for the forseeable future.
>
> The housing bubble was built on demand by borrowers who could not
> afford the homes they bought; and they are not coming back. They
> are renters. Demand right now is supported by government programs.
> What will happen when the tax credit expires 4/30/2010? Will housing
> fall off a cliff? Will the commercial plunge predicted to begin in
> Q2 of 2010 scare home buyers? Buyers are rushing to get the $8,000
> tax credit. They might save much more in reduced prices after the
> credit and federal loan support ends.

2009 Nov 27 07:52 AM

[FDNY RET]

Homes are cheap cause there's a glut on the market and more foreclosures every day adding to it.
They can't build new at these prices!!
Go long Bankruptcy Lawyers in this economy!!--Nothing else!, well maybe soup kitchens!.

2009 Nov 28 05:08 PM

[Tim McPartland]

In order for house builders to be 'buys' the lack of consumer confidence must be overcome. Obviously a person wants to buy builders before the market returns---but a buy here could be a buy to nowhere.

2009 Nov 29 09:15 PM