Thomas Kee's  Instablog

(La Jolla, CA) Stabilization in the Housing Market is a good sign, but it is not enough.  We have been expecting stabilization since late 2008, and now it is here.  From the oversold conditions and the absence of demand that existed late in 2008 and early 2009, the recovery that is happening right now is welcomed. 

This is not a growth recovery.  This is a return to parity, a return to a downward sloping curve.

Nonetheless, stability in the Housing sector will likely continue for at least the next few quarters.  In fact, Stock Traders Daily expects home prices to increase between now and the first quarter of 2010.  That stability will bring buyers into related stocks. 

Suppliers like Home Depot (NYSE: HD) and companies that build and sell homes, like Hovanian (NYSE: HOV) are likely to fair well as housing prices trickle up.  Arguably, the end of the first time home buyer credit of $8000 could dampen the perceived recovery, but state programs aimed at doing the same thing could keep the ball rolling.  Stock Traders Daily expects these industries to fair well, if housing prices continue to rise at an expected slow pace.

However, new construction is another story.  Large scale projects are still likely to be on hold.  Expected temptations will exist, but new construction is unlikely to occur aggressively between now and the first quarter of 2010.  Therefore, raw materials companies providing lumber and cement, who are reliant on construction to grow, are likely to remain under pressure.  Wyeth (NYSE: WY) and Masco (NYSE: MAS) provide lumber and wood to the housing industry.  Cemex (NYSE: CX) is a large supplier of Cement. 

Stock Traders Daily believes these companies will have a hard time growing revenues at the same pace as the suppliers mentioned above, and would be cautious on this group. 

Interestingly, a hedging opportunity exists as a result.  Interested investors could buy the first group, and short the second, thus hedging their bets on the housing market going forward.

In any case, the stability in the housing Market is likely to continue, but only for a short while, and then declines will resume.  Excellent trading opportunities exist, but long-term investments are ill-advised. 

DISCLOSURE: NO POSITIONS