Real Estate - Great News For Housing

Aug. 02, 2017 1:46 AM ETDHI, HD, KBH, L, LEN, PHM, SPY, TOL, XHB1 Comment
Markos Kaminis profile picture
Markos Kaminis
13.19K Followers

Summary

  • Construction spending was reported down in June, worrying real estate enthusiasts.
  • However, the weakness was attributed to the public sector, not private or residential construction.
  • Also, the data was for June, and recent indications about July and August are strong for housing.
  • Furthermore, data from a recent manufacturing report implies strong demand for housing construction materials and supplies.

I gleaned some great news for housing today. Sure, Construction Spending data was not so hot (for June), but the weakness was all due to public sector spending. Also, recent indications about the summer are strong for housing. Furthermore, data gleaned from the manufacturing sector implies significant demand for construction materials and supplies.

Let's start with what reads poorly at the headline. Construction Spending was reported today and the data did not look good. But, it's important to note that the data was for the month of June. Recent indications about July and August are stronger, as implied by the significant increase in the Pending Home Sales Index, which I just reported on - see that here. As a result, sales of existing homes should show increases as reported through the summer months.

Construction Spending slipped, though, by 1.3% in June from May. The year-to-year pace of spending slipped as well, to 1.6% in June, from 3.8% in May (revised from 4.5%). If not for yesterday's pending home sales data, this news might have proved disastrous for housing stocks.

Housing Securities 08-01-17
SPDR S&P 500 (NYSE: SPY) +0.2%
SPDR S&P Homebuilders (NYSE: XHB) +0.9%
ProShares Ultra Homebuilders & Supplies (NYSE: HBU) -1.0%
PulteGroup (NYSE: PHM) +2.0%
D.R. Horton (NYSE: DHI) +1.2%
K.B. Home (NYSE: KBH) +2.1%
Toll Brothers (NYSE: TOL) +2.3%
Lennar (NYSE: LEN) +1.8%
Home Depot (NYSE: HD) +0.2%
Loews (NYSE: L) +1.0

Don't sweat the data at all though. Through the first six months of the year, construction spending was still up 4.8% against the same period in 2016. And, all of the trouble was due to a decrease in public sector spending. Public construction was down 5.4% in June on a seasonally adjusted basis. Eventually, the Administration's infrastructure promises should come through here, and help public sector spending drive this data higher, we hope.

Real estate enthusiasts are more interested in how the private sector faired. Spending on private construction slipped just 0.1% from May. Residential construction edged lower by 0.2%, while nonresidential construction inched 0.1% down from May. So that's not so bad.

Furthermore, in my study of the ISM Manufacturing Index for June, I noted exceptional strength. The data implied strong demand for housing construction materials and supplies.

In conclusion, let's not jump to conclusions because of a headline. All indications are that the housing sector is doing just fine, and actually strengthening. The biggest issues for housing are all due to burgeoning demand, and include: an inventory shortage, a labor shortage and rising prices of supplies and materials. That's a good thing. For more of my work on real estate, follow the column here at Seeking Alpha.

This article was written by

Markos Kaminis profile picture
13.19K Followers
Markos N. Kaminis generated a 23% average annual return on "Strong Buy" stock selections over 5 years while working as a Senior Equity Analyst on Wall Street. As an internal whistle-blower, I sacrificed absolutely everything to do the right thing. And despite being an eyewitness and victim of terrorism on 9-11, I am currently volunteering at a busy border crossing helping Middle Eastern & North African refugees, most displaced by war or other horrors, to land safely in Europe. Despite my life experiences, I still have hope, and believe that we must persevere with patience (forgiveness), tolerance and love. I have determined to struggle for the better good of my brethren rather than for myself, and you'll see that play out over the course of the rest of my life. But I worked far too long and hard to become an excellent stock-picker to not incorporate this work into the fold. Markos N. Kaminis generated a 23% average annual return on "Strong Buy" stock selections over 5 years and ranked 2nd among a group of 60 analysts in-house as a Senior Equity Analyst over a seven-year period at Standard & Poor's. After proving his value in-house, he was promoted into a special role as an idea generator, supporting the portfolios of institutional clients as well as driving performance within S&P's recommended lists and portfolios. At times, Markos was responsible for up to 10% of the firm's entire "Strong Buy" list and is due a great deal of credit for the group's outstanding performance during his tenure. Markos followed a group of 30-40 Small and Mid-Cap firms, and was charged with finding new buy and sell candidates across industry sectors. He generated a 23% average annual return over five years on his "Strong Buy" recommendations, and 26% over three years ended 2004. He was ranked 1st of 60 analysts in-house for his "Strong Buy" performance over 4 years (2nd over 5). 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Markos also warned of the real estate market collapse and the financial crisis in the early days of his blogging. What I personally want you to know about my plans: After witnessing the worst of Wall Street firsthand and having the ideal vision of my childhood career choice corrupted by reality, I almost switched to full-time charity work at age 40 and still have plans for several non-profit endeavors. The future is somewhat unknown, and I am open to employment offers for portfolio management or other ideas. While continuing to publish regularly, I expect to begin work on several book ideas that I believe are important for business, for our nation and for society. I may put  my stock selection skills, earned through blood, sweat and tears, to better use, and to make my own way. I would like to give investors something rare, a dignified partner who can manage money with integrity and a clear conscience about the degree of due diligence behind investment decisions... someone who cares more about your money than your wife. I hope readers will become followers of my column here & at my blog, so that when our numbers are substantial, we might start an investment fund or two. Prior to his Wall Street career, Mr. Kaminis spent time in the back-office, as a mutual fund accountant, where he managed for a time the work of two men. Before this, from age 11 to age 25, he worked as a carpenter's apprentice and carpenter with his father, in both commercial and residential projects. Mr. Kaminis has an intimate knowledge of the real estate (undergraduate degree in Real Estate and Finance) and construction market, as well as the restaurant industry. However, as a generalist stock analyst, he showed the ability to learn any and the most complicated of industries in short time - and he gamed every challenge presented to him. Mr. Kaminis earned his MBA at the Katz Graduate School of Business at the University of Pittsburgh, and his BA at Temple University in Philadelphia. However, Markos has been studying the stock market since age 13, when he determined his career path. He made his first investment at age 16, and funded much of his undergraduate education with the proceeds of his investing success. Mr. Kaminis continues to keep busy forecasting the economic path and securities market activity. Markos is considering the eventual start-up a long/short capital appreciation hedge fund. 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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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