Forward to friendHome Builders' Poll Offers Confirming Signal
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by Adam Lass
I was going to dwell on the various reports rolling in that would help us guess as to whether or not the Fed will cut rates come January 31. This was supposed to help us understand the relative value of investing in U.S. REITs, builders, et al.
But sometimes the job gets a little simpler. Sometimes, rather than trying to determine the state of all things real estate via some exotic mathematical calculation or mimetic extrapolation, one should instead simply ask a builder how he is doing.
Better yet, how about a bunch of builders? That's exactly what Wells Fargo (WFC:NYSE) and the National Association of Home Builders just did: they polled the NAHB's membership with three simple questions:
"How are sales?"
"How is buyer traffic?"
And "how do you expect sales to be in six months?"
Can it really be that simple? Not quite -- they did do a little math to convert the answers into an index, but the results are really quite interesting.
A year back, the NAHB/Wells Fargo Housing Market Index stood at 57. If you'd like to put a dollar figure on that, a year or so back (give or take a couple of weeks), the Home Builders SPDR (XHB:AMEX) stood at $45.81.
By last September, the HMI was down some 47% at 30. This bottom actually trailed the XHB's bottom in August at $28.78.
Now the Builders Poll is looking up: January's figure just came in at 35, a rebound of 16%, while the XHB is up some 30% at $37.50.
Okay, maybe they are a little slow to get with the program, but the builders do seem to be getting happy about things.
WOW readers may also be getting very, very happy soon too, as that service’s model portfolio is quite exposed to the upside in real estate, with calls against Weyerhaeuser (WY:NYSE), the aforementioned XHB, Toll Brothers (TOL:NYSE), and even Wells Fargo (WFC:NYSE), the country's biggest originator of mortgages.
Analysis of the XHB's action was our leading indicator. The Fed’s next move will be our localized catalyst. And now we are seeing all sorts of confirming signals.
Looks to be a real winner to me.