Real Estate Market Bottom 2010
Monday, June 22, 2009 19:21After nearly 5 years of depression, the housing market will likely bottom in 2010. Many of the major home builder stocks have finally broken above 4 year downtrends, while others are showing clear signs of a bottom (pinch me).
Why do we care about stocks? It’s important to understand one of the most fundamental principles of finance – the stock market is one of the the best leading economic indicators. Stocks lead the economy. Remember stocks began to crash in 2000 and late 2007, while the economic recessions began in 2001 and 2008. In housing, the home building stocks peaked in late 2005, yet housing prices topped in the middle of 2006 (Case-Shiller home price data).
KB Homes (NYSE: KBH chart below) has been in steady decline in late 2005. The 4-year downtrend line was finally broken in April. Many of the stocks in this group show similar patterns. A bottom in the home builder stocks should translate into a housing price bottom within 6-12 months.
All three of the home building stocks below have broken out of their 4-year downtrends. Centex (NYSE: CTX), D. R. Horton (NYSE: DHI), and Hovnanian (NYSE: HOV) all broke above in April.
Lennar (NYSE: LEN) is one of the weakest of the group while Toll Bros. (NYSE: TOL) seems to finally be forming a bottom at $16 or so. 
Pulte Homes (NYSE: PHM) is another exception. While the 4-year downtrend remains, the stock seems to be bottoming.
Economic Indicators
Economic indicators are also showing signs of a bottom.
The free fall in single family housing starts has stopped (chart below). After dipping well below the worst levels since the 1991 recession, housing starts have staged the greatest increase since the depression began.
After declining to 1991 recession levels, new home sales also appear to have bottomed in late 2008 (chart below).
After being bearish on real estate for nearly 6 years (admitedly, I was early), the evidence suggests that a bottom is near. A bottom, of course, does not mean the birth of a new bull market. Prices should stabilize and stop going down in 2010.
Home price appreciation does tend to be more of a local story than a national one.Variables such as interest rates, jobs, and population growth will play major roles. Any appreciation in housing would be stifled and short lived in areas which continue to bleed jobs.
Inflation will also effect home prices. Many believe (myself included) that when the broader economy stabilizes, we’re going to experience high, or even hyper, inflation. If the dollar weakens the price of nearly everything goes up as it takes more dollars to buy goods/services. Real Estate, as with most physical assets, can be a good inflation hedge (as long as interest rates can be contained).
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Brian Mallard says:
June 26th, 2009 at 10:26 am
Before real estate market bottom in 2010 happens, I bet early bulls in home building stocks will be flushed out of the market when they think the stock seems to be bottoming now. Early birds always take the poison worms!