Is Housing Sentiment Starting To Turn?

Is Housing Sentiment Starting To Turn?

“Davidson” submits:

The National Assoc of Home Builders reported Feb 2015 HMI at 55, 2pts lower than Jan’s 57. Surprise, surprise!! No one complained that this was a disaster. Most are taking about how good they are doing in Apple with AAPL hitting new highs and how they are continuing to avoid oil related issues expecting either a 2nd dip with some still indicating that they expect $20bbl-$30bblpricing.

Apple Discussion: As of 1/31/2015 AAPL represented 3.9% of the S&P 500. APPL’s ~20% price move since 1/1/2015 represented 0.78% to the SP500 which has moved only 1.02%. (75% of SP500 since 1/1/2015 is due to AAPL.) This shows that Apple’s shares have at the moment and had most of last year an unusually large impact to the SP500. This is why using indices, even the highly respected SP500, for benchmarking is often criticized for good reason if used over too short a period. We all want to do well, but when indices are distorted by just a few single issues, we need to take this into consideration. Investing using a diversified portfolio is always part of being prudent.

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It is indeed a surprise that no one has complained that ‘HMI has slipped’ and that investors ‘should be worried’. One can never call when market psychology turns more positive, but this certainly feels like this is what is happening. We saw this with the last series of employment reports. I saw many positive comments about employment ‘turning the corner’ and I did not see a single negative comment. I am sure there were some, but on CNBC they were not highlighted. It was almost as if some one switched the ‘positive slant signal’ on it felt that different from a couple of weeks prior.

My own observations since early 2009 have reflected the many positive economic trends one could see in the weekly and monthly data. Today’s HMI(Housing Market Index) continues the trend first seen Fall 2011. New Single Family Starts uptrend continues and is accelerating. This is a very good sign with the leverage a single new home has on economic activity.


Such is housing’s impact that I expect a substantial improvement in US GDP the next 5yrs or so. 5yrs represents the expected remaining  period of our housing cycle. If this holds, rates should rise, mortgage lending  should show considerable expansion and construction employment, general employment, vehicle sales and etc should all reflect considerable improvement.

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.

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