defied the stock market's sell-off Tuesday on news that new-home
construction rose to its highest rate since July 2008.
IShares Dow Jones U.S.
Home Construction (
) rose 2.51% to 20.39.SPDR S&P Homebuilders (
) added 2.15% to 25.93. Both regained their 50-day moving
averages after pulling back from new highs. They're both in solid
up trends and sport Relative Strength Ratings of 95 and 93,
respectively. That means they're outpacing 95% and 93% of the
market. As this year's market leaders, they've rallied 73.31% and
53.56% year to date.
Housing starts rose by 3.6% in October from September, while
the market had expected a drop of 4.5%, the Commerce Department
reported. Total starts were 41.9% higher vs. the year-ago period.
Single-family homes fell sequentially by 0.2%, but were still
35.3% higher year over year.
Existing home sales rose 2.1% to a 4.79 million annual rate in
October, according to Ned Davis Research.
Inventories fell 1.4% to 2.14 million, or 5.4 months' worth of
supply -- the fewest number of homes on the market since December
Home prices rose in every region across the U.S. The median
home price soared 11.1% over a year ago -- the most in nearly
seven years -- to $178,600, owing to increased sales of
"The housing market is clearly undergoing recovery," Joseph
Kalish, chief global macro strategist at Ned Davis Research, and
his colleagues wrote in a client note. "Moreover, we think the
recovery is still in its early stages and should last for several
However, "difficult appraisals, tight lending standards and
shortages of lots in certain areas remain obstacles to the
recovery," Kalish and his colleagues noted.
After an impressive gain this year, homebuilder stocks in ITB
and XHB could be vulnerable in 2013, says the Jerome Levy
Forecasting Center in Mount Kisco, N.Y.
"Moreover, with the homeownership rate still in decline, the
recovery in housing construction is likely to be tilted toward
multifamily units," said "The Levy Forecast" released last week.
"This does not play to the strengths of most of the major
publicly traded homebuilders, whose focus is on construction of
Top Housing Investment Idea
Steven Roge, a portfolio manager with Beverly, Mass-based R.W.
Roge & Co. with $200 million in assets under management,
recommends playing the housing recovery withApollo Residential
), which currently yields a fat 16.8%. The New York-based firm
invests in U.S. residential mortgage assets and offers agency and
nonagency residential mortgage-backed securities. Agency bonds
are mortgage-backed securities issued by government-sponsored
firms such as Ginnie Mae, Fannie Mae or Freddie Mac. Apollo's
shares appreciated 7% since its initial public offering in July
2011. It appears to be looking for a bottom at its 40-week moving
average line, 13% below its all-time high.
Roge wrote in a client note: "We have the opportunity to
purchase AMTG at a 30% discount to book value. AMTG targets 60%
(asset allocation) in agency (bonds), 30% non-agency, and 10%
"The agency position has pre-payment protection, so any policy
change with regard to forced refinancing, would leave AMTG's
portfolio relatively unaffected.
"The market for agency bonds should have a floor under it. The
Federal Reserve announced quantitative easing 3 (QE3) this past
September. Under this plan they have the ability to purchase $40
billion in mortgage-backed securities every month."
Major Indexes End Flat On Bernanke Comments
SPDR S&P 500
) edged up 0.04% to 139.19. It regained its long-term 200-day
moving average after surging 2.02% the prior session.
PowerShares QQQ (
), tracking the 100 largest nonfinancial stocks on the Nasdaq,
added 0.03% to 63.80.SPDR Dow Jones Industrial Average (DIA)
ticked up 0.06% to 127.71. Both QQQ and DIA fell below their
200-day lines two weeks ago, which is very bearish.
In a speech at the Economic Club of New York, Federal Reserve
Chairman Ben Bernanke said the fiscal cliff was a big threat to
the economy and urged Congress to resolve it and the debt-ceiling
"Bernanke held out the prospect that if lawmakers can deliver
fiscal clarity -- a plan for long-term deficit reduction without
harming the recovery -- the New Year could be a very good one for
the U.S. economy," said Nigel Gault, chief U.S. economist at IHS
Global Insight. "We agree with Bernanke that the fundamentals for
stronger growth are falling into place. But we doubt that we'll
have full fiscal clarity early in 2013."
"We'll probably have a short-term agreement with some limited
tightening, to avoid going off the cliff, plus an agreement to
put a longer-term plan in place later in 2013," Gault added. "So
we suspect that the uncertainty over fiscal policy will linger
well into 2013."
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