Jeff Benjamin

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Housing recovery? That's old news

But tardy investors could still find some upside; bottom finally pinpointed

Mar 27, 2013 @ 12:46 pm

By Jeff Benjamin

The latest housing market data that got everyone so excited earlier this week appears to be finally catching up to homebuilding stocks and related investments.

In virtually any direction across the homebuilding landscape, property stocks have been screaming recovery for more than a year.

The benchmark SPDR S&P Homebuilders exchange-traded fund (XHB) is up nearly 13% from the start of the year after gaining more than 57% in 2012.

The iShares Dow Jones U.S. Home Construction ETF (ITB) has gained more than 13% this year, following a gain of more than 79% last year. This compares to a solid 10.2% gain this year by the S&P 500 Index, which gained 16% last year.

At the individual company level the gains are equally impressive. Homebuilding bellwether Ryland Group Inc. (RYL) is up nearly 15% this year on the heels of a 132.4% gain last year.

Toll Brothers Inc. (TOL) is up nearly 9% this year and gained more than 58% last year.

And, a relatively smaller player, MDC Holdings Inc. (MDC) is up just over 2% this year, but gained nearly 120% last year.

“Based on what we've seen at the company level and in the aggregated data, we believe that housing bottomed in second half of 2011,” said Tim Holland, a portfolio manager at Tamro Capital Partners LLC.

According to the latest report from the S&P/Case-Shiller home price index, housing prices rose in January at the fastest annual pace in more than six years.

Mr. Holland, who owns Toll Brothers and MDC shares in the two mutual funds he manages, attributed the home price recovery to pure supply and demand fundamentals.

“The recovery was eventually going to happen because we just stopped building houses,” he said. “The housing market was overshot on the way up and then it was overshot on the way down.”

But, despite the powerful performance of homebuilding industry stocks, Mr. Holland admits consumers have been reluctant to believe in the housing market recovery. “We've seen some false starts to the recovery, including in 2009 when the federal government started providing tax breaks to first-time homebuyers,” he said.

Even with the general strength of the homebuilding category, Mr. Holland warns against chasing performance at this point.

Although he has no immediate plans to reduce his holdings in Toll Brothers or MDC, he advised that the sector should be viewed on a stock-by-stock basis.

“Our take on housing is that we're still in the early stages of the recovery,” he said. “But I don't know if the next 12 months will look like the last 13 months, so you will want to focus on companies with lots of land and lots of capital.”

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