Jeff Benjamin

Investment Insights: The Blogblog

Jeff Benjamin breaks down the game for advisers and clients.

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

housing market
+ Zoom

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.”

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

Dynasty's Penney: How to stay ahead of the curve

With rapid evolution, financial advisers stand at a unique crossroads. Dynasty's Shirl Penney offers some simple strategies to remain a step ahead of the competition.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

Brian Block's $4 million bonus was tied to a key metric at ARCP

Prosecution rests case in fraud trial against CFO of American Realty Capital Properties.

Edward Jones is winning the Google search war

Brokerage firm's digital marketing investment helps land it at the top of local and overall search engine results, report finds.

Voya's win in 401(k) fee suit involving Financial Engines bodes well for other record keepers

Fidelity, Aon Hewitt and Xerox HR Solutions are currently defending against similar fiduciary-breach claims.

Collective investment trusts getting more attention from 401(k) advisers

The funds are catching on due largely to lower costs and more product availability, but come with some inherent drawbacks.

Vanguard rides robo-advice wave to $65B in assets

Personal Advisor Services, four times the size of its closest competitor, combines digital and human touch.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print