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Are Housing Stocks Going to Increase?

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Are Housing Stocks Going to Increase?

June 22 2015, 08.05am GMT


The outlook for housing stocks remains moderately bullish following a late rally on Friday with analysts expecting more good news in the economic data to be released this week.

280,000 jobs were created in May while the average hourly earnings increased by 3 cents to $24.87, showing an increase of 0.3% month to month. Year to date earnings increase by 2.3% and these figures indicate an increase in consumer spending which is good news for the housing stocks sector.

The report on existing housing sales, due out today, is expected to show an increase in sales of 210,000 units over the April sales figure of 5.04 million.  Lennar Corp, the second biggest home builder in the U.S., reports on the fiscal quarter ending May 31 on Wednesday. According to Zacks Investment Research, the consensus EPS forecast for the quarter is $0.65, a growth of 0.04 over the same period last year.  

There are very positive signs of an increase in building activity with permits for future home construction having peaked in May to an almost eight year high. An interesting aspect of these figures is that plans for multi-family housing units increased by 24.9% while single family homes only increased by 2.6% for the same period. The rental rate on multi-family property developments has grown to be almost 9% higher than the 2008 peak, making this an attractive investment.

The difference between the rate of growth in multi-family units as opposed to single family homes is reflected in housing stocks statistics. Stocks of building material supply companies have performed better than those of single family home builders as the building material companies have benefited from the increased activity in the construction of multi-family housing units.

Indicative of this trend is Vulcan Materials (N:VMC), a building materials supplier, whose stocks have risen by 35.8% this year. Meanwhile, Masco (N:MAS), the home improvement and building products company, is up by almost ten percent in the same period.

A further reflection of the difference being felt between home builders and building material suppliers is indicated by the S&P 500 homebuilding index [SPLRCHOME] which is up by just 3.7 % for the year. In contrast, the PHLX housing index (HGX) which includes builders, building material suppliers and mortgage companies is up by a respectable 7.8%.

Recent economic data with regard to wages, jobless numbers and moderate GDP growth have provided the impetus for an increase in housing stocks. The sustainability of growth in this sector is however very much dependent on continual improvement of the wage and employment numbers. The GDP figures due out Wednesday will provide a very good idea of what to expect going forward.


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