7/17/2012
By David Urani, Research Analyst

More Articles by David Urani

Home Sales Still Climbing Steadily

Homebuilder Confidence Back Up

Market Valuation Entering "Fair" Territory

Here's an interesting situation; we got a blowout NAHB/Wells Fargo Housing Market Index (a measure of homebuilder confidence) that rose to 35 from 29 versus expectations of 30. This is the highest level for the index since March 2007. Pretty impressive stuff, and it was spread broadly across the four major regions. Notably, this index tracks housing starts well so it's an indication that we can expect more home construction.

Yet, guess who's trading red today? The homebuilders. For one there was a downgrade of a couple of the builders earlier but still you would think this index would offset that. I think what you're seeing here is an industry that has already built up a good amount of expectation and this is somewhat of a knee-jerk sell-on-the-news reaction.

Personally I have been a little bit in the skeptical camp that housing could keep up the momentum so for me this index is quite a surprise. Yet, at current levels the stocks have to live up to some hype, and going into the second half of the year I wonder how increased new home inventory will mesh with an expected increase in pre-owned supply after a recent thawing out in the foreclosure pipeline.

David Urani
Wall Street Strategies