homebuilder stock recovery 2014

The Mysterious Case of Home Building Stocks in 2014

Home Building stocks are at an interesting point in 2014. It feels like they’ve been chopping sideways forever. And since 2007 they’ve been lagging the S&P-500.

See for yourself…

xhb vs spy 2007-2014

The home builder stocks got hit hard in the financial crisis and haven’t really recovered.

To further complicate the picture, the macro-economic and demographic headwinds seem at odds with the recent data coming out of individual home builders. Plus, home builders have been lingering for so many years, are they overdo to outperform?

Well, before jumping to any conclusions lets look at some facts…

Has the Housing Market Recovered in 2014?

There’s a lot of conflicting information about whether or not the home builder stocks have recovered. Just by looking at the graph above you can see they haven’t recaptured their prior highs.


There are a lot of interesting data points about the state of the American housing market and the American economy at large in 2014. They aren’t exactly encouraging…

So as you can see by clicking on the links above, there are some serious headwinds to the housing market in 2014. And these top down arguments aren’t easy to ignore.

To further obfuscate the state of a 2014 housing recovery, let’s look at some technicals.

Home Building Index (XHB) Stock Charts:

The intermediate term weekly chart is actually looking relatively constructive. The weekly RSI leaves a little something to be desired. But it could be carving out a bullish cup-and-handle pattern. Take a look

xhb long term weekly chart

XHB might have been carving out a bottom over the last few years. But will it hold? (Click to Enlarge)

If we zoom in a little further, the picture is only complicated. XHB has failed to recapture recent highs.  And while home building stocks have failed to get moving, with lagging RSI, they aren’t totally at risk of falling off a cliff either.

xhb 1 year daily chart

XHB has failed to make moving after trying to break out on recent highs. (Click to enlarge)

One of the other interesting charts worth watching is that of the materials ETF, XLB. It stands to reason that if housing input costs are rising – the margins of home building companies will come under pressure. As you can see, that might be a real concern…

xlb materials long term weekly chart 2014

Rising material prices might be another challenge for new home sales. (Click to Enlarge)

But before getting overtly bearish on the market for housing stocks in 2014, let’s take a quick look at the results from some of the leading home builder companies in 2014.

PulteGroup and DR Horton both reported strong earnings last week. Both companies also had an increase in net new home sales compared to the same time last year. Were the disappointing housing data points in March really just the result of bad weather?

It’s hard to say. But the positive commentary from housing executives might offer room to be optimistic.

Housing market conditions remain favorable,” said Donald R. Horton, CEO of DR Horton. His counterpart at PulteGroup echoed this optimism. “We continue to believe housing is in the early stages of a multiyear recovery benefiting from low interest rates, low inventory and continued relative affordability of homes, and with consumers looking for well-located houses and displaying a clear willingness to invest in those features they value most,” said Richard J. Dugas.

Motley Fool

And from the PHM quarterly report

PulteGroup has gotten off to a strong start in 2014, with first quarter results showing gains resulting from our efforts to drive better pricing, operating margins and pretax earnings in support of higher returns on invested capital,” said Richard J. Dugas, Jr., PulteGroup Chairman, President and CEO.  “Our first quarter gross margin of 23.8% is up 580 basis points over last year and 60 basis points over the prior quarter, marking our ninth consecutive quarter of gross margin expansion.”

Housing is a huge part of the economy. But for now I would say the jury is still out on the mysterious case of the home builders recovery in 2014. Stay tuned…

And By The Way: If you’re looking for more information on how to analyze the stock market and improve your investment decision making you might enjoy my free eBook below. You’ll also get weekly updates and tools for helping you improve your investment ideas.

Leave a Reply