In a surprising twist to the battered stock market of 2008, an unlikely star has risen. Through the middle of February, shares of the S&P Homebuilders Sector Spider (XHB)(the fund that tracks publicly traded companies in the residential construction business), have already risen 7 percent this year. The gain comes as a surprise to many given the state of the housing industry along with the 7 percent decline in the S&P 500 this year.
Undoubtedly, this has some people asking the question: is the worst of the housing slide behind us? The answer varies depending who you ask, but some investors are pointing to signs that indicate the housing industry has seen its worst days and is now poised for an eventual rebound. For example, Bill Miller, portfolio manager for the Legg Mason Value Trust is predicting a replay of the early 1990’s recession. Back then, a mild contraction in the market followed a housing boom and banking crisis. Similar to today’s market, many of those stocks fell drastically for a short period of time but quickly rebounded. People who invested in those stocks at the bottom saw remarkable gains when the economy recovered.
Still, others point to signs that say we are not out of the dark just yet. Despite dropping prices and lowered interest rates, the National Association of Realtors reported that housing inventory was at a 10- month supply in December based on the current rate of sales. A 10-month supply indicates that it would take 10 months to sell all homes on the market based on the current sales pace — assuming no other homes were placed for sale. While it may be too early to gauge the spring selling season, some builders and real estate agents have pointed out that the year is off to a lackluster start.
While the verdict on the housing market is still undetermined, reports of an upswing in stock prices is welcome news to many people. Whether the housing market has reached its bottom is yet to be determined. But at the very least, investors are dropping hints that brighter days for the housing industry may be here before the end of 2008.
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