Time for a brief bit of snark about the housing sector and housing stocks due to my contrarian reaction to the very recent bullish call on housing and housing stocks from Goldman. First, a trip briefly down Memory Lane to provide context:
From The Street.com about a bearish call Goldman made six months ago, Stay Away From Homebuilder Rally, Goldman Sachs Says, which contains:
Not so fast, says Goldman Sachs analyst Joshua Pollard. While the housing sector may be gaining its footing, the improvements are lagging valuations.
“With homebuilding stocks outperforming the market by 3,500 basis points in the last three months, we would wait for a pullback or a clearer picture that housing is healing quicker than it currently is,” Pollard writes.
That was then, with a huge move up in the prices of housing stocks yet to come. This is now, also from Pollard at Goldman in Goldman Sachs Sees ‘Strong’ Recovery Starting for Housing. Here is the lede from Bloomberg:
U.S. homebuilders are an attractive investment as the housing market starts a “strong” recovery that may drive a surge in new-home sales, Goldman Sachs Group Inc. (GS) said in a report today.
Housing has a “long list of positives,” including rising prices, job growth, supportive government policies and a decline in the so-called shadow inventory of homes, Goldman Sachs analysts Joshua Pollard and Anto Savarirajan wrote in a note to clients. They raised their rating on the homebuilding industry to attractive from neutral.
Does this sound more like a top of the cycle or the bottom of the cycle, given that numerous homebuilding stocks have soared in the past six months? (I know that’s a leading question…)
Here is a LINK to today’s Calculated Risk post on estimated new home sales for June. Please click on the first graph and tell me if you have a high degree of confidence about which the graph will wiggle and for how long you are willing to predict the recent uptrend will continue and if so, how strong any prolonged uptrend will be (and what economic profits are to be gleaned by the builders).
After I completed this post, I saw that Mish addresses this topic today. Here’s a link to his post.
Let’s move beyond housing.
Here was the general mood on Wall Street in January, also from Bloomberg (LINK):
S&P 500 Caps Best Start to Year Since 1987 on Economic Optimism
As most of you likely realize, that was a crash year, and there was not even a recession.
Housing appears to be the sum of all hopes right now in this year, 2012, which has seen the longest consecutive string of consecutive weekly gains for the NASDAQ since— no, not ‘since’: ever.
So, if the U.S. has entered or is about to enter its 48th national recession and if in said recession a recession-average stock bear market of 30% ensures, how can housing prices also fail to drop and drop meaningfully?
Reversal ahead, say within the next twelve months and perhaps much sooner than that?