Data don't show a housing boom but a slow and halting recovery is still good news

01/20/2012 1:22 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Investors looking for a breakout in housing sales are disappointed with the data on home sales and housing starts released today and yesterday. That’s why shares of homebuilders such as Lennar (LEN) are down—by 2.5% in this instance—today. The recent huge rally in stocks in the sector has left them vulnerable to profit taking on anything less than stellar news.

It’s not, however, that the news in the last two days is bad. It does indeed argue for a recovery in the sector. But that recovery isn’t going to be a moon shot but rather a slow and halting recovery. For the patient, a sell off here on disappointment that the recovery isn’t going to be faster would be a chance to get into a sector that indeed does seem to be on the mend.

Today’s numbers on sales of existing homes showed a 5% increase to a 4.61 million annualized rate from a 4.39 million annualized rate in November. Economists surveyed by Briefing.com were projecting an increase to a 4.55 million annualized rate. Inventory levels continued their slow improvement, falling to 2.38 million in December from 2.38 million in November. That’s the lowest inventory level since March 2005. As a percentage of annual sales inventories fell to a 6.2-month supply from 7.2 months in November.

Yesterday’s housing starts numbers showed a drop in starts to 657,000 in December from 685,000 in November. Economists had expected a decline to 673,000 in December. Starts on single-family homes, which are less subject to month-to-month timing decisions than multi-family starts, climbed to 470,000 in December from 450,000 in November. (Multi-family starts dropped by 13% in December.) That wasn’t enough, though, to increase the number of homes under construction. That number dropped to 233,000 from 235,000 in November.

The sector is a long way from a boom, but I think it’s now possible to talk about a bottom in construction activity without sounding like you’ve been too long at Happy Hour.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Lennar as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

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