Housing stocks have skyrocketed after being left for dead (XHB)

REUTERS / Larry Downing

• Housing stocks are on fire after bruising in 2018.
• Popular stock exchange funds filled with major homebuilders like Lennar and D.R. Horton are almost 20% since the beginning of the year – even if some of the underlying data is dull.
• Analysts and economists are encouraged by what they see as a relatively solid backdrop.
• Watch the trading of the S & P Homebuilders ETF live.

Housing stocks have managed to recover from the depths of deadly sales last year, even as the underlying industry data leave much to be desired.

It's not difficult for investors to see how easy it is for homebuilders' giants, such as Lennar and DR Horton, to rebound after diving in late 2018. They both jumped about 20% this year, outperforming thus the market as a whole. The S & P Homebuilders ETF, meanwhile, recorded a similar gain.

Analysts and economists monitor the space to explain some reasons for this return.

First, homebuyers worry less about the threat of rising interest rates after the US Federal Reserve announced that it would stay away from the rest of the world. ;year. Lower mortgage rates are also seen as an incentive for buyers to return to the market. The 30-year fixed rate mortgage rate this month has fallen to its lowest level since February 2018.

And the stocks of home builders themselves have been perceived as falling too fast and too far. At the December low of last year, the group was down 35% from the peak of 2018. Moreover, it's the beginning of the very important spring sales season.

Thus, while a gap has emerged between the impressive gains of the shares this year and some dismal data such as housing starts, the sentiment of homebuilders and the price of homes, badysts believe that the situation general housing is not yet collapsed.

"People have left the group for dead," said Jack Micenko, a housing badyst with financial services firm Susquehanna, during an interview last week.

"It was thought that housing had been durably altered by rising rates in the second half of the year.This seemed more like a break than something permanent."

Yet, the data does not seem very inspiring. House prices rose at the slowest annual rate in four years in January. A month later, housing starts reached their lowest level in almost two years. And in March, a measure of the sentiment of homebuilders was unchanged, with slightly missing estimates.

But the data is not all bad. Single – family home sales jumped in February to reach their highest level in almost a year, up 0.6% from the same period a year earlier. This measure tends to be sensitive to mortgage rates.

"Although the housing data has been a little weak, they are not yet problematic," Jonathan Golub, chief credit strategist for US equities at Credit Suisse, said in a note to his clients Monday.

He cited the table below, which shows that housing starts are down, but not dramatically.

Swiss credit

Some badysts say demand in some US housing markets is improving.

Bank of America Merrill Lynch badysts recently visited three major residential construction markets in Texas to badess the evolution of demand. They were encouraged by visits to Dallas-Fort Worth, Houston and Austin.

"What is more significant to remember, is that demand has re-accelerated in 2019, especially at affordable prices," wrote badysts John Lovallo and Peter Galbo in a message addressed to customers last week. "This theme has been consistent across all the markets we have visited since the beginning of the year."

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