Housing Stocks What Are They & Why Are They Important

adam_woodsYour Biggest Investment

For most people, buying a home is the largest investment they make. That is why I watch housing stocks like a hawk. Housing stocks tend to move in lock-step with the broader housing market. Except they tend to precede the housing market by 6-24 months (and sometimes longer). Meaning, when the housing market crashed in 2007-20011, nearly every major housing stock stopped going “up” in late 2005 and 2006. Then in late 2011 and early 2012, all the housing stocks bottomed and began to soar. Very shortly thereafter, the housing market turned higher and has not locked back. After that big move housing stocks, on average, have been moving “sideways” for the past 12-18 months which more or less reflects the stagnation we have seen in the housing market.

3 Ways You Can Track The Housing Market

1. Housing ETF’s

The easiest way for you to track the housing market is for you to look at exchange traded funds (ETFs) that track housing stocks. The two most popular are the XHB and the ITB. The XHB tracks homebuilders while the ITB tracks the U.S. home construction market. ETF’s are a great tool that allow investors access to a specific area of the market without taking on a lot of risk associated with owning one stock (lousy accounting, poor management, or other issues that may adversely affect one stock and not the whole group). Additionally, owning an ETF allows investors to easily move in and out of that ETF anytime they want. The good news for the housing market is that both the XHB and the ITB are in strong uptrends and are only a few percentage points of hitting fresh multi-year highs! That should bode well for the housing market.

2. Home Builders

Another way to track the health of the housing market is to look at individual housing stocks. Since there are so many housing stocks – I prefer to focus on some of the largest and most well-known housing stocks that are liquid and institutional quality names. A few that I watch are: TOL, MTH, DHI, PHM, LEN, KBH, & HOV.

3. Ancillary  Housing Businesses

Another way to analyze the health of the housing market is to look at how secondary companies are performing. Meaning, stocks that make their money from the housing market- Namely: Home Depot (HD), Lowe’s Companies (LOW), Sherwin Williams (SHW), Whirlpool (WHR) etc. It is also bullish to see these stocks trading at/near new 52-week highs. Yet another bullish cap in the housing market’s hat.

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