Why UBS predicts a spring fling for the housing market
As the weather warms up, UBS thinks the housing market will follow.
“Looking ahead, we expect a sharp spring rebound in quarterly average U.S. housing starts following the exceptionally frigid winter,” UBS chief U.S. economist Maury Harris wrote in a recent note.
UBS had projected that annualized housing starts would come in at an annualized pace of 1.06 million in the first quarter, and would tally up to 1.15 million over the course of 2014. The actual first-quarter result was well below that. But Harris has not reduced his full-year estimate. Instead, he now expects to see a strong spring snapback as the housing market plays catch-up.
“U.S. housing starts in Q1 were restrained by especially inclement weather…. We are raising our Q2 annualized housing starts forecast to a 1.15 million annualized pace versus our earlier 1.10 million forecast. Also, we are boosting our Q3 projection from 1.15 million to 1.22 million,” Harris wrote.
Andrew Burkly, head of institutional portfolio strategy at Oppenheimer Asset Management, agrees the housing market is about to shake off its winter blues.
“We went through this soft patch over the winter, largely due to the weather. We’ve seen autos largely rebound already, with good numbers in March, but most of the housing statistics continue to be pretty lackluster. So we do think things will start to snap back,” Burkly said.
To express this thesis as a trade, Burkly likes the idea of buying the SPDR S&P Homebuilders ETF (which is commonly referred to by its ticker symbol, XHB).
But Richard Ross, global technical strategist at Auerbach Grayson, is more cautious.
“I actually do think we’re set up for somewhat of a bounce here,” Ross said, “but if we do get a bounce, I might be tempted to sell into the strength.”
The technician points out that the (XHB) is on the brink of breaching its 50-week moving average
“We haven’t gotten a close below that key long-term area of support since 2011. But now we’re staring into the abyss, and should we take that out to the downside, it would generate a confirmed sell signal, which suggests that the primary term would be lower for the first time in five years,” Ross said.
So while Ross does say a pop could be imminent, he thinks that the potential reward in buying housing stocks does not justify the risk.
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