Investors looking for signs of confidence in the real estate sector can try reading the tea leaves by looking at the terms people search for online: As a gauge of consumer sentiment, Yahoo Finance ran tests for online search terms and found that “mortgage rates” tumbled more than 200 percent, while the term “new homes” increased almost 1000 percent. That may mean that people searching for new homes have so much money to spend that they’re not concerned with mortgage rates. On the other hand, it may be a sign that folks are just window-shopping and not ready to commit any cash.
Using a crystal ball of sorts, we look at the latest read on pending home sales (the data tracks home sales with signed contracts, but for which the sale hasn’t yet closed). For the month of February, pending sales fell 0.4 percent from January, but were up 8.4 percent from the year prior. Realtors say a lack of supply is keeping many potential buyers from desired deals.
Jason Lail, manager of real estate research at SNL Financial, said the uptick in jobs and economic growth helped homebuilders beat the S&P 500 6-to-1 in the year leading up to March 2013. Even though the group reaped the benefits from the recovery in 2011 and 2012, he said, it will be dependent on continued improvements in the economy for further out-performance.
Not all parts of the country are performing equally: Data released by the U.S. Census Bureau indicate the Southeast is leading in growth, while the Northeast is lagging.
In terms of companies, homebuilder D.R. Horton is heavily exposed and has more than $2.3 billion in new orders in the Southeast and South Central regions. On the flipside, the company is proceeding with caution in the California market due to the state of the economy there. Pulte Group said it’s seeing exceptional demand in its Florida markets. Meantime, Toll Brothers has the most exposure in the lagging northeastern part of the country.
For those of you looking to invest in a potential real estate boom, you might consider a homebuilder ETF. It offers diversified exposure to the industry through homebuilder, home improvement and material company stocks. IShares Dow Jones US Home Construction and PowerShares Dynamic Building & Construct are two examples.