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This Housing Recovery Has Legs: Michael Santoli

Bernice Napach
Daily Ticker
This Housing Recovery Has Legs: Michael Santoli

The housing market appears to have recovered from the depth of its decline. Toll Brothers (TOL) reported a whopping 46% jump in its latest earnings report and Home Depot's (HD) earnings soared 18%. Today the National Association of Realtors reported that April existing home sales surged to their highest level in more than three years.

There is some bad news mixed in with all of these housing numbers, April housing starts recently plummeted from a 48-month high and applications for home mortgages dropped for the second week in a row.

So will the housing recovery continue and spread, or slow down?

Related: Robert Shiller: Home Prices Will Remain Relatively Stagnant for 10 Years

Michael Santoli, senior columnist for Yahoo! Finance, says the housing recovery seems to have a new leg based on a scarcity of supply coupled with low interest rates and growing demand.

“This can feed on itself for a while,” says Santoli, “not just with regard to Toll Brothers, which makes higher end McMansion-type houses, but across the industry.”

Santoli says not to expect a steep rise in prices from here despite a “bottleneck of demand.” And don’t expect all housing-related stocks to surge.

While Home Depot beat expectations and saw its stock surge 65% over the past year, Lowes (L) earnings disappointed, and its shares fell slightly as a result. The share price is up about 19% from a year ago—far less than Home Depot shares.

Related: This Housing Recovery is Different: Investors are Now Big Buyers

“Home Depot is the better operator with better locations,” says Santoli. “It did everything right paying out higher dividends, and buying back a ton of stock.” But he cautions investors not to expect big returns from housing stocks in the future. “They’ve given you a lot already.”

The Fed could be a key player in what happens to the housing market now. Its policy of near-zero short-term interest rates coupled with purchases of billions of dollars worth of Treasuries and mortgage-backed securities has kept long-term interest rates—and mortgage rates—at historic lows. Investors may get a better idea of when the Fed could start to retreat from that policy at this morning’s testimony by Fed Chairman Bernanke before the Congressional Joint Economic Committee.

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