Improving Home Builder Sentiment Bullish for Related Stocks

Home builders’ confidence rose in February, according to the National Association of Home Builders (NAHB). The gain, which is measured on a 0-100 scale, reverses a two-month decline, leaving the index just above its November level. At 62, the index is still 10 points lower compared to this time last year. The survey asks respondents to rate market conditions for new home sales presently and over the next 6 months.

Part of the reason home builders are optimistic that the spring selling season will be strong is a decline in the conventional mortgage rate. Since peaking at 4.8 per cent last November, the US 30-Year Fixed Rate slid to 4.4 per cent. The other reason is the strength of the labor market. US employers added more than 2.6 million jobs last year, according to the Bureau of Labor Statistics.

Historically, the relative return of stocks which benefit from new home sales tends to track home builder optimism. This means our nation’s home building-related stocks, like Masco, Owens Corning and Lennar, are poised to substantially outpace the S&P 500 if this historical relationship remains intact. Let’s hope for a warmer spring.