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What You Should Wait to See Before You Jump into Housing Stocks

By Ian Davis
Friday, December 21, 2007

Housing just keeps getting more affordable.
 
Today, the median-priced U.S. house is more affordable to the median U.S. consumer than it was in late 1990 – when the last bear market in real estate bottomed.
 
And if houses are affordable to the average American, then they are also affordable to the average Canadian or European. Foreigners have seen their currency appreciate by as much as 13% against the dollar – just over the past year.
 
If this trend continues, the housing market may get a boost from overseas investors.
 
The chart below shows the U.S. housing affordability index. The higher the index, the more affordable the median-priced home is to the median-income U.S. family. (Of course, this is a national median, so in some areas, housing will remain unaffordable regardless of what this index is reading.)
 
If the index is at 100, then the median-income family can just afford the median-priced home at current mortgage rates. Anything higher than 100 means that the average family can more than afford the median-priced home at current mortgage rates.
 
Currently, the affordability index is at 118.8 and has risen for the last three months.
 
 
I track five different housing-market indicators: homebuilder valuation, home affordability, supply of homes for sale, homebuilder sentiment, and homebuilder trend.
 
Currently, home affordability is the only quant factor with a "buy" on homebuilders. The remaining four quant factors are all either "neutral" or "sell."
 
I expect more of these quant factors to change to positive readings in the next few months. But until they do, we should continue to sit on the sidelines and watch how this bear market develops.
 
Good investing,
 
Ian Davis




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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
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Gold Stocks 581.56 +3.0% +17.0%
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Symbol Price
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52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
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S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

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Symbol Price
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52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%