Would you believe that professional fund managers are seeing a turnaround in the home building industry in the very near future, (I’m talking about only a few months, not years) and are buying up homebuilder stocks like the bottom has already been reached?
OK, let’s be honest, most of the news out of Wall Street during February was bad. It seemed like every time President Obama’s staff opened their mouths over the past few weeks, the stock market tanked. Part of the reason for that was obvious to all of us – not enough substance and way too much fear from the candidate who ran on “hope.”
But things changed over the weekend. Finally, we have started to hear some hope and substance from the Administration with regard to the housing crisis. Over the past few days, and especially on the talk shows on Sunday, spokespersons for the Obama administration and talking heads alike seemed pleased with the proposal, and underscored how the new housing plan unveiled by the President in Phoenix last week will help turn things around.To wit:
Bloomberg said this weekend: “Obama’s plan, the biggest federal foray into real estate since the Great Depression, … may help as many as 9 million homeowners lower their payments by modifying their loans or refinancing into new mortgages.”
On CNN with John King on Sunday, HUD Secretary Shaun Donovan said: “We have millions of families across this country through no fault of their own that are in trouble on their mortgages,” he said. “Let’s remember that every time there’s a foreclosure, a next-door neighbor loses value in their house too… by stopping foreclosures, this benefits everyone.”
Donovan and others from the Administration made the news cycle rounds this weekend sounding for the first time like they actually believed this plan would work. Even that modicum of positivity will help us immensely with consumer sentiment.
But more importantly, it seems that professional managers of Mutual Funds are now feeling more hopeful as well, as evidenced by their buying up homebuilder stocks at a record pace.
Buying up homebuilder stocks? Are they crazy?
In Tim Middleton’s column for MSN/Money last week, Middleton reported that homebuilder stocks such as LEN, CTX and KBH are being bought up in an accelerated pace by professional managers who understand the housing market perhaps better than all of us.
Middleton quotes Parnassus Fund manager Jerome Dodson as saying: “…Sometime in the next three months stock prices of the homebuilders are going to move higher,” justifying his reasons for buying homebuilder stocks now, and not waiting till 2010.
If Fund managers are buying Homebuilder stocks now, expecting to see their investments “pop” before June, what does that tell us? Fund Managers are constrained by the calendar—they have to show their gains within a calendar year, so this is not a “value” bet, or a “long-term” investment idea. These guys are planning to see these stocks go up this year!
So if the smart guys think that it is wise to buy stocks of new home construction companies now, what does that mean to us and our businesses? In my view it is simple – it means that they believe inventories will be reduced to a place this year, that new home construction will come back on-stream this year as well.
And that, my fellow real estate professional, is cause for rejoicing.
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