The most recent housing sector data was bullish for the homebuilders as well as for residential real estate investment trusts (REITS) and existing home realtors.
Here is the data for November:
Existing home sales rose by 0.8% month over month. The year over year decline was reduced to just over 7% suggesting the bottom is in;
Single family housing starts rose 18% month over month and 9.3% year over year;
Multifamily rose 6.9% month to month;
Housing starts were most numerous in the South;
Building permits fell 2.1% month over month as multifamily permits fell.
Here is the take home message from the data. Homebuilders remain in the driver’s seat. And while the multifamily statistics suggest weakness, in reality they are bullish for residential REITs as the supply for apartments will shrink and keep rents steady. I don’t expect rents to rise too much, though, as there is still plenty of supply and many renters may decide to take the plunge into buying a home while mortgage rates remain lower. And that's good for inflation which should help to keep yields and mortgage rates on the lower end.
Bond Yields and Mortgage Rates Remain in Bullish Territory
The U.S. Ten Year Note yield (TNX) is consolidating below 4%, which is very bullish for the housing market. Even more bullish is the fact that TNX continues to trade inside its Bollinger Bands, a sign that the market is not overheated.
In addition, note the bullish effect the fall in bond yields has had on the S&P 500 index (SPX), which is listed in the middle panel of the price chart. The RSI for TNX is at 30, which suggests that a consolidation in yields is likely soon.
Mortgage rates are still below 7%, which is very bullish for the housing sector.
The homebuilder stocks are very overextended. You can see that the SPDR S&P Homebuilders ETF (XHB) is very overbought (RSI above 70). On the other hand, upward momentum in the sector is starting to reignite. ADI and OBV are still moving higher as investors who missed the rally, which I noted was likely to happen, here, are playing catchup.
The bullish tone in housing has extended into the residential housing market as well. Aside from apartment REITs, this sector also includes REITs which specialize in single family home rentals. This is a rapidly growing part of the market which should continue to expand over time. ADI and OBV are in a bullish posture here too.
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