3 reasons to buy housing stocks

March data shows a number of improving indicators, and that means things are looking up for housing stocks and home builders

By InvestorPlace Apr 27, 2010 6:56AM

housing market improvingSo far, 2010 has been very profitable for housing stocks. Take the SPDR S&P Homebuilders ETF (XHB).  This ETF is up over 30% year-to-date thanks to strength in its component companies. Or take building supply company Eagle Materials (EXP), which is up almost 50% since March 1. The Eagle Materials earnings report yesterday trounced forecast and sent the stock soaring.

 

But that’s only half the story. Bears are scoffing at soaring valuations for homebuilders and calling for a crash in housing stocks along with a rise in foreclosures and stalling real estate sales.

 

So is the bottom going to fall out of housing? Probably not. The fact is that we're most likely amid the beginnings of a sustained recovery -- and here are three top reasons why:

 

Red hot new home sales: New home sales improved in March at the fastest single-month rate in 47 years, with a 27% jump. Yes, part of this has to be attributed to a rush to squeeze in sales before the tax credit expires, but a jump like that can’t only be driven by an check from Uncle Sam.

 

Existing home sales equally strong: Existing home sales jumped 6.8% in March, according to the National Association of Realtors. Sales year-over-year were up 16.1%. That’s a great sign because March is the real kick-off of the real estate season. As the weather improves and as consumer spending continues to firm up, we should see strength across the rest of the spring and summer months.

 

Housing permits strong: You may scoff at these lagging indicators, but look at permit filings – the best gauge of future construction. Building permits jumped to 626,000  in March -- the highest level since October 2008. Homebuilders wouldn’t be putting up new units right now if they didn’t have faith prices and sales were moving in the right direction.

 

For the top 5 reasons that the housing market is recovering, click on this link and visit InvestorPlace.com.

 

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