JBL: Home Sweet Home

There's nothing like news you don't expect. KB Home (KBH) issued a warning about cancelled home orders, and Toll Brothers (TOL) announced that orders for new homes fell 21% in the first quarter and warned of a weaker year ahead. Then housing numbers came out much better than expected, up 14.3% from December and 4% from a year ago. This apparent discrepancy perplexed a few analysts who believed we were starting to see a decline in the real estate market.

I believe the explanation is very simple. January was a very mild-weathered month, and the builders took advantage of this to get an early start on spring orders. Either way, whether we are at a top in the housing market or are on our way down, money will be leaving real estate looking for a home. Every sign still points to the fact that the Fed accomplished its goal of slowing down the demand for adjustable-rate mortgages, thereby orchestrating a soft landing.

The conditions are ripe for a solid year in the market, barring a catastrophe -- man made or otherwise. Interest rates should stop rising by late spring, unemployment is extremely low and wages are increasing. I also believe the slowdown in home prices will benefit the market: In 2001 when money was no longer rewarded in the stock market after a great bull run, it found a home in real estate. That situation is about to reverse. Money always goes where it is rewarded, and when real estate stops offering the best return, money will go to where it's rewarded, and that will be the stock market.

Meanwhile, the savings rate has been negative, but that doesn't take into account the increased value of people's homes. When consumers stop seeing their net worth increasing because of rising home values, they will start saving once again.

These two things will greatly help the stock market, along with the shares of two retailers I own.

To watch John Layfield's video take of this column, please click here.