This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Overvalued Home Builders Face Earnings Hurdle

NEW YORK ( TheStreet) -- On Wednesday the National Association of Home Builders released its Housing Market Index for January with an unchanged reading at 47, ending the winning streak at eight consecutive months and below the neutral 50.

The NAHB indicates that conditions in the housing market are much better than they were a year ago with an increasing number of geographic markets showing signs of recovery. The pending fiscal cliff was blamed for a pause in this improving climate. The possibility that Congress may limit the mortgage interest rate deduction is a growing concern for the home builders. The same difficulties continue to impede the housing recovery; persistently tight mortgage credit conditions, and difficulties in obtaining accurate appraisals.

On Wednesday afternoon the Federal Reserve Beige book indicated that residential construction expanded or held steady in eight of 12 Federal Reserve Districts, which correlates with the pause in the NAHB HMI survey.

This morning we learned that housing starts rose 12.1% in December to an annual rate of 954,000 units with the important single family starts up 8.1% to an annual rate of 616,000. This better-than-expected data still lags the rise in the NAHB HMI. This new family starts data is not in the graph.

When I wrote 4 Downgrades Hit Home Builder Sector on Dec. 19, 50.3% of all stocks were undervalued according to www.ValuEngine.com. Today this measure is down to 43.5%. On Dec. 19 we showed that 12 of 16 sectors were overvalued and today all 16 are overvalued, eight by double-digit percentages. The consumer staples sector is the most overvalued by 24.6% with construction in second place at 19.2% overvalued.

I have been tracking the PHLX Housing Sector Index (HGX) as my benchmark for the construction sector, and HGX has overbought daily and weekly chart profiles.

The daily chart for HGX (181.42) shows this index well above its 21-day, 50-day and 200-day simple moving averages at 175.66, 168.26 and 146.19 after setting another multi-year high at 183.82 on Jan. 9. My semiannual value level is 152.09 with a monthly pivot at 175.89 and weekly risky level at 186.50. HGX is up 5.9% so far in 2013 setting a multi-year high at 183.82 on Jan. 9. HGX is up 146.3% since its October 2011 low.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
DHI $26.36 -0.06%
KBH $14.94 0.64%
HOV $3.35 4.70%
LEN $47.50 0.69%
AAPL $131.86 -0.14%

Markets

DOW 18,126.12 -36.87 -0.20%
S&P 500 2,120.79 -2.69 -0.13%
NASDAQ 5,097.9760 -8.6170 -0.17%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs