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Homebuilders Hurt by Fed Policy


NEW YORK ( TheStreet) -- We have been seeing improved housing data over the last two months, but the FOMC threw cold water on the housing market Wednesday when Fed Chairman Ben Bernanke hinted that quantitative easing could begin to be unwind in mid-2014. U.S. Treasury yields and hence mortgage rates moved higher.

My benchmark for the housing market is the PHLX Housing Sector Index (HGX) (177.41) which is the first close below its 200-day simple moving average since Dec. 20, 2011. On May 20 the housing index set a multi-year high at 210.01 up 22.6% on the year. Currently the index is up just 3.6% year to date, and is 15.5% below the May 20 peak.

The National Association of Home Builders Housing Market Index rose eight points to 52 in June, above the neutral 50 mark for the first time since April 2006. This is a clear sign that homebuilders are seeing improved demand for newly-built single family homes.

The NAHB projects that total housing starts would top the million mark this year for the first time since 2007. Part of the renewed demand for new homes is a low inventory for existing homes.

Housing starts rose 6.8% in May to a seasonally adjusted annual rate of 914,000 units primarily due to increased production of multifamily homes. While builders remain concerned about the cost and availability of building materials, lots and labor, bad weather was blamed for the dampened pace of single-family housing starts, which came in at 599,000 versus that important 600,000 pace. The NAHB expects the market for new homes to continue to rise at a slow but steady path of recovery.

In today's table of stocks eight of 11 are overvalued and all had double-digit gains of 14.0% to 135.8% over the last 12 months. Over the next 12 months three are projected to be lower by as much as 4.9%, and six are projected to gain between 6.5% and 10.6%. Caution flags are up as the 12 month trailing price-to-earnings ratios remain elevated between 17.8 and 44.9. Five are above their 200-day simple moving averages, one closed at its 200-day and five have fallen below their 200-day on the risk of reversion to the mean.

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