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Homebuilders Rebound on Single-Family Starts


NEW YORK (TheStreet) -- Homebuilders' most important component of this week's Housing Market Index, single-family housing starts, has been stuck around the 600,000 threshold for several months and stayed stuck in two of the three months in the latest report. Single-family housing starts for September and October held in that area but November starts surged 20.8% to 727,000 units from 616,000.

Because of the partial government shutdown Wednesday's housing starts data was for September, October and November.

Homebuilders are thinking that the recent spike in mortgage rates was a factor in a temporary pause in closings but current rates are still near historically low levels. The National Association on Home Builders looks for a gradual improvement in the housing market in 2014. Looking at the chart, single-family starts will be updated to 727,000, but the gap between sentiment and starts remains large with starts below the normal 1,000,000 to 1,200,000 unit range.

The NAHB on Tuesday released its December HMI with a solid reading of 58 up 4 points from November. The HMI has gained 11 points year over year and has been above the neutral reading of 50 for seven consecutive months indicating that homebuilders are confident on the progress the housing market has made since the housing bubble popped.

On Nov. 27 I wrote, Homebuilders Rebound On Permits and Higher Home Prices and since then seven of the 11 homebuilders I track have moved higher given improved sentiment, single family starts and Wednesday's Fed statement that implied that mortgage rates would stay low through 2014.

This morning there is a significant change in ratings for the 11 homebuilders I have been following as nine have been downgraded. Only one of 11 is undervalued by 17.3%. The other 10 are overvalued by 11.7% to 103%. The performances over the last 12 month are disappointing after being fabulous in May. Among the 11, five are down by 1.1% to 18.3% over the last 12 months while the gainers are up by 0.2% to 35.3%. The rebound this week on single family starts and the Fed Statement still has four below their 200-day simple moving averages, with 7 above. My conclusion is that the homebuilders can be traded, but are not for the long term investor.

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