NEW YORK (
) -You know the drill: housing starts and building permits monthly data comes in positive, and the homebuilders rally.
It seems to make little difference when the foreclosure pipeline is so large it could pump oil all the way from Sarah Palin's house to China; and it seems to makes no difference that the vacancies in the home market are at unprecedented levels.
You can take your pick of reasons why housing starts and building permits should not alone lead to a rally in the homebuilding sector, but time and time again, we've seen these numbers serve as a catalyst for a short-term rally.
This past week has been a witness to the same old story.
On Wednesday, the housing start and building permit numbers were positive for the month of November, and the homebuilding sector rallied. Even
a day before an expected grim earnings report (and it turned out to be grim indeed), rose along with the entire sector.
Fast forward to Thursday, and a worse-than-expected jobless claims report, and the homebuilders plummeted along with the broad selloff in the markets. Only two homebuilders managed positive gains on Thursday.
were all down on Thursday.
So should investors stop following housing starts and building permits as an indicator to buy homebuilders until the macroeconomic situation becomes more stable?
research indicates that the past decade had seen an unusual relationship develop between housing starts data and non-farm payroll data. Whereas the typical pattern would be for the data sets to move in unison, between 2000 and 2008, housing starts and non-farm payroll data actually had an inverse relationship.
Wells Fargo has charted a movement since late 2007/early 2008 that shows the longer-term correlation between the two data sets taking hold again. They have become 're-matched', so to speak.
The long-term convergence may hold, but housing starts and non-farm payroll have moved away from each other in the past few months, bucking the longer-term re-match that Wells Fargo has uncovered over a period longer than a year in duration. Housing starts have been going up even as non-farm payroll declines, back to the unusual relationship that typified the 2000-2007 period of inverse alignment.
Some analysts can't believe any investor would trade homebuilders on the housing starts data at a time when the macroeconomic situation is so unstable. "Jobs and vacancies are the tell-tale data, and by comparison, housing starts are not a factor," said Joel Blocker, analyst at FBN Securities.
So until further notice, the 're-match' long-term trend may not be a match made in heaven for investors and the homebuilding stocks.
-Reported by Eric Rosenbaum in New York.
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