NEW YORK (TheStreet) -- The housing market has been credited as a positive influence for the U.S. economy so far in 2013. Sales of existing homes have been on the rise, as have housing starts and new-home sales. Inventories of homes for sale have been limited and home prices have been on the rise.I view this housing recovery as kind of an anomaly, as it has been fueled by cash buyers mostly from overseas, and by institutional investors buying blocks of homes and converting then to rental properties. In addition, the big banks have become greedy, paying more than appraised value for distressed properties and withholding their Other Real Estate Owned from the market, betting that home prices will continue to rise. This could become a different type of housing bubble, with home owners and potential buyers on Main Street shut out of the opportunity to own the home of their dreams. Fannie Mae data show that their real estate owned totals 101,449 single-family foreclosed properties at the end of March. REO peaked at 162,489 at the end of 2010 and was at 105,666 at the end of 2012. This shows that the release of REO properties has slowed. Fannie Mae absorbs the cost of property taxes, hazard insurance and legal fees while delinquent loans remain in the foreclosure process. Other Real Estate Owned (OREO) among the FDIC-insured financial institutions peaked at $53.2 billion in the third quarter of 2010. The decline in this asset class slowed to just $2.6 billion in the first quarter of 2013 to $35.9 billion, which is still up 195.5% since the end of 2007. This slowing of the liquidation of OREO plus the elevated level is a clear sign of greed in the banking system and housing market. Housing affordability is getting challenged as home prices and mortgage rates rise. The new jobs that have been created in this economy have lower incomes than the jobs lost during the recession. The fear component comes from Main Street USA. Home owners who want to sell their homes have their fingers crossed that home prices will rise enough to pull out from being underwater. Home buyers fear being outbid by investors just as they feared the flippers during the years the housing bubble inflated.
The significant rise in mortgage rates on the failure of QE3 and QE4 could be the catalyst to pop the current mini-bubble in today's housing market. My focus in the housing market has been single family homes and the home builder stocks, which are part of the PHLX Housing Sector Index
(183.92) which is between the 200-day simple moving average at 180.50 and its 50-day SMA at 190.81. The housing index is up only 7.4% year to date after dipping into the red on June 24. The index is down 12.4% from its May 20 high. Chart Courtesy of Thomson/Reuters Homebuilder stocks have been downgraded on strength and upgraded on weakness, which has helped in setting buy-and-trade strategies in 2013. This dynamic has lined up well with the technicals and my proprietary analytics given risky levels at which to sell on strength and value levels at which to buy on weakness. In my last post covering all 11 home builders I have been tracking on June 21, Homebuilders Hurt by Fed Policy I noted the weakness caused by rising mortgage rates, but in that post six had buy ratings and only one had a sell rating. Today, none have buy ratings and four have sell ratings. On Tuesday morning we learned that the National Association of Home Builders Housing Market Index rose by six points to 57 in July, the strongest reading since January 2006. This reading is solidly above the neutral 50 mark indicating that home builders are seeing improving demand for newly-built single family homes. The NAHB HMI peaked at 72 in June 2005, which is when I predicted a peak the share prices for the home builders. The index had been below 50 since May 2006, and home prices peaked in June/July of 2006. The low for the index was 8 in January 2009. Notice that the chart below shows that single family housing starts lag the HMI significantly. Housing Starts for June will be released on Wednesday morning at 8:30 AM. Expectations call for a rise to 950,000 units annualized. The key component for the graph above is single family housing starts, which has stalled at the 600,000 unit rate annualized. Builder confidence is leading housing starts.
MDC Holdings ( MDC) ($32.93 vs. $33.08 on June 21) was hold rated on June 21 and is still rated hold. My weekly value level is $29.74 with a monthly pivot at $34.23 and quarterly risky level at $35.35. M/I Homes ( MHO) ($23.85 vs. $23.08 on June 21) was hold rated on June 21 and is now rated sell. My semiannual value level is $22.88 with a quarterly pivot at $23.63 and monthly risky level at $26.30. PulteGroup ( PHM) ($19.54 vs. $18.87 on June 21) was buy rated on June 21 and is now rated hold. My quarterly value level is $19.37 with a monthly risky level at $21.69. Ryland Group ( RYL) ($40.20 vs. $38.65 on June 21) was buy rated on June 21 and is now rated hold. My weekly value level is $34.40 with a quarterly pivot at $41.16 and monthly risky level at $45.59. Standard & Pacific ( SPF) ($8.56 vs. $8.36 on June 21) was sell rated on June 21 and remains sell rated. My semiannual value level is $7.58 with a semiannual pivot at $8.73 and quarterly risky level at $9.03. Toll Brothers ( TOL) ($33.84 vs. $31.70 on June 21) was hold rated on June 21 and is now sell rated. My semiannual value level is $32.51 with a monthly pivot at $34.48 and quarterly risky level at $35.62. At the time of publication the author held no positions in any of the stocks mentioned. Follow @Suttmeier This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.