Market Overview

These Housing Stocks are Staging a Big Rally This Year

Homebuilders are back to work and building at the fastest pace since the summer of 2008, according to Commerce Department data released Thursday. Builders began construction on a seasonally adjusted 954,000 homes in December capping off a year that ranked as the best since the housing crisis began.

Clearly the housing market is improving and that's great news for housing stocks.

These numbers sent residential construction soaring. PulteGroup (NYSE: PHM) closed up 5 percent; M/I Homes (NYSE: MHO) gained nearly 4 percent, and Toll Brothers (NYSE: TOL) was up 4 percent Thursday.

Stocks for home improvement stores fared well Thursday with Lumber Liquidators (NYSE: LL) leading the pack up nearly 4 percent; Lowe's (NYSE: LOW) up almost 3.5 percent; and The Home Depot (NYSE: HD) close to 2 percent.

If there is a fly in the housing sector ointment, it might be this: CNBC reported Thursday that bullish housing analysts are failing to mention that 30 percent of all housing starts in 2012 were of multi-family apartments.

That is the highest share in over 20 years. In December alone, multi-family starts jumped 23 percent month to month, seasonally adjusted, and are up nearly 166 percent from December of 2011. Compare that to single family gains of 8 percent month-to-month and 18.5 percent from a year ago.

After taking out fourth quarter seasonal adjustments, single family housing starts fell 24 percent from October to December of 2012 compared to just a 10 percent drop in the fourth quarter of 2011, according to housing analyst Mark Hanson. Single family construction may, in fact, be slowing.

Is the housing data, coupled with initial jobless claims data now at a 5 year low, going to ignite the bulls and push more money into the housing sector?

The SPDR S&P Homebuilders ETF (NYSE: XHB) was up nearly 2 percent yesterday with the chart showing a well-defined ascending channel pattern all the way back to June.

The ETF has risen 44 percent since the uptrend began. XHB consolidated, trading sideways from October through the end of 2012. The fund has since broken out resuming the uptrend.

Toll Brothers had an impressive 2012 as well -- up 54 percent. Since breaking out to the upside from a wedge pattern at the end of 2012. The stock has added nearly 12 percent in 2013.

As of Thursday's close, Toll Brothers had surpassed the mean analyst price target of $36.11. Look for possible analyst upgrades and the raising of Toll Brothers and other home builder price targets in light of positive housing data and a banner 2012.

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