How to Turn Disappointing Housing Data into Greater Returns

Since the beginning of 2012, the U.S. housing market has been considered one of the bright spots in an otherwise uneven economic environment. Between 2007 and the end of 2011, the U.S. housing market fell 33%—since then, it has rebounded, climbing roughly 22%.

While the rebound in U.S. housing has been robust, it’s still 18% below the 2007 pre-housing bubble market crash high, meaning there’s still plenty of room for growth. Unfortunately, the so-called silver lining around the U.S. housing market is starting to thin—or rather, some are finally starting to recognize there is a disconnect between the rising values of the U.S. housing market and overall housing market data.

For example, existing-home sales, which represent about 90% of housing purchases, fell 0.4% month-over-month in February and 7.1% year-over-year to their lowest level since July 2012. This comes on the heels of disappointing January data, where existing-home sales fell 5.1% month-over-month—the fifth decline in six months.

February new-home sales fell 3.3% month-over-month to a seasonally adjusted rate of 440,000, the lowest level in five months. To add insult to injury, the National Association of Home Builders/Wells Fargo index of builder confidence rose less than forecast in March and is close to its lowest level since May 2013.

February’s pending U.S. housing market sales data is just as disappointing—though not entirely surprising. Pending home sales (excluding new construction) fell 0.8% month-over-month and an eye watering 10.5% year-over-year, the lowest level since October 2011. (Source: “February Pending Home Sales Continue Slide,” National Association of Realtors web site, March 27, 2014.)

In spite of February’s pending home sales data representing the eighth consecutive month of missed forecasts, many seemed to think the decline was “unexpected.” U.S. housing market experts thought pending home sales would climb a modest 0.1%.

You have to be quite the spin doctor to turn February’s housing market data into something positive—or at least be good at deflection. The National Association of Realtors said the declines over the last three months were relatively small and placed much of the blame at the feet of Mother Nature.

Though, it might be fair to say that rising interest rates, higher housing prices, and a limited supply of homes might also be part of the issue; well, that coupled with high unemployment and high debt levels. If you believe the National Association of Realtors, the U.S. housing market should experience a strong rebound when the weather warms up.

If you think economic indicators have something to do with the housing market, then owning a home will continue to be out of reach for many potential homebuyers.

Investors who are optimistic about the housing market picking up on improving weather might want to consider some of the larger U.S. homebuilders, including: D.R. Horton, Inc. (NYSE/DHI), Lennar Corporation (NYSE/LEN), and Toll Brothers, Inc. (NYSE/TOL). However, investors dubious of the long-term impact of the weather might want to look into shorting these same housing market stocks.

This article How to Turn Disappointing Housing Data into Greater Returns was originally published at Daily gains Letter