Housing Shows Encouraging Strength

 | Feb 13, 2014 | 9:30 AM EST
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Perched high above Biscayne Bay I have a panoramic view of the Atlantic Ocean and downtown Miami from my condo along the water. The Miami skyline can be breathtaking, especially at night. It is also full of cranes -- big, ugly and massive construction cranes that increasingly dot the view.

It is a scene straight out of 2005 or 2006. It is like the financial crisis never happened here. Within a five-minute walk from my place new construction is everywhere. This includes a huge $700 million retail complex and no fewer than a half dozen 40 to 60 story residential condominium buildings.

These new housing units are not being bought by same type of buyer that was so prevalent prior to the housing crash either. Gone are the no money down speculators looking for a quick "flip". These days it is all cash buyers primarily from South America who buy out new projects within weeks of their announcements.

Economic turmoil in Venezuela, Argentina, Brazil, Honduras and other trouble spots in the continent has been extremely good to the Miami real estate market. It is a very surreal marketplace. In major parts of Miami and Miami Beach, most buyers care more about "Return of Capital" rather than "Return on Capital".

This also makes Miami a lousy microcosm for the nation's residential and non-residential markets due to the huge influx of foreign money. If every part of the nation had the same activity as the Magic City right now, the country would be posting 6% annual GDP, or better, on an annual basis.

To get a better handle on how these real estate markets are doing on a national level, one must peruse the economic and earnings data that has streamed across the wires recently. On the whole, the news I think is encouraging.

One of the bright spots of an otherwise dismal jobs report Friday was the surge of new construction jobs. What makes this growth impressive is most of the country has been experiencing the worst winter conditions in over two decades over the last month or two.

Hints of a robust construction market are also showing up in earnings reports. Owens Corning (OC), makers of that iconic pink insulation, provided some of the best results of the earnings season so far on Wednesday. The company absolutely crushed bottom line expectations. Owens Corning also beat the revenue consensus by a significant margin and showed over 10% year-over-year sales gains. I have to give a 'shout out' to the SunTrust analyst that upgraded the shares and boosted the price target to $51 from $38 a share last week. It was a timely call.

Homebuilders are also posting some solid results. D.R. Horton (DHI), PulteGroup (PHM), Ryland Group (RYL) and Taylor Morrison (TMHC) have all delivered better than expected quarters in the last week or two. Even Deere (DE) beat expectations Wednesday due in a large part to heavy construction equipment sales.

The concerns near the end of 2013 that rising interest rates could put a damper on residential and non-residential construction seem to be unjustified at this point. This bodes well for the equities of building suppliers, home builders, construction firms and a variety of other real estate plays.

Investors should still have major concerns of the impact of the Federal Reserve's withdrawing liquidity from the market and the eventual unwinding of their now massive balance sheet. Emerging markets also continue to be problematic.

Ending on a brighter note, it appears that the recovery in real estate markets domestically is continuing unabated and that is indeed good news.

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