Homebuilders' Stocks Look Constructive

 | May 23, 2014 | 11:20 AM EDT
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Please short every company in this column. There, I said it, because whenever you write positively about the homebuilders, people always seem to have something negative to say about them.

First, have you noticed -- you probably haven't, because no one believes it -- that the housing stocks have started to climb? Have you noticed that two of the standouts today are Lennar (LEN) and DR Horton (DHI), or that Toll Brothers (TOL), which reports next week, has done so well of late?

I think there's a simple reason for the outperformance: Rates are coming down. Earlier this week, we heard someone who I regard as one of the best authorities on housing, Frank Blake, say that the surprise mortgage rate increase last year truly hurt housing.

Now, while I believe that the huge move in rates last year is unprecedented, not many people predicted a decline in rates this year. That decline, belatedly, could be spurring sales. That, plus the genuine lack of inventory, another surprising event, given all of that "shadow" inventory we thought was out there, could combine for some real strength that could make this housing group, which is so far behind the market, have some real legs.

Now before we even got to this rate decline, Toll Brothers was advancing ahead of what was supposed to be a strong selling season.

It wasn't.

Now I think its poised to go back to those levels, perhaps after it reports next week.

Housing has given this market no real lift since the mortgage rate jump. Perhaps that's about to change.

It could make a difference both to the stocks and to the economy as a whole. 

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