Home November 2012 Taking Stock in Israel

Taking Stock in Israel

Real estate in Israel’s better neighborhoods continues to exhibit bubble-like characteristics that existed in Southern California a few years back.  While it is still possible to buy some rental units in Israel and get a 5% return, the possibility for capital appreciation continues to diminish.

On the other hand, Southern California has already seen its real estate bubble burst.  Now we are slowly climbing back.  Consider the following facts:

Over the last year the stock of Miami, Florida based Lennar Corp. (LEN) is up 168.3%.  The stock of Ft. Worth, Texas based D R Horton Inc. is up 133%.  Atlanta, Georgia-based Home Depot (HD) stock is up 87.1%.  By comparison, the S & P 500 is up 26%.

This is my current ranking of the various sectors of the market that I track on a daily basis:

The U.S. Home Construction sector is ranked number 2.  I use the exchange traded fund (ITB) as a proxy for this sector.

The overall housing sector has just about matched the return of the S & P 500 over the last ten years.  Over the last three years, however, the sector has delivered about eight points of alpha per year over the market.  This sector has really roared over the last twelve months with a return of 119.7%.

Is this rebound in the housing market for real?

I was asking myself this same question several weeks ago when I decided to invite a guest back on my daily radio show “Best Stocks Now.” The last time I had Mick Pattinson on the show, he sounded so glum that I was about ready to call the prevention hotline number.  He painted such a bleak picture of the housing market that I was not sure that I would ever see a recovery in my lifetime.

Pattinson, who is he the CEO of Barratt Homes and the former head of the Building Industry Association (BIA), has seen numerous cycles in California, which I consider to be the epicenter of the Single Family Home Market.  I was not expecting his answer when I asked if this housing recovery was for real.  I had my doubts.  I do not see new lots being cut into the hillsides.  I do not see truckloads of lumber headed for the new housing tracts.  Nor do I hear construction workers celebrating about all the work they have.  I fully expected a negative answer.  My whole interview to follow was based on that assumption.

Instead he responded, “Yes Bill, it is for real!”  He went on to tell me about the wait time to get an appraisal, the shortage of workers in some markets and that very important factor in the housing market: supply and demand.

The homebuilders have not done a lot of building of new homes over the last five years.  The so-called shadow inventory of foreclosures is disappearing fast with the voracious appetite of investors looking to buy and turn them into rental units.

Money is still cheaper than the dirt that the homes are built on.  With 30-year mortgages hovering around 3.5% and the banks starting to loosen up a bit, there are buyers once again.  I was also told by my mortgage expert, Craig Brock, that his company was holding a big job fair in order to get enough loan processors right now!

The bottom line is this: The rebound in housing is for real, and it is in the very early stages.  This is great news for real estate agents, appraisers, mortgage loan folks, in real estate and for investors in the housing-related stocks!  Some of my favorite real estate-related stocks right now would be Howard Hughes Corp. (HHC), Toro (TTC) and Home Depot (HD).  Also, don’t forget our real estate, right here in sunny Southern California.

All data from Best Stocks Now app.


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