Macroeconomic Concerns for Homebuilders like PulteGroup, Inc. (NYSE:PHM)

Anyone talking about Real Estate in my neighborhood is positive and only seemingly on the verge of bubbly.  I am referring to personality traits here, because real estate prices have increased aggressively in my neck of the woods, as they have in many affluent areas.  The trickle-down effect has also impacted other communities positively, and most real estate agents have been riding high. 

However, when we peel back the layers some interesting things are revealed.  In this article I will discuss material concerns for the housing industry and highlight results from PulteGroup, Inc. (NYSE:PHM) to help explain my position.

The relevant items:

  1. GDP related Housing Data
  2. Janet Yellen's Public concern
  3. FOMC Tapering and liquidity
  4. Net Real Stimulus (NRS)

To begin, GDP data for the past two quarters has shown that investment demand in the housing sectors has declined by 13%.  You would not know it if you were looking to buy a home in San Francisco or La Jolla, but it is a hard fact.  The GDP data does not lie, and recently there has been reduced investment demand.  That is a major concern for Yellen.

Janet Yellen seemed to suggest that she was concerned about the slowdown in the housing recovery recently, and that there was nothing she could do about it, but in actuality she is the reason the slowdown is happening.  Arguably, the FOMC is also the reason that the housing market is where it is today, so this is a double-edged sword.

The open spigot that existed until late last year created excess liquidity in the financial system that absolutely boosted asset classes that depend on new money to grow.  One of those is the stock market, but more pertinent to this article, another is housing.  These asset classes were direct beneficiaries, but as the tap is turned off the impact on housing is not unlike tightening momentary policy. 

In fact, according to our macroeconomic analysis, Net Real Stimulus (NRS) is already negative.

That absolutely can affect investor interest in the homebuilders.  There are many dynamics at play in this industry, but the macroeconomic landscape is a huge component of that. 

Our analysis of EPS for Pulte after excluding extraordinary items suggests that EPS, although positive now, is questionable.  Even with three consecutive quarters of higher EPS numbers last year, the stock basically has done nothing except for move sideways.  The spread was definitely good for traders, but investors do have reason to be concerned.

PHM EPS analysis

Investors should be concerned about the macroeconomic landscape, and they should listen to the concerns of Janet Yellen, GDP, and the measures of NRS we have defined because all of these can impact the housing industry. 

However, traders can continue to benefit from the large spreads in PHM that we expect as well.  According to our real time trading report for PHM the stock tested longer term support early this month, and by rule we should expect stocks to increase from longer term support towards longer term resistance if support levels hold, so there is a slightly positive trading bias for PHM at this time.  The stock will need to move over an intra channel resistance line, but if it does that we expect longer term resistance again before the stock falls back to support.