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Positive Signs Abound for Housing

The recovery in the housing market is continuing its slow and steady recovery. The most recent data point showed pending home sales rising by 1.5% in March which reverses the February decline. According to the National Association of Realtors the pending home sales index increased to 105.7 in March from the 104.1 it hit last month. This represents a solid 7% year-over-year increase for the index.

Overall, the association's chief economist, Lawrence Yun, pointed out that "contract activity has been in a narrow range in recent months, not from a pause in demand but because of limited supply." He sees closings ending up modestly as the year progresses. All of which points to continued modest gains for a housing market that's been lackluster for the past few years.

Looking ahead, my wife and I are personally going to become statistics. Our home, which went on the market at the end of last month, is now under contract and will be one of what we all hope is an even larger number of pending home sales for April. Like the many Americans putting their homes on the market these days, I'm excited that the market is tight right now as we were able to get a fair price for our home which went under contract surprisingly fast. However, a more robust market is what our economy could really use these days.

These positive trends in housing have really affected homebuilders. Just last week PulteGroup (NYSE: PHM  ) noted in its earnings report: "The stronger demand which the housing industry saw throughout 2012 has carried into the spring selling season of 2013. We experienced higher traffic in our communities with buyers feeling a greater sense of urgency given the combination of limited product inventory and rising prices found in many markets throughout the country."

That contributed to a 35% year-over-year increase in revenue for the company. Further, the company saw a 10% increase in the average selling price which really helped pad its bottom line. Overall, margins improved by 420 basis points to 22.9% over last year.

Not only are homebuilders benefiting but this improvement in housing has had a nice effect on the bottom line of forestry companies. Weyerhaeuser (NYSE: WY  )  saw its first-quarter earnings more than triple as its wood products business reported its strongest quarterly earnings since 2005. Industry peer Rayonier (NYSE: RYN  ) also experienced a successful first quarter as its income from continuing operations nearly doubled year over year from $52 million last year to $103 million.

Rayonier believes that its forest resources business is seeing "the early stages of an improving housing market" with profits "being reflected in increasing sawlog demand and prices." The pricing power at both homebuilders and forest product companies is a key sign of recovery. It's a trend that's likely to continue when Plum Creek Timber (NYSE: PCL  )  reports earnings later today. Investors have taken notice and appear to have already priced these exceptions into the stock, as its shares are already up more than 20% year to date.

Unfortunately for investors, the easy money in housing-related stocks has already been made. Other than Weyerhaeuser these companies have all outperformed the S&P this year, with Plum Creek nearly doubling the index. 

Instead, investors would be better off with a solid company selling at a depressed price, as these companies have consistently helped generations of the world's most successful investors preserve capital, minimize risk, and achieve long-term, market-trampling returns. For one such company, read our free report: "The One REMARKABLE Stock to Own Now." Just click here to get started.

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Related Tickers

12/31/1969 7:00 PM
PCL $0.00 Down +0.00 +0.00%
Plum Creek Timber CAPS Rating: ****
PHM $18.76 Down -0.10 -0.53%
PulteGroup, Inc. CAPS Rating: ***
RYN $25.93 Up +0.11 +0.43%
Rayonier, Inc. CAPS Rating: ****
WY $31.50 Up +0.02 +0.06%
Weyerhaeuser Compa… CAPS Rating: ****