Real Estate Stocks - Update

Since my last post, it appears the market continues to believe Real Estate is moving up off the bottom.

The HomeBuilder index hit its target of $18 and now has a couple of tails off the high.  It may need to reset from here, but the market is certainly anticipating an improved environment for the Spring.  I hope the market is right. 

The REITS have been treading water since the Fall.

Great support remains at $53. 

Home Improvement Stocks were buoyed by strong earnings reports.

As anticipated, Home Depot challenged its May high of $36, making it to $35.57. 

10 year Treasury Rates have surged.

There doesn't seem to be any impediments to rates hitting 3.85%.  It doesn't appear to be ready to break the trendline at this time.  Will need to watch.

Banner Bank skyrocketed after it became clear they weren't going under.  The stock has launched over 40% since mid-December.  There ought to be plenty of support at $2.00, where the secondary offering went off.

Outlook 2011 - Interest Rates

Interest rates had a nice yearend rally commencing in November when QE2 was launched.

5 yr rates found a bottom in November and are destined to hit the upper trendline near 22.6.  They will need to regroup lower from there, perhaps near 18.  I expect rates to break the trendline during 2011 and forge higher.

Outlook 2011 - S&P 500

The S&P had a nice run in 2010, up nearly 13%.

After a brisk run in the Fall, the market looks overbought and in need of a pullback.  1200 looks like the most likely candidate for support.  If indeed the market does pullback, it should be bought for a vigorous rally that should ensue.  It looks to me that the S&P 500 ought to run close to 1475 before the rally would be over.  This is the blueprint I will be following until the market shows me differently.

Pacific NW Stocks - Update

Hopefully, Pacific NW stocks continue to point towards a economic recovery in the Puget Sound Area.  Most stock have done quite well since my post in October. 

 Amazon powered ahead for another 12% run.  They are apparently winning their war on retailers.  Side beneficiaries of their victory have been the package delivers, Federal Express and UPS.  Looks overbought and in need of a price correction.

 Costco hit its target of 70 (for a 10% run), and then a funny thing happened this week.. they announced better than anticipated earnings pushing the stock higher.  Costco is also overbought, taking profits is in order.

 Starbucks exceeded its target of 32 (for a 14% run) by hitting 33 this week. 

 Nordstroms hit its target of 42 (16% increase) and decided to move a little higher.  It's currently consolidating within its base.  It looks like a better option to see where it settles out rather than buying now.

 Boeing can't seem to get out of its own way.  Delay after delay on the Dreamliner is trying investors patience.  The stock got hit with multiple downgrades after the latest announcement.  The stock has moved to the bottom of its base.  New purchases should have a stop at $63 with a new target of $70.

Weyerhaeuser almost made it to its target of $19 before getting downgraded this week.  It did make it to $18, for a 16% move.

Interest Rates

Interest rates appear to finally be making the move higher, in a big way.  In defiance of the Federal Reserve, it appears the bond vigilantes are making a stand.

 The 5 year note based out at 1.0% (1% interest to lock your money up for 5 years, that had to be some sort of joke).  5 year rates look headed to 2.3%.

The 10 year rate also bottomed in October.  Next stop is 3.8%.

Major Averages

It's been a great run for the major averages as they zero in on their targets.

The Nasdaq Composite has been the strongest, but is nearing overbought.

 2700 is the 1st target.  The indicators are nearing overbought so a correction should be expected.

 The Dow Industrial has been the weakest but still has a shot at its target of 12,000.

The S&P 500 broke to a new 2 yr high this week as it zeros in on its target of 1288.

The overbought nature of the averages suggest caution in the weeks ahead.

New Apartments

Both Harbor Properties and Su Development have announced plans to build new apartments.  It's good to see Developers start to make bold moves.  According to REIS, nationwide vacancy rates are still at record highs.

In the meantime, CB Richard Ellis has seen fit to call this the top in vacancy rates.  If the top is in, then Apartment sale prices ought to be rising, which is exactly what Moody's is seeing:
"Apartment buildings have led prices higher, rising almost 16 percent in the third quarter from a year earlier, Moody’s reported. An index of retail properties fell about 12 percent in that time, while industrial buildings dropped 1.2 percent. Office property values increased 4.4 percent."
Seattle's Apartment market is doing substantially better than nationwide.  Dupre + Scott have come up with a 5.7% vacancy rate in the Seattle Market.

The amount of rent incentives appears to have peaked, and, rent decreases seem to be over.  With all this good news for the Seattle Apartment market, both Harbor and Su ought to benefit by being the first out of the ground.

Home Prices

It appears the Winter blues are setting in on home prices.

 Case Shiller and Corelogic indices track fairly close together with both attempting to measure repeat sales.  Both report a 3 month moving average.  The above prices are for the 3 month period ending in August.  The tepid nature of the home price recovery is pretty evident.  With the expiration of the Gov't price support stimulus, prices look heavy heading into Winter.

 The Rate of Change is dropping.  I imagine the ROC is being supported by strong pricing in June, which will drop off the average next month.  As the slower Winter months work their way into the averages in the months ahead, the ROC will be negative.

 Taking a closer look at Seattle's Case Schiller index shows 2010's pricing top in May, as the stimulus was leaking out of prices.  Low Tier homes are dropping the fastest.

More recently, Zillow released their September report.  It claims Seattle home prices dropped another 1.5% during September.  In addition, upstart Clear Capital, which claims to have the most timely price information, reports that Seattle prices have breached new lows in October.  Anecdotal information supports the idea that Sales have dried up, leaving prices no where to go but down.  Prices should bottom in Feb and March of next year, just like they did last year.  Inventory levels and foreclosure activity ought to be the main determinants on where prices settle.

Real Estate Stocks

The Homebuilders sprang to life last week after wallowing most of the Summer.  Perhaps the market is anticipating a somewhat stronger Spring season than previously thought.

 The Homebulder ETF had a nice 10% run last week.  $16 is now strong support.  $18 is a good target.

The REITs continue their torrid year, breaking out to new 52 week highs.  Having direct access to the capital markets have positioned the REITs to take advantage of bargain basement prices.

 VNQ has no overhead resistance so the low $60s should be achievable.  Strong support is at $53.5.

Home Improvement stocks look poised for a breakout.  The giant, Home Depot, has enjoyed an 18% run since Sept. 

 Should HD break its downtrend line it should challenge its April high of $36.

Ten Year treasury rates have plummeted 37% since May.  I suppose the only certainty is that they can't go below 0%.

 It's hard to imagine a similar plunge going forward, but the Fed seems hellbent on trying. 

Local surviving Banks are starting to mend.  Banner Bank hit rock bottom last week after the "lock up" period expired, subsequent to their massive secondary offering in June.

There is still a ton of supply at $2 which will impede upside progress, but the bottom is in.

There is plenty of work still to be done in the Real Estate arena, but the signs of improvement abound. 

Pacific NW Stocks

Hopefully recent stock price action for NW companies are pointing towards better times ahead.

It looks like frugality is the "new normal" and a couple of NW are taking advantage of it.

 Amazon declared war this week suggesting it will be the low price leader this holiday season.  The stock is up nearly 40% since September to a new 52 week high.

Costco has been another favorite of the "new normal".  After a 20% run in September the stock has reset and looks ready for a run to 70.  My stop is at 62.95.  It will be interesting to see if Initiatives 1100 & 1105 have any effect on the price.

Not to be left out, local "luxury" retailers have been making the move also.

 Starbucks has made the move to a new 52 week high on big volume.  I can attest to the popularity of the new frappucino.  My wife is a huge fan of the Caramel.  The stock is currently extending but should be able to hit 32.

After a 35+% move in September, Nordstrom has pulled back to the 50 day ema.  It's a buy in the low 36's.  Stop is at 34.85.  The target is 42.

Some of the older Puget Sound names are also showing signs of life.

Boeing is bumping up against resistance after a 20% run since September.  I'd like to get back in at 69 with a protective stop at 66.85.  A break above 72 should lead to a new 52 week high in the upper 70s.

Even venerable Weyerhaeuser looks poised to make a move even though it missed out on September's rally.  A breakout above 16 targets 19.  If it makes the "up and out" move above 16, stops at 15.5 keep it conservative.

Hopefully, the stock market is performing its job as a forward looking indicator of future economic activity.  If so, things ought to be looking up for The Puget Sound area in the Spring.