Missed Lift-Off of Homebuilder Stocks? Jim Grant Suggests These Related Laggards
You know the old argument for buying land: They’re not making any more of it. The twin credit and housing crises sent land prices plummeting, and the share prices of developers like Tejon Ranch (TRC) and Amrep (AXR) plunged with them. Both stocks are trading well below the peaks reached near the top in housing. The declines have been so dreadful, in fact, that even the SPDR S&P Homebuilders exchange-traded fund (XHB) has comfortably outperformed the two landowners.
James Grant, editor of the widely respected advisory letter Grant’s Interest Rate Observer, argues in his latest issue that the selling has been overdone and that Tejon and Amrep are due to reverse their steep drops. His case rests in part on a robust historical pattern exhibited by the housing market. As night follows day, home prices rise first in a recovery, and only then do land prices start moving up.TRC $26.36; AXR $9.87.
The first phase is occurring, Grant observes. Home prices showed a 3% year-over-year increase in September, the fourth straight month of gains. And the upturn in the Case Shiller Home-Price Index is being pushed along by a fresh construction boom. A key piece of data for Grant is housing starts. After crashing to an annual rate of less than 500,000 in mid-2009, a low since records began to be kept in 1959 and well below the long-term average of about 1.5 million, starts have climbed back to a shade under 900,000....MORE