Tracking real estate stocks – Google Finance Style

Very interesting post at Google Finance yesterday, showing a simple yet deep manner in which to track the macro real estate market. Only two of these national homebuilders have presence in the Greater Charlottesville real estate market, Ryan Homes (NVR) and K Hovavian (HOV), while Toll (TOL) have been rumored to be poised to make a move in the near future. Will their appetites for development increase locally or pull back?

Everyone knows that business cycles oscillate from boom to bust every so many years, and real estate is not unique in this regard. Stock prices reflect these trends. Anyone who has looked at a home builder stock in the past couple years is intimately aware of this connection. But what does it mean to say that an industry, as opposed to a stock, is experiencing a downturn? It’s not just a matter of saying “real estate stocks are down” — it’s more that they’re down, in a roughly correlated manner, over a meaningful common time period.

Since 31 December, 2004:

Homebuilders Stocks Compared

Since 2003:

Homebuilders Since 2003

What’s next? The cycle will continue, I expect. Making the correlation between this data and our local market is equally simple yet complex. While the stocks indicate to a certain degree where we’ve been and where we’re going, there are so many factors that affect the local real estate market that simply cannot be displayed on one of these graphs. More on this in next week’s post about the first year’s market stats.

We all know that what goes up must come down; will that which goes down come back up? I suspect so.

For an even more interesting graphical display, as well as a cogent analysis, this time one of the subprime market, check out Fortius One’s “Exploring a Slice of Subprime Space” post.

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  1. JR Jackson July 2, 2007 at 13:01

    Jim- I’d be interested in more detail about why you’re optimistic about a turnaround locally, given that this cycle in its entirety really doesn’t seem to correlate with past cycles. Shouldn’t the massive bubble of 2003-2005 be followed by a correction of similar amplitude?
    Sure there are factors suggesting a floor to the local market – the presence of UVa, NGIC expansion, etc. But we’ve also been in a period of historically low rates of unemployment and interest.
    Having talked recently with some friends of mine in the real estate business who operate mostly in outlying areas, I’ve never seen them so discouraged about the direction of the market. I know that the NAR “economists” are suggesting improvements, but their track record over the last 6-8 months or so should have removed any lingering credibility they might have had IMHO.

  2. Jim Duncan July 2, 2007 at 13:41

    JR –

    Thanks for the comment.

    First, let me second your thought about NAR and expand a little bit – I think that their constant rosy predictions over the past 8-12 months have done significant damage to their, and to a certain but lesser degree my, credibility. I noted their “great time to buy or sell” campaign last year.

    I’m optimistic for a couple of reasons, including those you mention.

    – UVA
    – low unemployment
    – NGIC
    – Wal-Mart
    – State Farm
    – SNL
    – the large number of small businesses, tech and the like that contribute enormously to our economy and culture.
    – That our region is a “destination” for many

    I think that there has been too much new construction – across all price ranges. As these get absorbed, we may (should?) return to a more sustainable level of real estate.

    Regarding the outlying areas, I’d agree to certain degree. I see that more people are trending towards urbanized centers.

    I can’t tell you how impressed I am with myself that I was able to find this story in my feed reader – I distrust much of what the UN does and saays, but I’ll cherry pick this article – Half the World soon to be in Cities.

    2. Home sales and prices will continue to rise at a more “normal” level – perhaps a 5-7% increase in value YoY rather than 15-20% increase in value. This qualifies as a “good thing.”

    3. There will be fewer “discretionary” moves and “move-ups.”