PulteGroup, Inc. (PHM), Meritage Homes Corp (MTH): The “False Recovery” Theory…Not So Fast

Page 1 of 2

Heidi Moore of the Guardian recently described the recovery of the US economy as “false.” Much of her premise is based on the rising prices of housing, especially the more recent jumps that are close to levels seen during the bubble, and how she sees them as artificial. From her article:

So pry between the boards of the housing recovery and the termites start crawling out. Here, you’ll find some old villains of the last housing bubble, crawling on the same properties. There are the house-flippers and the financial institutions, the foreclosure players that regenerate whenever there is a boom. … There is evidence that lenders are controlling the housing supply by reducing the number of houses for sale. Last year, AOL Real Estate’s reporting suggested that as many as 90% of available properties were not even really on the market, but just polished for sale and being held back to keep supply low.

How concerned should we be about this? Does it portend dark days ahead?

PulteGroup, Inc. (NYSE:PHM)

It is time to run?

I don’t think so, despite much of the picture Moore paints being accurate. Many real estate markets are dominated by investors and speculators; I can vouch for that in my own market of southern California. I have family working in the San Antonio real estate market, and they tell me it’s much the same there.

But there are two very important aspects that this narrow view misses: First, real estate is very local. While some markets are clearly dominated by investors, It’s not accurate to paint this as a single stroke covering the entire country.

Second, her argument makes no mention of the incredibly strong growth in new home construction. This isn’t being driven by “flippers and speculators” to the same degree that the rest of the residential real estate market is. New home construction levels in 2012 were up more than 50% from 2011, but the estimated 800,000 homes built last year were still nearly half of the historical average (hat-tip to Morgan Housel) of 1.5 million.

Moore goes on to quote economist and former Secretary of Labor Robert Reich:

Another topic that’s not being talked about: Half of working Americans now (are) earning less than they did 10 years ago, adjusted for inflation.

Yes, this is a real issue that affects many of us. But there’s a little bit of mixing topics going on. Income stagnation is a real problem, and there will be long-term effects. And while Moore points out some important social challenges, she disregards the other side of the housing recovery that is spurring the economy: Job creation.

Per Forbes, the construction industry is only about 1/12 of the US job market, but accounted for more than 1/3 of the job losses since the start of the recession, hemorrhaging over 2 million jobs, or more than a quarter of its workforce. The tide has now turned to the point that many in the home building business are concerned about a shortage of labor, maybe as soon as next year. And one of the great things about a recovering housing market is that the jobs created are usually very good paying ones.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!