Some welcome strong data on the housing market today. The Pending Home Sales Index came out stronger than expected. This leading indicator is particularly welcome given the recent weak numbers in existing and new home sales. The strongest region was the Northeast, which has had the weakest home price appreciation of the 4 regions over the past 3 years, around 10%. The West region was the weakest in the March reading, but this region has had almost 40% price appreciation over the last 3 years, so some hesitation on the part of buyers might be expected. The West has also had the best job gains by far of any region. The low mortgage rates surely helped to get some contracts signed in March!
So I have been out of my housing related stocks, Acuity Brands AYI and Apogee APOG, due to the weak housing data. This Pending Home Sales number could be an outlier or it could be the start of a string of stronger data leading into the spring selling season. I think I am going to take a wait and see approach to find out if it will be followed up by some more strength. AYI has recently made several acquisitions, and these have reduced their ROIC. If I get back in to a housing stock, I'll go with APOG.
Michael Grove, CFA