Homebuilder ‘Hope Trade’ Helped by Early Start: Chart of the Day

Gains in U.S. homebuilding stocks this quarter bode well for the “hope trade” that has put them ahead of the Standard & Poor’s 500 Index for 10 years in a row, according to Buck Horne, a Raymond James Financial Inc. analyst.

The CHART OF THE DAY compares the industry group’s performance with the S&P 500 for Nov. 15 through Jan. 31, the period that Horne cited in a Nov. 21 report. During the current streak, the S&P 500 Homebuilding Index has led by an average of 13 percentage points.

“The ‘Hope Trade’ got an early start this year,” Horne wrote. S&P’s builder index rose 23 percent from the start of the fourth quarter through yesterday, while the S&P 500 only added

4.9 percent.

Comments made last month by Federal Housing Finance Agency Director Mel Watt about efforts to spur home loans are behind the rally’s timing, the St. Petersburg, Florida-based analyst wrote. Watt told the Mortgage Bankers Association that Fannie Mae and Freddie Mac, the housing-finance companies his agency supervises, are clarifying mortgage-repurchase rules and may reduce minimum down payments for loans they buy to 3 percent.

“We believe these steps alone will only produce a marginal improvement in mortgage availability,” Horne wrote. “For now, though, it’s plenty of ammunition for optimists to further the ‘Hope Trade’ momentum.”

Horne raised his ratings on D.R. Horton Inc., KB Home and MDC Holdings Inc. to the equivalent of hold from sell because of the seasonal trend. D.R. Horton is in the S&P 500 homebuilding index along with Lennar Corp. and PulteGroup Inc., which he recommends buying.

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