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The June new home sales data today they came in showing the biggest drop in sales since January suggesting that we could be seeing the setback to a housing recovery that we saw just a month ago.
But even with today's bad news one analyst says the housing market is still a bright spot in the economy would love this guy because he specific.
He backs up what he says he's not just hot air.
Robert -- an almost record equity researcher RBC capital markets and he joins us now well.
You gotta have a lot of stats to back up your view here because they seem to be aligned against at least the numbers we got today -- 22000.
These are new homes below expectations.
It's a pretty big number the lowest since January's was set a sharp drop in the northeast.
Particularly were sales went.
Down to -- it is 161000 from 40000.
How do yet how do you go against these numbers -- optimism.
High frequency -- this is one negative data point if you look at new residential start -- haven't earned 60000.
When he reported last week vs consensus 740 -- the key driver the most important variable is still trending positive.
That being said we're very bullish on the fundamentals stock prices reflect excellent news for telling investors to back away from buying to builders erupt over 50% on average you're starting to hit a glass ceiling where it's gonna be tougher to get incremental returns.
Even if new housing starts continue to accelerate that's where your brain comes and proper right you look at these names he made a great call -- KB homes you still like that one attempt to nice run up.
What makes you believe that it'll still continue to do well.
So the caveats this you wanna ask yourself you want on the builders overweight -- -- underweight down against the S&P.
Right now we're kind of people -- it's a tough earning season you're seeing some downgrades some companies are missing numbers.
We think the numbers are gonna be really good in -- -- consensus for most of the builders.
-- -- reports tomorrow DR Horton on Friday.
We like what we see going into the print we're excited.
We just think is the good news party priced -- -- probably is at this point you want to back off specifically towards KB could still trading at discount to the peer group.
If you're gonna get in and look to get a lot of upside attitude of -- cases this is a name that has fact hearing it can work out for you if he had been tolerant.
Robert let me throughout the doomsday scenario I don't necessarily believe this but some people are saying -- work -- like Japan right now which had.
The low interest rates for ten years and that -- slow growth and talk to negative growth for twenty or thirty years.
Are we going into a sustained period where we're never gonna see real healthy housing recovery.
Gosh I'm gonna take the other side of that that I like the housing market.
I think the housing market's gonna have a multiyear improvement okay the question is why are we discount -- we discounting a million starts and -- why are we differed from Japan though.
Why is the United States right now differed from Japan and it's a bit apples and -- -- you have one of the strongest economies in the world in the -- lowest of any organization.
We've worked through a lot of shadow inventory.
You know much bigger -- let me -- copyright -- saw a lot of people would say we still have that inventory overhang that's the problem of their housing market -- yet -- hit an inflection point -- -- eighteen months in the third quarter -- -- about fifteen months trending in the right direction.
My concern is that if unemployment goes back up.
For the pace of GDP growth goes to one or one point 5%.
We're not gonna create the incremental buyer for new -- just get another word on Lennar because Lennar is up 50%.
Year to -- -- mom.
That's nice I look at that I say why is he telling me now I needed to hear -- have before her.
Gonna -- and a broad basis if you're gonna put fresh money to work.
Builders are not the right place if you're looking -- on a stock for two to five years this is the best in class company welcome best -- -- with the strongest management in our opinion.
So we like the downside protection gap.
Could you got a great pony he got a great jockey this company can take you far we like what they're -- -- thank you thank you very much Robert great to see to actually get a bad.