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RBC Capital Markets Director of Equity Research Robert Wetenhall on the potential fiscal cliff’s impact on the housing market.
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Housing sector and let's not bad -- housing sector is seeing a slew of positive data this month housing starts are reaching their -- level in years.
Home prices for example rising for the sixth consecutive month.
And pending home sales are -- up five year high existing home sales are also ticking higher.
But get this -- -- housing analyst says there is one headwind it could be re all the housing recover.
Robert wedding hall as a director of equity research at RBC capital markets and if you've been watching it here.
On our show you've had information that is made -- a lot of money thank you for all of those valuable.
Kids are our investors have made make good profit out of them but you say that one thing that's happening in DC right now.
Could derail the progress we've made in housing and that would be what.
Well just for starters what -- said is absolutely correct -- -- -- early innings of a multiyear housing recovery.
That housing recovery could be derailed.
If the interest tax deduction associated with mortgages is reduced or -- OK today we had the White House proposal which was not only raising tax rates on the so called rich but also capping deductions and those would include.
Housing deductions on mortgage interest now.
If it's capped at 25000.
Or even 50000.
Will that be -- -- right now -- a dollar value on the mortgages added a million we think house mark can flex down to 750000.
Anything lower than that.
Would be catastrophic for the publicly traded homebuilders so the bigger risk is both.
This change to the tax code which makes it advantageous to be a homeowner.
And the fiscal cliff so these are two head winds which could definitely derail the recovery we still remain.
Adamant that the underlying trends are terrific we're just very concerned.
Out these new development what are the chances can you game -- that that would be one of -- Actions that gets cut or at least trend.
It's very tough to handicap that at this stage but.
And I just don't know if you can given how chaotic and unproductive it's been in DC mar how to ultimately lobbyists gathered in the lobbyists are gonna swing in on every level particularly -- -- the mortgage -- just jump in and start having a fit -- -- But we're we're probably getting a recovery in the housing industry right and that -- Chatzky.
Which is of such concern is that if we're gonna get the economy back on the right track and experienced growth -- gonna show leadership.
And housing will create jobs and that will spur consumption to really get need to protect the housing market at this very vulnerable stage in the early piece of the housing -- all right.
You are extraordinarily valuable to our viewers because a some -- -- because you have really all I think based all the picks that you made and housing have made a lot of money over the past you must now.
You have an offensive pick -- assuming that -- that the housing recovery is not.
Do you railing let's go for the offensive -- first which is USG corporation a big building materials.
Yes USD is the worldwide leader in wallboard production they've done a great job getting price in the current environment you see explosive earnings growth he got a top tier high quality management team.
New products roll outs of Home Depot gaining share better pricing we really like this story going to -- thirteen got to say -- see the spike right around the time but the hurricane US she was heavily box.
Right after hurricane sandy because precisely how this what does that sustain.
We think more important -- the volume story is their ability to achieve higher pricing levels -- -- about a 130 dollars per thousand board feet.
We could see that go to 145.
Next here.
It's probably the most inflationary single item in the building products universe big driver of earnings this is their core product like a lot of -- I talked a lot -- was no better pricing strategy one price for the entire year as opposed to different prices to different customer half.
Are right now you also have a defensive -- if you're less certain about the continued economic recovery.
You would pick Fortune Brands home and security FB HF -- water Fortune Brands is marketshare leader in plumbing.
Marketshare leader in the cabinet business.
Huge exposure to new residential construction.
If they get higher volume -- gonna drive profitability.
Yet an extremely high quality management team it's effectively -- best in class operator we like their dominant position in the categories where they operate look for continued share gains.
An extremely robust earnings growth they'll -- eighty cents this year that could be a dollar ten dollar 25 next year lot of up.
Side and by the way they traded about thirty dollars into the day thirty youth you have a target of 35 -- -- good pop about 15% by the end of next year we're looking for a 15% move in this name he's been right before folks Robert -- hall of RBC.
Thanks again -- -- great to see a well.
