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Over the slow our home building stocks are high they have been on -- fair with a home building ETF.
Up 50% now over the last year -- the housing market appears to be on the -- but our next guest is making a contrarian call.
He says he stocks may have gone up too far too fast may be time for them down David Goldberg.
PBS home building analyst joins us now David good to see.
I -- -- me this well thanks for coming on up when prices in markets.
Are determined by supply and demand that's that's shouldn't be a better signal.
Then that when they -- interred determined by artificial incentives and we've had so many artificial incentives in the housing markets over the past three years.
Many of which have not -- are we getting back to the point at least we're housing prices and demand.
Is just a supply demand issue.
Quote of the day that's exactly right what we're seeing in the markets today the recoveries and concentrate in really good areas sub markets within cities.
-- people really want to live and there's no supply in this area -- demands ticked up.
You have great affordability even with rates moving up a little bit and what's happened is there's no inventory -- dimensional pricing power the builders that's exact bird is a much more supply demand fundamentals and.
It's so while it's a good thing that we're getting housing back into the old -- of supply and demand.
Are you still think that -- right now they have become overvalued why and how much of a pull back you expect.
Well -- exactly right I mean look the homebuilding stocks now basically -- in 20152016.
Earnings they're betting on -- peak you know levels of deliveries.
Home prices margins kind of got tour in 2005 we think it's too aggressive if the stocks pulled back 1520%.
We think there's a trade there.
It's also tough to -- the builders right now -- potential for higher rates is a big topic conversation.
And it's beginning to be the summer season right the end of the bill they're selling season so not a lot next couple months really drive the stocks forward.
I think the back half year is going to be -- so I think another 1520%.
You can be comfortable buying stocks into the end of the year to 1520%.
Is pretty significant when he had that would net almost create a sense of panic in the housing market.
Look I mean it -- significant part of the builder for probably have 10% last week alone I don't drop -- 20% the weeks before that so.
He's very volatile group there's a lot of beta and the names you can get fifteen to 20% -- -- -- higher rates -- some skittishness from investors now having said that there are some bargains out there at least one that you point to Beazer Homes why do you like it.
-- like bees are there in the middle of a company turnaround.
New management team -- sent to the CEO took over in 2011 he had been CFO before that.
Worked on the balance sheet as CFO -- now he's really attacking the operations.
Bringing results more in line with where the group is -- peers are some really narrowing pure relative underperformance.
And I think there's a lot of earnings power in the business model -- people don't realize yet so.
We're looking at a one year chart put the what your chart back up -- you don't seem.
It when you look at a lot of other housing Starr -- -- -- -- -- direct line upwards you don't see it here that's because of the management problems they've had.
Well historically right I mean -- a turnaround story.
The great management humanness of the CEO has been intense since may of 2000 -- and he's doing a great job.
But it takes -- to materialize on the other hand you have it the old for Miller's pulled Cleveland are you don't you don't think now's the time I'd give you would wait for a 15% pullback to -- -- those -- 101520%.
That's right well we could easily see that happen remember look at how quickly they've moved put up.
But definitely -- kind of -- beta there's in the stocks that's not a huge move in this group right now all right let's talk about interest rates because it's.
We were we were kind of nervous over the past couple weeks and that led to a little nervousness within the housing market about.
Interest rates going up had they gone on the in the direction they were going we were facing -- about 5% interest rate by December and a ten year bond.
So -- the the mortgages would have been up much more than that.
How much of an effect we've had interest rates down so low for so long and the housing market has done well it's done -- -- How much of an effect do rising interest rates have right now one -- it.
-- right now -- -- physically right now not much of an effect right that's because the recovery.
Is concentrating he's really -- areas your buyers today are much more creditworthy much higher quality buyers and what you might normally have later on that in recovery.
And so the buyer has a lot of affordability a lot of purchasing power higher rates don't hurt that much they can afford more payment.
And we talked builders that's respond to get now when you look out eighteen to 24 months you -- what were the recovery is going.
As we get into the periphery as we get more marginal buyers rates matter and affordability matters but for the next twelve months it doesn't matter that -- David Goldberg UBS homebuilding analyst thank you very much David good to see hadn't --
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