Shares of Home Depot, Fannie Mae and home builders are rising faster than the broader stock market

NEW YORK: Shares of Home Depot, Fannie Mae and home builders are rising faster than the broader stock market on speculation that the worst of the housing slump is over. Government reports this week may show whether the rally is premature.

The Standard & Poor's 500-stock index of home construction stocks has gained 24 percent since falling to its low of the year July 18. The S&P 500 advanced 13 percent in the same period.

Housing shares have gained after government and industry reports showed that construction, sales and prices were falling, while the inventory of unsold homes was rising to a record level. Data this week are expected to show that previously owned homes are selling at the slowest pace in almost three years and economic growth is staying near the lowest level since 2003, according to a Bloomberg surveys of economists.

Not sure if this will be true or not... but it is worth noting the sentiment implied by the stock market.

Ex-KB Home chief reaped big riches in housing boom

The resignation of KB Home's (KBH.N) long-time chief over backdated stock options grants is focusing renewed attention on the big riches that home-building executives reaped in recent years.

Few people have ridden the housing wave as successfully as former KB Home CEO Bruce Karatz and other heads of publicly traded home builders, whose business exploded from late 2003 until the end of 2005 as consumers armed with low mortgages rushed to buy homes in hot markets

I'm not sure how much of this was his fault or how much he should be punished. At the least he should pay back the unjust profit.

One thing that is certain, is that KB has been building a lot of houses:

The past few years have been particularly lucrative for heads of home-building companies, with compensation packages often tied to rising profit at their businesses. In announcing Karatz's departure, KB Home noted that the company's total annual revenue had soared to more than $9.4 billion in 2005, up from $1.4 billion a decade earlier.

New Credit Scoring Could Boost Housing

The National Association of Hispanic Real Estate Professionals maintains that California, Texas and other states with large numbers of immigrants could see a dramatic jump in homeownership rates if large lenders embrace alternative credit-scoring systems. Traditional credit scoring makes it difficult for buyers without Social Security numbers to achieve homeownership; but new credit-scoring systems look at utility, rent and other such payments to gauge risk. Hispanics will make up close to 33 percent of home buyers by the end of the decade, according to Harvard University's Joint Center for Housing Studies. Also by 2010, the University of Georgia's Selig Center for Economic Growth expects the disposable income of the Hispanic population to top $1.08 trillion.

Are current rating companies undervaluing the credit of non-citizens? It doesn't make much sense, as I would think credit scoring is built with regressions and semi-complex instruments that could not overlook something so simple...right?

It definitely doesn't seem like good practice to trash the current credit system because a group of Realtors don't think it is accurate. Does anyone know what company does these alternative credit-scoring systems?

Greenspan speaks on housing and his lunch

WASHINGTON (Reuters) - The U.S. housing market will weaken further, but the sharpest decline is over as inventories of unsold homes decrease, Former Federal Reserve Chairman Alan Greenspan said on Monday.

"This is not the bottom, but the worst is behind us," Greenspan said at a conference organized by financial services firm Charles Schwab.

Of more interest:

Greenspan, whose every move as Fed chairman was scrutinized for clues about monetary policy and the economic outlook, laid to rest the legend that Fed interest rate decisions could be divined by how full his briefcase appeared to be when he went to work.

"The extent to which my briefcase was fat or thin depended on whether my wife had time to make me lunch," he said.

The great economy is getting covered up by US soldier deaths

CINCINNATI, Nov 3 (Reuters) - White House budget director Rob Portman can point to plenty of good economic news that should have helped Republicans on the campaign trail this year, but the body count in Iraq kept getting in the way.

"The war has dominated the news, so when the economy gets better, as it has in the last six months and you have good numbers to show, we can't get that through," Portman said in an interview during a campaign stop in Cincinnati.

Over the last 6 months? Lets see, GDP has been below 2%, core inflation has increased, and unemployment has increased (granted a small amount).

He must mean national debt. No, that is still very high. The value of the dollar has gone down, residential investment saw an 11% decline followed by a 17% decline, and health care has been rising about 10% per year for the past 5 years.

Nearly 4 million jobs have been created in the past two years, the unemployment rate is at a 5-year-low, the Dow Jones industrial average is near a record high and wages are finally growing faster than inflation.

Oh, now I know what he means. The stock market and unemployment rate are now almost as good as they were 6 years ago. It is too bad that is getting covered up by deaths in Iraq.

S&P 500 vs NAHB home builders index

This chart was posted on Fortune this morning:



Notice there is a 1 year lag on the S&P 500. It will be interesting to see how much of this has been coincidence and how much will play out. If housing does do poorly over the next several years, it may drive investor or speculator money back into stocks.

Corruption in the BEA's initial GDP release?

I converted each GDP data componenet for 2006 Q3 into a standard deviation (compared with the data series volatility over the last 3 years). This is useful for finding components which had large changes, but might be getting hidden because they make up a small part of the overall GDP number. I found something surprising.

First the results:

Top 5 increases:
Nondurable goods - Energy: 1.7 std deviations
Agenda - Motor vehicle output: 1.7 std deviations
State and local consumption expenditures: 1.6 std deviations
Nonredidential fixed structures: 1.5 std deviations
Durable goods - Motor vehicles and parts: 0.7 std deviations

Top 5 decreases:
GPDI Residential: -3.0 std deviations
Agenda - Structures: -2.2 std deviations
Nondurable goods - Food: -2.0 std deviations
Gross private domestic investment: -1.2 std deviations
Nondurable goods - Other: -1.0 std deviations

Graphically:



I checked in 3q 2002, 3q 1998, 3q 1992, 3q 1988, and 3q 1984 and all EXCEPT 3q 1988 had top 5 increase appearances by both Agenda - motor vehicle output AND state and local consumption expenditures. These data series were then revised down by at least 1/2 of a standard deviation in 8 out of the 9 cases (2002 did not have a downward revision in state and local consumption expenditures).

Sorry, BEA, your data has been corrupted by members of congress.