Harry put his finger on the most important factor in the real estate market: it’s not interest rates. It’s not lending standards. It’s supply and demand.
Or, as Harry puts it, “Buyers versus die-ers.”
That’s the beauty of demographics research. It’s simple and it explains the most fundamental driver of consumer demand. Demand for homes weakens when there are more “die-ers” than buyers in the system.
Likewise, the same simple dichotomy exists between buyers and sellers of stocks and ETFs. When buyers outpace sellers – either in numbers or tenacity – prices move higher.
To see this in action, let’s take a look at a chart of the SPDR S&P Homebuilders ETF (NYSE: XHB).
Homebuilder stocks, with XHB as proxy, gained 53% in 2012!
Despite negative commentary on the still battered housing market, investors were net buyers of the ETF throughout the year. I know this from monitoring the flow of money in and out of the fund.
While XHB has shown an overwhelming imbalance between buyers and sellers, with buyers greatly outnumbering sellers, there was a hiccup in October when investors pulled about $50 million out of the fund. Those losses were easily regained when investors poured money into XHB in November and December.
During the first week of December alone investors ponied up $147 million for bullish bets on homebuilders. The calendar year was capped with another huge investment of $99 million.
Whether this trend will continue through 2013 is debatable. But I see it as highly unlikely we’ll see another +50% year.
Instead, watch for homebuilders to pull back in 2013 as the market realizes the housing market still has a long way, flat road ahead. There is no come-back (to 2006 levels) in this market.
If you haven’t done so already read the Survive & Prosperissue on “Home Buying vs Real Estate Flipping.“
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