The one industry group that is most important to the so-called U.S. economic recovery is the housing and home-builder stocks. This important industry group was one of the biggest winners in 2012. This sector could also be one of the sole reasons for a recent increase in employment. Many private equity firms are buying up huge numbers of single family homes and renting them out. This new single family rental market has helped stocks such as Home Depot Inc (NYSE:HD). Lowe’s Cos (NYSE:LOW), Sherwin-Williams Co (NYSE:SHW), and Mohawk Industries Inc (NYSE:MHK). Record low interest rates are also helping these private equity investors to borrow money very cheaply. Investors can become cash flow positive very quickly on their investment.
The Federal Reserve Bank has announced that they are buying $45 billion worth of mortgage backed securities every month. This is also helping the housing market to inflate higher. Some leading housing stocks that have rallied due to all of the central bank efforts have been Lennar Corporation (NYSE:LEN), Toll Brothers Inc (NYSE:TOL), and The Ryland Group Inc (NYSE:RYL).
Should this industry group retreat or sell off it is a good sign that the major stock indexes could come under further pressure. When trying to trade and follow the stock markets it is prudent to watch the leading industry groups. The home-builder stocks are definitely one of the leading sectors at this time and will tell us a lot more going forward. So far, this important sector has held up very well, however, in the near term this sector is very overbought and extended. Over the next few months the home-builders will tell us a lot about this stock market.