One of the leading stock sectors in 2012 was the home-builder stocks. This industry group has rebounded sharply higher since October 4, 2011. Many of the leading stocks in the sector have doubled or more over the past year. This type of action in the home-builder stocks tells us that the central banks are trying their best to create another housing boom. The Federal Reserve Bank announced in September 2012 that they will buy $40 billion in mortgage backed securities (MBS). They are also buying $45 billion in U.S. Treasuries to try and keep interest rates artificially low. Low interest rates will help many of the private equity funds to pick up real estate at a very low borrowing rate. These private equity groups will then rent out the property at a premium. Individual home buyers can also receive a good interest rate if they can qualify for a loan. Either way, the central banks are trying everything they can to cause a housing rebound.
Some of the leading stocks in the home-builder sectors include Lennar Corp (NYSE:LEN), The Ryland Group, Inc (NYSE:RYL), and Beazer Homes USA Inc (NYSE:BZH) just to name a few. Other leading stocks that are tied to the home-builder recovery include Sherwin-Williams Company (NYSE:SHW), Mohawk Industries Inc (NYSE:MHK), and The Home Depot Inc (NYSE:HD). All of these stocks are just off of their 52- week highs.
Should the home-builder sector start to falter it could signal real trouble for this four year stock market recovery that began in March 2009. Traders must remember the last time the central banks lowered interest rates to try and inflate the economy via the housing market was in 2002. That move in 2002 lead to the recession in 2008.