Is The Housing Sector Starting To Turn Around?

We've recently seen some better than expected news out of the housing sector, with homebuilders getting a boost this morning on better than expected housing starts.

Are we starting to see a turnaround?

This morning we saw pending home sales rise 2.4% in June, which handily beat economists expectations of a 2% decline.

While it is nowhere near the makings of another housing boom, it is a a positive sign that perhaps the bottom has finally been found, and we are starting to climb out of the trough.

We recently saw better than expected numbers out of Case-Shiller, which are supporting the claim that the housing market is slowly, but surely starting to come back. No one expects it it turn around this year or even in early 2012. A steady climb back towards somewhat positive territory would be a welcomed move, if only for investor and consumer confidence.

There is still the threat of the massive shadow inventory out there. This refers to all the people who want to sell their houses who have not done so because home prices are still so depressed that it does not make economic sense for them to do so. This could be a concern going forward, but we can only be concerned with what we see.

If the housing sector continues to see more numbers like this on a continuous basis, perhaps the policies of the Obama administration have worked and we are slowly starting to see the biggest drag on the U.S. economy lift off.

ACTION ITEMS:

Bullish:
Traders who believe that the housing market will turn around might want to consider the following trades:

• There are plenty of bargains in the home building sector. Consider names like K.B. Homes (NYSE: KBH), Lennar (NYSE: LEN), Toll Bros. (NYSE: TOL) and D.R. Horton (NYSE: DHI).

• There are also alternative ways to play the sector, including owning companies that own master planned communities, such as Howard Hughes (NYSE: HHC).

Bearish:
Traders who believe that housing sector will continue to bounce around may consider alternate positions:

• Homebuilders are still a risky bet, with continued losses in seemingly every quarter. There are plenty of hedge funds shorting these names, and today's pop could just be another rise that gets faded.

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