Last Thursday, I was speaking at the Paradigm Conference in Nashville in front of about 1,000 investors.
I asked everybody to raise their hand if they thought a new housing boom in America was just getting started.
Guess how many hands went up?
Zero. Point. Zero.
Not a single person.
On October 21, I asked a similar question: Are You Ready for the Next Housing Boom?
People didn’t seem to like that idea very much, either.
Mortgage rates were too high. Houses were too expensive. Consumers were supposedly broke.
And everybody had a long list of reasons why housing was in trouble.
But I wasn’t buying it.
At the time, we were looking at Home Depot (HD), which was trading near $280.
That’s an important level, where buyers had continued to show up for years.
My thinking was simple: As long as that level held, I wanted to keep an open mind about a potential housing boom.
Well, Home Depot held that level and rallied toward $350 instead.
And now the homebuilders are starting to make some noise.
The Bigger the Base
Take a look at PulteGroup (PHM) and Toll Brothers (TOL), two of the biggest homebuilders in America.
Both stocks have spent the past three years going sideways, building these big, beautiful bases.
And now they’re pushing right up against their old highs:
These are not stocks bouncing off their lows after getting crushed.
These are stocks that have been holding up for years and are now threatening to break out to new all-time highs.
That’s a big difference.
They haven’t broken out yet. We still need to see them get above those old highs.
But they’re getting close.
And after three years of going nowhere, a breakout from these big bases could be the beginning of something much bigger.
The bigger the base, the higher in space.
What If the Market Is Right?
Now, I know what the bears are going to say.
Mortgage rates are still high. Housing permits are weak. Builders aren’t feeling particularly confident. And home sales haven’t exactly been setting records.
I get it. There are plenty of reasons to be bearish on housing.
But here’s my question.
If things are so bad, why are homebuilder stocks going up?
Remember, these stocks were rallying on the same day we were getting more terrible housing data back in October.
And they’ve kept going higher ever since.
The economic reports tell us what’s already happened. The stock market is trying to figure out what’s going to happen next.
That’s why I pay attention to prices instead of trying to predict the economy.
Right now, Home Depot held support, and two of the biggest homebuilders in America are knocking on the door of new all-time highs.
If they break out, that’s bullish. If they fail, we’ll have to reconsider.
It’s that simple.
I’m not saying I know exactly what happens next. I’m saying we should be paying attention to what’s happening right in front of us.
Because if homebuilder stocks are breaking out of three-year bases to new all-time highs, how does your bear market thesis hold up?