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Has the Housing Recovery Hit a Second-Half Snag?

One of the biggest stories of the last year or so is the recovery in the housing market and U.S. home prices.

Real estate’s rebound is great for contractors and construction workers looking for jobs, homebuilder stocks like PulteGroup (PHM) and Toll Brothers (TOL), related housing plays like Home Depot (HD) and Sherwin-Williams (SHW) as well as consumers via the “wealth affect” that comes with rising home values.

But will the rally in the housing market continue?

Walter Kurtz over at the blog Sober Look offers some data that it will: namely, lumber futures.

Lumber futures were a good predictor of the rebound in U.S. housing starts, since obviously builders needed more wood for their properties. Large declines earlier this year (see Walter’s post here on the topic) eventually translated into weaker home construction in June (see this follow up post).

As Kurtz writes more recently, “That means we should certainly pay close attention to lumber as a leading indicator. And July is showing a steady increase in prices, potentially pointing to improving demand.”

Click through to his blog for more on the topic.

It’s also worth noting that despite brisk gains in prices there remains upside for real estate — particularly in hard-hit markets with a lot of room to bounce back. Consider that South Florida real estate prices jumped by double digits in June alone despite a nice recovery across the last year or so.

Throw in the highest builder confidence since 2006 and a  Zillow report that 2013’s spring season was the hottest since 2004 and it looks pretty good for housing and related stocks.

It’s not all hunky dory, of course. The expectations game is starting to work against many related stocks in the space, with the SPDR S&P Homebuilders ETF (XHB) underperforming the broader stock market slightly year-to-date.

Furthermore, CNBC reports that the brisk housing recovery could be the very thing that stalls future growth. After all, investors and homebuyers alike were eager to buy when prices were fair or cheap … but who is eager to buy when they feel like the best deals have already been had?

It’s hard to tell exactly where housing and housing stocks go from here. But there’s little doubt the American economy needs housing to keep humming along if we are going to enjoy continued recovery in 2013.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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