Invest in housing recovery

January's new home sales was only 309,000 units, down 11.2% from Dec. That's a new record low in recent decades. Home buyers are not buying. It may have something to do with bad weather in the Northeast region, but most likely it's because of the grim outlook in employment. Jobs are scarce. The millions of unemployed don't have a chance. The still employed may fear losing their jobs. It's not the time to go shop for new homes.

Yet, the bad news argues for the case of investing in the housing recovery. And buying stocks in publicly traded home builders may be the best way to go. I have argued elsewhere why these builders deserve a close look, mostly because they have survived the downturn and look ready to take advantage of the low costs and the eventual return of a healthier market.

If 2009 was the year to invest in credit market turnaround, 2010 is the year to invest in companies that are in the best positions to take advantage of housing and economic recovery.

The Fed will continue to keep the rates low and steady. Inflation is not going to be a threat this year. Banks may be reluctantly starting to lend more. Government will cease to be the leading force in job creation. The positive feedback loop will turn when certain leading sectors start to add jobs. Manufacturing and technology are likely candidates. Financial sector may add more jobs. Only more jobs will help new home sales. That may happen in the second half of 2010.

Home builders that are best positioned may not be the ones who are working very hard to take advantage of the soon-to-expire federal tax credit. They are the ones that have great capital and human positions, which will allow them to move to promising sub-markets and/or take advantage of land opportunities.

We do not necessarily look for great recent sales. The last few months are not the best time to pound on sales and marketing. We want to invest in builders that have been methodically building its capital and portfolio. We've picked up some LEN shares because of its capital position and its ability to work with distressed assets on a large scale.