After a few so-so years, the housing market and related stocks could be primed for a big 2015.
Next year is shaping up to be one of those rare times when strong economic growth is accompanied by low interest rates, the perfect mix for these names, according to a historical study of stock prices using Kensho, a quantitative tool used by hedge funds.
CNBC looked at the periods since 1980 when GDP was above 2 percent, yet the 10-year Treasury yield remained under 2.5 percent. In total, there has been about one year or four quarters of time when both these conditions were met and homebuilder stocks were far and away the standouts among stocks in the S&P 500.
PulteGroup posted a 15 percent average return during these strong growth, low rate periods. Lennar averaged a gain of 10 percent. D.R. Horton posted an 8.7 percent average return. The iShares Home Construction ETF, in which those stocks are the three largest holdings, put up a 7.6 percent average return.
Masco, which makes faucets, cabinets and windows, posted an 8.4 percent gain, on average.
Following a monster run in 2012 and early 2013 after the excess of the financial crisis was worked off, the construction ETF is little changed over the last year and a half. It's been the same pattern for S&P Homebuilders SPDR ETF.
Housing stocks have "been unexciting and dull the past two years," wrote Carter Worth, chief market technician for Sterne Agee, in a note to clients Monday. "We believe many homebuilding/home furnishing/building product stocks are about to come to life."
Worth believes the group fits the classic technical pattern of a "cup and handle," among others, and therefore primed for a breakout.
Source: Sterne Agee
Fundamental analysts like the stocks heading into the new year as well with the group, on average, having an "overweight" rating on Lennar, D.R. Horton and Pultegroup, according to Factset.
"Low investor expectations make builder stocks attractive," wrote Deutsche Bank's Nishu Sood in a note to clients Monday.
Deutsche Bank believes investors are ignoring the stocks because there isn't a "strong, unequivocal, accelerating housing recovery," yet the companies should benefit through decent volume growth, strong margins and share buybacks.
Data today on home prices and Wednesday on volume fit the modest but growing theme.
The Case-Shiller Home Prices index rose by 4.7 percent year-over-year in October, according to economists. Pending home sales for November tallied a slight, 0.5 percent increase, economists expect.
The yield on the 10-year Treasury was most recently at 2.2 percent, down from near 3 percent to start 2014. A revision of third-quarter GDP last week showed that growth was a monster 5 percent. Economists subsequently raised their expectations for 2015.
—CNBC's parent NBCUniversal is a minority investor in Kensho.