Existing Homes: Eye On Supply

Includes: ITB, IYR, REZ, XHB
by: Wall Street Strategies

By David Urani

Yesterday we were given a housing starts report that was stronger than it looked on the surface, although it wasn't great. Today we got another piece of housing data that was deceptively strong. The headline for January existing home sales was so-so, with sales up 0.4% month to month to 4.92 million annually, or essentially flat, while the consensus was looking for 4.90 million. Sales remain just slightly below the four-year high set in November. The same goes for single-family units, which were up just 0.2%.

But where I remain really impressed with respect to the existing-home market is in inventory. Supply of homes was down for a fifth month in a row, by 4.9%, to $1.74 million units. That is the lowest level of inventory since December 1999, and in terms of months' supply we're standing at 4.2 months, the lowest since April 2005.

So, steady demand near a multiyear high combined with a further dwindling of inventory is a bullish signal. In fact, the NAR went on to reiterate that shortages of supply in some areas are holding back sales. And, of course, with there being a shrinking supply of existing homes to buy, homebuilders are in a good position to take advantage. Meanwhile, it should continue to put upward pressure on prices.