New-Home Sales Hit 5-Year High, Homebuilders Struggle

Includes: ITB, IYR, KME, REZ, XHB
by: Bespoke Investment Group

At 497,000, the new-home sales reading hit its highest level since May 2008 in the month of June. Below is a chart of new-home sales going back to 1995. We have also included the S&P 1500 Homebuilder Group in the chart to highlight how homebuilder stocks have moved in conjuction with new-home sales over the years.

The long-term trends of new-home sales and homebuilder stocks have been pretty similar, with the two rarely diverging for more than a couple of months. We have seen a divergence recently, however, similar to the divergence between homebuilder stocks and homebuilder sentiment that we pointed out last week. Over the last six months, the S&P 1500 Homebuilder Group is down 12.15%, while new-home sales are up 8.5%.

Homebuilder stocks obviously had remarkable runs in 2012, but in 2013 -- even as housing indicators have continued to charge higher -- the builders have pulled back. Clearly, investors think the recent jump in mortgage rates is going to have a big impact on the industry. So far it hasn't, but if it's going to, we'll start to see it in the housing indicators that come out over the next couple of months.