Existing-Home Sales Dismal, But Expected To Pick Up

Includes: HOV, ITB, LEN, PKB, TOL, XHB
by: Judith Levy

Existing-home sales plummeted 8.4% in 2006, their fastest pace in 17 years. The National Association of Realtors [NAR] announced yesterday that sales dropped 0.8% in December to an annual rate of 6.22 million, their first decline in three months. The number of homes on the market also declined, however, for the second month in a row -- to 3.508 million from 3.81 million -- suggesting that more buyers are being lured by low prices and affordable mortgage rates. Still, the inventory of unsold existing homes is 23.3% above the year-ago period. The median price of an existing home last month was $222,000, up from $217,000 in November. A total of 6.42 million previously owned homes are forecast to be sold this year, down from 6.48 million last year. Sales in 2006 were the third-highest on record according to the NAR, but there was also a 42% jump in foreclosures. The S&P Supercomposite Homebuilding Index dropped 3.6% after the report and is down 1.4% on the month. The Fed maintains that housing demand has likely stabilized and the economy should be able to expand moderately even as the housing slowdown continues.

• Sources: Wall Street Journal, Reuters, Bloomberg
• Related commentary: Existing Home Sales are Fantastic, According to the National Association of Realtors Anyway, Homebuilder Stocks: Is the Worst Over?, Housing Bubble and Real Estate Market Tracker
• Potentially impacted stocks and ETFs: Pulte Homes Inc. (NYSE:PHM), Beazer Homes USA Inc. (NYSE:BZH), Hovnanian Enterprises Inc. (NYSE:HOV), Toll Brothers Inc. (NYSE:TOL), M.D.C. Holdings Inc. (NYSE:MDC), The Ryland Group Inc. (NYSE:RYL), American Standard Companies Inc. (ASD), Centex Corp. (CTX), Lennar Corp. (NYSE:LEN), KB Home (NYSE:KBH). ETFs: iShares Dow Jones US Home Construction (NYSEARCA:ITB), SPDR Homebuilders (NYSEARCA:XHB), PowerShares Dynamic Building & Construction Portfolio (NYSEARCA:PKB)

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