Standard & Poor's Case Shiller reported its Home Price Index for the month of May Tuesday morning. Housing prices were indicated higher for the fourth consecutive month and the popular press hyped the news as a wonderful sign for real estate. Yet, the SPDR S&P Homebuilders (XHB) fell 2.1%. That's because tomorrow matters more than today.
In that regard, this morning, on the eve of the famous Federal Open Market Committee (FOMC) monetary policy announcement, the government reported personal spending stagnant in June. Consumers spent the same as the month before despite healthy price increase that might have served to lift the number. Also, May's spending change was adjusted downward, to negative 0.1%. I reported the news as a "Glaring Recession Signal", and by its close, the market seemed to understand that. The SPDR S&P 500 (SPY) closed down 0.7% on the day.
Case Shiller reported that both its 20-city and 10-city composite indexes increased 2.2% on an unadjusted basis in May. After seasonal adjustment for the historically busier spring, the 20-city measure still gained 0.9%, which was greater than both the consensus of economists' forecasts (+0.5%) and the entire range of views (0.0% to 0.8%), according to Bloomberg's survey.
Price growth was widespread, with 20 of 20 MSAs seeing price increase in May versus April. Prices were still 0.7% under May 2011 levels, based on the 20-city comparison, but were gaining ground. With two consecutive months of price rise, many, including Robert Shiller who I listened to on Bloomberg Radio, were reporting a positive turn for housing. That it is, but it proved insignificant for housing stocks Tuesday. The shares of builders dropped, as seen in the table here.
Company & Ticker
Tuesday's % Change
Toll Brothers (TOL)
Ryland Group (RYL)
K.B. Home (KBH)
Real estate has several factors working against it moving forward, including the aforementioned decline in consumer spending and several other recession signs I have reported on. Banks have not been lending freely to begin with, because Bank of America (BAC) and others are fending off claims against mortgages written by Countrywide Financial, owned by BofA now, and others like Citigroup (C) and J.P. Morgan Chase (JPM). Also, as demand for real estate shows signs of life, it draws lender owned real estate to market, until the cleansing process is complete. Finally, event risk of mega-proportions - Iran - looms quite large as the summer ends and fall approaches, and it certainly carries with it economic weight. So, I'm sorry to dampen any new found fire for real estate enthusiasts. If it's any conciliation, be advised that I recommend the purchase of real estate for those who can afford it and especially those who don't currently own a home. In terms of affordability, in most markets, the sector is a standout today.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.