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I am an investment professional currently working for the amazing Wall Street Bad Boys.
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NextCandle.com
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  • Economic News March 22: New Home Sales Data Has Lost Its Relevance  0 comments
    Mar 23, 2012 1:01 AM | about stocks: XHB, ITB

    On Friday morning after the market opens, the Census Bureau of the Department of Commerce will release its new home sales report for February but here's a quick reality check: New-home sales have lost their ability to forecast the broader housing market because demand has shifted shifts to much cheaper previously owned houses.

    However and on Wednesday, a report from the National Association of Realtors revealed that sales of previously owned homes dropped 0.9% in February - disappointing economists. Moreover, another report released by CoreLogic earlier this month showed that the share of underwater mortgages stands at 22.8% of all mortgages (11.1 million households) - its highest level since 2009.

    Nevertheless, there are a couple of "bright" spots that could help February new home sales data:

    • Employment Rates Are Improving. Unemployment rates are at three year lows while payrolls rose in February. More Americans working means more potential home buyers.
    • Lower Borrowing Costs. According to data from Freddie Mac, the average borrowing rate on a 30-year fixed mortgage hit an all-time low of 3.87% in February - great for borrowers with good credit who can afford to buy a home.
    • Warmer Weather. It has been a fairly mild and even balmy winter in many parts of the country which may have encouraged more Americans to go house hunting instead of shopping for winter clothes or visiting sky resorts.

    On the other hand, it's also important to remember that new properties made up just 7% of the market last year plus it's an important election year with the President facing what is likely to be a tough reelection campaign. Hence, investors should expect the media and the pundits they quote to spin any figures about the housing market to help their chosen political candidates or political positions.

    As for investors, it might be worth taking a closer look at the SPDR S&P Homebuilders ETF (NYSEARCA:XHB) which tracks the S&P Homebuilders Select Industry Index. On Thursday, XHB fell 1.25% but its still up almost 25% since the start of the year and up 19% over the past year. However, a quick look at the fund's top 10 holdings reveals few homebuilder stocks and mostly homebuilding products or home furnishing/décor stocks:

    1. U S G Corp. (NYSE:USG)
    2. Masco Corp. (NYSE:MAS)
    3. Owens Corning (NYSE:OC)
    4. Williams Sonoma (NYSE:WSM)
    5. Pier 1 Imports (NYSE:PIR)
    6. Bed Bath & Beyond (NASDAQ:BBBY)
    7. M.D.C Holdings (NYSE:MDC)
    8. Ryland Group (NYSE:RYL)
    9. Lennar Corp. (NYSE:LEN)
    10. Pulte Group (NYSE:PHM)

    On the other hand, the iShares Dow Jones US Home Construction ETF (NYSEARCA:ITB), which tracks the Dow Jones U.S. Select Home Construction Index, has about 2/3rds of its holding in homebuilder stocks with the top 10 holdings being:

    1. Lennar Corp. (LEN)
    2. D.R. Horton (NYSE:DHI)
    3. Pulte Group (PHM)
    4. Toll Brothers (NYSE:TOL)
    5. NVR (NYSE:NVR)
    6. Home Depot (NYSE:HD)
    7. M.D.C. Holdings (MDC)
    8. Lowe's Companies (NYSE:LOW)
    9. Masco Corp. (MAS)
    10. Ryland Group (RYL)

    The iShares Dow Jones US Home Construction ETF (ITB) closed down 1.33% on Thursday but its still up 25% since the start of the year and up 12% over the past year.

    Either way, investors with exposure to homebuilder or related stocks might want to take a look at their Next Candle stock predictions for their holdings ahead of Friday's new home sales report for February but more than likely the market is already prepared for housing data that won't be overly rosy.

    NOTE: THIS PIECE WAS JUST POSTED ON OUR BLOG AT www.nextcandle.com/blog/2012/03/economic...
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