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William M. Wright
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William M. Wright and the stock market go back to 1971. Bill has twenty seven years experience working within the financial service industry and valuable knowledge of market and economic history. He's a once-upon-a-time aggressive skiier and Lake Tahoe local. Before founding Window To Wall... More
My company:
Window To Wall Street
My blog:
The Wright Inspiration Station™
  • Steepest 5 Year Housing Decline Is Over 0 comments
    Aug 27, 2009 11:34 PM | about stocks: TOL, DHI, KBH, BZH, HOV, HD, LOW

    The chart above shows the trendline of American new home sales back to the 1960's. The blue lines represent recessions and durations.

    Declining new home sales markets tend to bottom in January. And this seemingly endless 5-year continuous decline ended this January 2009 at new historic lows.  This bust surpassed every other American reale-state decline since the 1960's.

    The magnitude of this decline is amplified by the fact the number of households in 2009 is around 112 million...more than double the 53 million during the 1960's.

    Below are two real-estate news reports from the 1st quarter. Combine this depressing news with relentless negative news about Banks, stress-test...and it's no wonder we were a depressed Nation preparing for a Great Depression.

    "New homes made another new record low, with sales down 10.2 percent to 309,000 units. Despite this reading, inventories relative to sales actually made a new high. The months' supply of unsold homes rose from 12.2 to 13.3, a new record high. This means that home prices will remain under downward pressure."


    "The drop in new home sales is not unexpected. Home buyers are remaining cautious as the current economic storm takes its toll on jobs and confidence and thus, home buying. Those forces against buying will remain strong so while there might be a slight boost ahead due to tax incentives, realistically things are going to remain weak for some time."


    "This is of course yet another indicator that the housing market is in shambles and we are not out of the woods yet. There is a glut of supply on the market and more people want to sell than buy and that is driving prices down generally. A lot of people are seeing bargains, but are not ready to buy. Rates have fallen, but home prices continue to fall. People think they will fall more, so they are staying on the sidelines."

    "Eventually we will get to a bottom and these people will kick themselves that they did not buy. At the very least, new home sales should continue to fall for the next few months."

    Now with the benefit of hindsight and a chart we can see this was the bottom of a long and painful 5-year decline.

    New home sales are now up over 30% from their lows, in yet another sign that the economy is improving. This, in combination with the more than doubling in the price of major homebuilders stocks from last year's low, constitutes strong evidence that we have seen the bottom in the housing market. All this activity also suggests that the combination of sharply lower prices and relatively low mortgage rates has created the conditions necessary to clear the housing market. Market forces are fixing the housing problem.

    While the bottom in new home sales appears in...more price declines are to be expected. And commerical real-estate trends tend to lag 1 to 2 years behind individual homes expect to hear more negative news in that sector.

    Should you buy a major home builder stock now? By the looks of the stock prices of the highest quality names you're already to late. Consider buying after the $8,000 first-time home buyer sugar high wears off or on any major market pull back. You might also want to consider the lower quality dogs in the sector e.g. HOV, BZH. Lately it seems dogs with fleas are in vogue and making traders money. You can also look south of the boarder at HXM.

    Disclosure: Other then my mortgage free properties I own no reale-estate stocks at this time.
    Stocks: TOL, DHI, KBH, BZH, HOV, HD, LOW
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