November Home Sales Data Propel Homebuilder Stocks, Suggest Bottoming of Housing Market

by: SA Editors

Homebuilder stocks rose strongly after the Commerce Department reported Wednesday morning that new home sales rose 3.4% sequentially in November, higher than the 1.6% rise forecast by economists and a sharp rebound from the 3.8% decline in October. The supply of unsold homes at the current sales rate fell to the lowest since May, and the median price of a new home rose 5.8% versus a year earlier (to $251,700 from $237,900), the largest increase since June. Still, sales of new homes were down 15.2% year-over-year, and economists weren't ready to call an end to housing market pain. ING economist Dimitry Fleming, for example, stated that "although the rebound in sales is consistent with the housing slowdown bottoming out... supply is still high”, and Lehman Brothers' Michelle Meyer said "We look for further weakness in prices as homebuilders continue to slash prices to encourage sales." According to the WSJ, while November's new sales numbers are encouraging, "the estimates are difficult to interpret with unclear calculations of sales cancellations making the true sales and inventory numbers difficult to pinpoint." The SPDR Homebuilders ETF closed the day up 1.6% and the iShares Dow Jones US Home Construction ETF up 1.9%. The National Association of Realtors reports on existing home sales Thursday. New home sales are arguably a better barometer of current market conditions because they are recorded when contracts are signed. In contrast, existing home sales, which account for about 85% of the residential real estate market, are recorded when contracts close, often months after buying decisions were made and contracts signed.

• Sources: Bloomberg, Wall Street Journal, NY Times, Wall Street Journal II, AP
• Related commentary: Housing Bubble and Real Estate Market Tracker, Housing Market At Its Worst Since 1997, Hovnanian Enterprises Suffers Gruesome Fourth Quarter.
• Potentially impacted stocks and ETFs: Hovnanian Enterprises (NYSE:HOV), DR Horton (NYSE:DHI), KB Home (NYSE:KBH), Centex (CTX), Toll Brothers (NYSE:TOL). ETFs: SPDR Homebuilders (NYSEARCA:XHB), iShares Dow Jones US Home Construction (NYSEARCA:ITB).

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