Thursday, August 7, 2008

Weak Bounce in Homebuilders

Pending home sales are up 5.3% today, handily beating the consensus expectations, which called for a 1.0% decline. Barry Ritholtz at The Big Picture has a different interpretation of the data in Media Gets Pending Home Sales Wrong (Again!) Not surprisingly, Barry is less optimistic about the state of the housing market and emphasizes the importance of looking at year over year changes instead of sequential monthly changes.

The homebuilders are a very interesting sector – and one worth following closely. Homebuilder stocks (as measured by the XHB ETF) actually peaked at 39.39 back in early February 2007, several months prior to the time frame covered in the chart below.

For a few months, homebuilders looked as if they had made a bottom in January, when they rallied more than 60% from their January low to their April high, only to grind down to a new bottom in July. The graphic shows a sharp two day bounce off of the July low, followed by a lot of sideways action over the course of the past three weeks. At this stage, the July bottom does not yet look convincing and XHB is actually trading down as I type this.

With foreclosure activity now accounting for an increasingly large percentage of all home sales, statistics such as selling price per square foot (see Solano County, in particular) may help to sort out some of the divergence between sales volume and sales price data.

5 comments:

Marc said...

Barry Ritholtz is to stock market bulls what Sean Hannity is to political liberals. Don't expect either to change their viewpoint just because the data doesn't agree with them...

Cheers,
Marc

StockRake said...

Economists do what they do best. Ramble, but write or speak well. They contribute to the tornado of noise that is noise.

It will fuck up your trading listening to economists. IMO.

Nick said...

Barry seems to be pretty pessimistic about most aspects of the housing market in general, but at least he admits most of his posts start out pointing out how bad things are this year compared to the past.

Homebuilders probably have at least a good few months longer to deal with the soft economy. Will the new housing bill make it easier for them to sell properties, what with the new tax credit? And the new abilities of foreclosure victims to get an FHA loan? I guess time will tell.

eh said...

Homebuilders probably have at least a good few months longer to deal with the soft economy.

Yes, that's right -- in a "few months" it'll all be over.

wrongful foreclosure said...

Predatory lending is also a threat to deal with now a days. I am happy you wrote something worth reading about foreclosures. Foreclosure freeze for a wrongful foreclosure is a must. Lenders should explain terms and conditions in a simple manner to home owners. This would certainly decrease the amount of foreclosure fraud.
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stop foreclosure | foreclosure freeze

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