|
Home builders are reporting that they see signs of stabilization in their business. But the stocks in the sector are lagging the market, suggesting that the market isn't betting on any housing boom for some time.
According to The Wall Street Journal: "Two big builders, Toll Brothers Inc. and Hovnanian Enterprises Inc., said losses in the fiscal second quarter ended April 30 shrank from year-earlier levels as lower prices lured some buyers back into the market." Yet, when more data is examined, what is clear is that although houses are moving, pricing power is non existent. The Journal reported: "A report Wednesday from IHS Global Insight, a research firm in Lexington, Mass., said home prices on average fell at an annual rate of 2.2% in this year's first quarter, compared with a 12.5% rate in the fourth quarter of 2008. The report is based on price data from the Federal Housing Finance Agency. In the latest quarter, prices were down in 199 of 330 metropolitan areas examined in the study. In the fourth quarter, 312 metro areas showed declines."
In other words, it's all in how you look at it. If you bought a house ten years ago, it's possible that if you are able to sell it, you may get more for it than what you paid for it. But that's not a guarantee if you buy one now, as prices have fallen precipitously over the last couple of years.
More important is the fact that existing homes now have to compete with brand new homes that are selling at more competitive prices.
And there are other things to consider, such as "rising unemployment and increases in the foreclosure rate. Foreclosure actions were initiated on 1.4% of first-lien home mortgages in this year's first quarter, up from 1.0% a year earlier, the Mortgage Bankers Association said last week. Meanwhile, after falling to their lowest levels since the 1950s, mortgage interest rates have increased. In the week ended May 29, the average interest rate for new 30-year fixed-rate mortgages jumped to 5.25% from 4.81% a week earlier."
The rapid increase in mortgage rates has put a damper on home loan refinancing, and is a direct result of heavy selling in the U.S. Ten Year note (TNX), where yields recently topped 3.6%.
Chart Courtesy of StockCharts.com
Home builders are still reporting huge losses, even if they are smaller than they were last year at this time. Hovnanian reported a loss of $118.6 million for its latest quarter, ending April 30, down from last year's loss of $340.7 million during the same quarter. Toll Brothers booked a loss of $83.2 million for the fiscal second quarter ended April 30, compared with a loss of $93.7 million a year earlier. Both builders cited decreases in land values as important factors in their numbers.
The SPDR Homebuilders ETF (NYSE: XHB) has failed to make a new high from its March bottom during the recent rally, lagging the S & P 500. XHB topped out on May 5 of this year, after rallying from its March lows.
Chart Courtesy of StockCharts.com
Other housing industry related stocks, such as Lowe's (NYSE: LOW), Home Depot (NYSE: HD), and furniture retailer Ethan Allen (NYSE: ETH) have also stalled after rallying off of thei March bottom in the stock market.
Chart Courtesy of StockCharts.com
Most interesting is the relationship between the stall in housing related stocks and the rally in the price of gasoline, as illustrated by the U.S. Gasoline ETF (NYSE: UGA), which has been in rally mode since December 2008.
Chart Courtesy of StockCharts.com
Conclusion
The housing market is dependent on several factors: the status of the employment market, interest rates, and to some degree the overall price of significant commodities, such as gasoline.
As interest rates and gasoline prices have risen, so have the housing and related stocks started to falter, suggesting that despite some hopeful sounding remarks from the homebuilders, there are still enough external influences that could derail what seems to be the start of a very fragile attempt at a bottom.
The employment report, due out on Friday, will give us more information about the job market, the centerpiece of the U.S. economy. It will also be interesting to see how interest rates, energy prices, and the housing stocks in particular respond to the numbers.
Get Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for All Seasons. Also Available As Kindle Books.
|
