Stronger than expected New Home Sales in December raised housing stocks higher Wednesday, but whether the lift will last beyond the short short term is still unclear. Yes, there is hungry money sniffing for the turn in housing, in order to prosper on the inflection point and the beaten down sector. But this latest spike is partly an expression of greed and speculation, and could be too early to hold.
New Home Sales were reported running at an annual rate of 329K in December, above expectations for 300K, based on Bloomberg’s survey of economists. In percentage terms, the pickup in rate of sales was an impressive 17.5% over the revised November rate of 280K (from 290K), but when small numbers are compared, percentages are exaggerated. The absolute rate of sales, at 329K, still represents a pathetic state of affairs, despite the season being measured here. This is illustrated through the comparison of this December with the prior year period; that measure shows New Home Sales are actually down 7.6% from a run rate of 356K.
Other data of late around housing has been mixed on a relative basis and still weak in absolute terms. Of course, change of direction and velocity matter more than absolute, but that change has to be sincere for it to provide a long-term basis for stock purchases.
Wednesday, the Mortgage Bankers Association reported Mortgage Activity fell. The Market Composite Index of activity declined 12.9% for the period ended January 21. The decline came on 15.3% lower Refinance activity and 8.7% lower Purchase activity. In fact, the Purchase Index was at its lowest level since October. Given, though, that this kind of activity during this time of year can be influenced by seasonal issues, like excessive storm activity. So we should not read too much into it.
S&P Case Shiller showed ongoing pricing weakness. While this is reflective of softness in the measured November period, it is actually prospective for the industry’s outlook. At some point, price will meet demand and drive it. The Census Bureau estimates 321K new homes were sold in 2010, down from 2009’s 375K. It seems likely that 2010 marked the bottom in the new home market, and so the hungry speculators have good enough reason to prospect. Still, foreclosure activity and distressed property flow is still heavy, and represents an obstacle for homebuilders.
Existing Home Sales were reported last week for December, up to a rate of 5.28 million, exceeding the November run rate of 4.7 million. It also surprised economists, who were looking for a gain to only 4.9 million. Housing Starts data for December was down though, to an annual rate of 529K, from 553K. What’s worse is that single-family starts were down from November, to a rate of 417K, from 458K. Permitting, however, which is more important to readers here, spiked up to 635K, from 530K. Since this directly measures the new construction arena, it is certainly on housing investors’ minds. However, closer inspection shows that permitting for single-family home construction, most relative to homebuilder shares, rose at a lesser rate, up only 5.5%, to 440K.
Thus, the data is inconclusive. While the bottom looks to have been marked, that possibility does not necessarily signify that new growth is in store. Now, the housing stocks will precede that eventual business growth in claiming capital ground, due to the type of prospective betting that is occurring today. Thus, the question to ask is will near-term data flow support a case for steady gains? I have to believe that remains suspect. So, while shares of Toll Brothers (NYSE: TOL +1.4%), Hovnanian (NYSE: HOV +3.4%), D.R. Horton (NYSE: DHI +1.0%) and others were on the rise Wednesday, you can expect their movement through the next year’s clarification to be choppy. Thus, there’s trading opportunity, versus investment at the moment. You might even sell on the day’s strength and take a trading profit in the short short-term if you can get it.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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