This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Homebuilders' Valuations Are Extremely Speculative

Chart Courtesy of NAHB/Wells Fargo Housing Market Index

It seems to me that record low inventories of new homes is discouraging prospective new home buyers from becoming actual new home buyers. The NAHB indicated that in some markets there is a lack of building lots and the cost of building materials is on the rise.

The bottom line is that the market for new homes is less depressed that it had been for the prior five months. The graph above shows that builder sentiment is leading new single-family starts.

Housing Starts Rose 2.3% in August: Strength in single-family starts boosted the overall number. Single-family starts rose to a seasonally adjusted annual rate of 750,000 units. The important single-family sector saw new construction up 5.5% with a gain of 535,000 units. The NAHB reacted to this improving trend with the note that "there is still plenty of room for improvement."

New Home Sales for August: These came in at an annual rate of 373,000 units, which was below analysts' estimates. The inventory of new homes remains near a record low at 141,000 units.

The S&P/Case-Shiller Home Price Indices: I focus on the 20-City Composite and this index was up 1.6% in July versus June 2012, up 1.2% year over year and up 7.8% since the recent low. Home prices are still down 30% from the June / July 2006 housing market bubble peak.

Chart Courtesy of S&P Dow Jones Indices and Fiserv

Here I profile nine of the stocks in the PHLX Housing Market Index. Despite this positive data for the homebuilders I continue to be cautious about the sustainability of the powerful rally in this industry.

Chart Courtesy of Thomson/Reuters

The weekly chart for PHLX Housing Sector Index (157.44) shown above shows extremely overbought momentum with the index well above its five-week modified moving average at 151.97. The multi-year high was set on Sept. 21 at 168.79. This high was well above 145.52, which is the 38.2% Fibonacci Retracement of the entire down trend from the July 2005 high to the March 2009 low.

This level now becomes support on the downside. The 50% retracement at 173.81 is resistance to the upside. My quarterly and annual value levels are 135.17 and 122.53 with a monthly pivot at 158.52, which was tested on Wednesday's downside.
2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BZH $14.38 0.98%
DHI $32.74 1.49%
KBH $13.78 1.25%
HOV $1.68 1.20%
LEN $51.64 1.20%


Chart of I:DJI
DOW 17,812.19 +19.51 0.11%
S&P 500 2,089.14 +2.55 0.12%
NASDAQ 5,102.8080 +0.33 0.01%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs