NEW YORK ( TheStreet) -- Homebuilder stocks were the market leaders until May 20 when the PHLX Housing Sector Index (HGX) (170.76) peaked at 210.01, up 22.6% year-to-date at that time. The index set a 2013 low at 164.03 on Aug. 15, down 4.2% on the year and down 21.9% from the May 20 high. The index is now down just fractionally on the year.
As the homebuilders rallied into May, my recommended strategy was to book profits on strength as these stocks became extremely overvalued. On May 17, two days before the housing index peaked I wrote, Homebuilders Downgrades Continue. With the builders at or near multiyear highs booking profits was the prudent strategy for investors.
I live and work in Tampa, and Florida leads the nation in all-cash home sales at 66% of sales last month. The buyers are investors who convert homes to rental properties, foreign buyers and folks buying vacation homes. This is shutting out entry-level homebuyers, who have difficulty getting approved for mortgages.
Banks have a tough time approving mortgages when Florida has the highest rate of foreclosures in the nation, at three times the national average. Higher home prices and higher mortgage rates may have stopped the housing recovery on a dime, at least in some Florida markets. On Aug. 23, we learned that new home sales declined 13.4% in July to a seasonally adjusted annual rate of 394,000 units.
The National Association of Home Builders continues to have concerns about the market for new homes, citing the lack of desirable plots, the shortage of qualified labor, the reluctance of community and regional bank to underwrite new construction and development loans, and the difficulty that home buyers have in getting a mortgage application approved.