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Slower New Home Sales Can't Stop Regional Banks' Ride

NEW YORK (TheStreet) -- Sales of new homes in the United States fell by 7.0% during December to an annual pace of 414,000, according to the Census Bureau and the Department of Housing and Urban Development. Analysts suggest however that regional bank stocks may be more closely tied to home prices, which have so far continued to rise.

Home sales declined sharply from a downwardly revised pace of 445,000 in December.  For all of 2013, new home sales totaled 428,000, rising 16.4% from 2012.

Economists polled by Thomson Reuters had estimated December's sales pace would be 456,000, which would have been a relatively modest decline from the previous November estimate of 464,000.

The median sales price for a newly constructed home was $270,200, up from a revised $268,500 in November, while the average sales price was $$311,400, declining from $334,600 in November.  The median sales price rose 5% from $258,300 in December 2012, while the average sales price was up 4% from $299,200 in December 2012.

There was a five-month supply of new homes for sale during December, which was up from 4.7 million in November and 4.5 million in December 2012, although the inventory was as high as 5.5 months in July.

UBS economist Maury Harris in a note to clients on Friday wrote that "Housing indicators are likely to be more muddled, with declines in new and pending home sales in December but ongoing price increases for November suggesting that demand has not faltered too much." Harris had estimated December sales of new homes would come in at a pace of 430,000, putting him way below consensus, and even lower than the 7% month-over-month drop that was reported.

KBW analyst Frederick Cannon in a client note on Sunday wrote that there was a "strong relationship" between rising home prices and the performance of regional bank stocks during 2013, and that "regional home price increases had a much closer relationship with bank stocks than did changes in regional employment."  He added that "the acceleration in the home price appreciation in Chicago, the Pacific Northwest and the Southeast as indicators of possible regions of outperformance in 2014."

The largest year-over-year increase in homes sold was in the Midwest, with sales at an annualized pace of 60,000 in December, up 25% from 48,000 in December 2012.  The report on Monday from the Census Bureau and the Department of Housing and Urban Development does not included median or average sales prices by region.  According to KBW's data, home-prices in Chicago were up 10.9% in October from a year earlier.

Two Chicago-area banks with market caps above $1 billion rated "outperform" by KBW and cited in Cannon's report are MB Financial (MBFI) and PrivateBancorp (PVTB).

Shares of MB Financial returned 65% during 2013, while PrivateBancorp was up 89%.

MB Financial's stock closed at $29.57 Friday and traded for 13.3 times the consensus 2015 earnings estimate of $2.22.  The consensus 2014 EPS estimate is $1.79. 

PrivateBancorp's stock closed at $29.43 Friday and traded for 15.7 times the consensus 2015 EPS estimate of $1.87.  The consensus 2014 EPS estimate is $1.72.

Shares of MB Financial were down 0.8% in late morning trading Monday to $29.44, while PriveBancorp was down 1.9% to $28.87.

The following chart shows the performance of both banks against the KBW Bank Index (I:BKX) since the end of 2011:

MBFI Chart data by YCharts

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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