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Is the Housing Market Cooling or Maintaining Its Volatility

NEW YORK (TheStreet) -- As of June, new-home sales dropped by 8% to an annual rate of 406,000 homes. Does this mean the housing market is cooling down? How does this news impact homebuilder stocks such as D.R. Horton (DHI - Get Report) and Lennar (LEN - Get Report)?

The chart below demonstrates the fluctuations in the number of new homes sold and the median price of a new dwelling during the past year, according to the recent release of the U.S Census Bureau's report (PDF file).

Source: U.S. Census Bureau, Department of Housing and Urban Development

Based on the above, the number of homes sold fell in June, after it had slowly picked up in the preceding months. The annual rate was also 11.5% below last year's pace in June. Nonetheless, the new-home sales pace didn't move in a clear trend as it ranged between 400,000 and 460,000 in the past nine months.

Further, during June, the median sales price slid by 3.2% to reach $273,500 but remained over 5% above the price recorded in June 2013.

These figures suggest the housing market has been stagnating in recent months. But this negative news of falling new-home sales may have contributed to the recent drop in shares of homebuilders: D.R. Horton plummeted by 11% Thursday and closed down another 33 cents, to $21.61, on Friday. Lennar's stock fell by 3% Thursday and off another 84 cents Friday, ending at $38.43.

For D.R. Horton, the recent release of its quarterly earnings report also pressured down its stock, as it didn't meet the market's expectations, with earnings per share of 32 cents -- a 24% fall compared to the same quarter last year.

Conversely, housing-related stocks, including Lowe's (LOW) and Home Depot (HD) were less impacted by this news. Shares of Lowe's slightly rose by 0.24% to $48.03 on Thursday, only to give back 30 cents on Friday.

To quote TheStreet's Joe Deaux, it is a volatile housing sector, as we also saw a spike in existing-home sales in June. 

If the new-homes market remains stuck in range, it could bring down home builders' stocks as a jittery market reduces its sales expectations for these companies.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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