Chart Courtesy of Thomson/Reuters In my judgment the latest data on housing does not justify the extent of the rally in homebuilder stocks.
The Fed statement following the June 19 and 20 FOMC meeting continued to include, "Despite some signs of improvement, the housing sector remains depressed."The National Association of Home Builders Housing Market Index rose just a point in June to 29, which was the highest reading since May of 2007, but was still well below 50. This means that the homebuilders view the activities in the market for new single family homes as being well below normal. New home sales rose by 7.6% to an annual rate of 369,000 units in May. The 4.7-month's supply is the lowest since October 2005. The inventory of new homes rose by just 1,000 to 145,000 units. While the pace of new home sales is promising, the National Association of Home Builders cautioned that the current sales figures remain low by historical standards, constrained by challenges related to credit availability for builders and faulty appraisals. Did you ever notice that housing starts are always a higher figure than new home sales? Housing Starts are a broad measure of all homes beginning construction. New home sales come from sales from the inventory of homes built in anticipation of finding a buyer. Not included are custom homes, where the owner of a vacant property decides to have a home build on that land. It is estimated that 80% of all housing starts are new homes built for sale. The latest release of the S&P Case-Shiller Home Price Index shows price stability in April after setting cycle lows for the 20-City Composite in March. The index showed that home prices rose by 1.3% in April vs. March, but were down 1.9% year over year. Overall home prices declined 34.1% from the June-July 2006 bubble highs to the lows set in March 2012. Since the year 2000, the 20-City Composite is still up 35.8%, and would have to decline by another 26.4% to return to those levels.