NEW YORK (ETF Expert) -- One mistake that people often make is that they react too strongly to individual economic reports. For example, recent headlines heralded a dramatic 25% jump in new home sales from September to October. And, most of the follow-up commentary trumpeted the fact that 444,000 purchases (seasonally adjusted) had been much greater than anticipated. Some investors have taken the uptick to mean that real estate sales are alive and well.
However, single month estimates are typically revised. Sales for July and August were revised down roughly 4% and 15% respectively. Meanwhile, September came in at a paltry 354,000 (seasonally adjusted). When you look at the entire picture for new home sales in the 2nd half of 2013, you're actually seeing a huge slowdown in home buyer appetite.
What's wrong with real estate? Interest rates spiked dramatically in the May-June period when the Federal Reserve hinted that it might begin winding down its bond-buying program. Property seekers salivated over the 3.5% "fixed for 30 years" mortgages. Unfortunately, 4.5% "fixed for 30″ has put affordability out of reach for a large segment of the population. Granted, interest rates may be low on a relative basis, and many prospects are less sensitive than first-timers. Nevertheless, price appreciation has already thinned out the pool for speculative folks.
Don't take my word for it. From the start of the year through mid-May -- while the real estate market was particularly brisk -- iShares DJ U.S. Construction (ITB) outperformed SPDR S&P 500 Trust (SPY). Since the Fed's mention of a reduction in bond purchases (i.e. "the Great Taper"), it has been a tale of two completely different cities.