5 Homebuilder Stocks Not Helped Much by Solid Housing Data

NEW YORK (TheStreet) -- The cross-currents of data in the housing market established trading ranges for these five homebuilders: D.R. Horton (DHI), KB Home (KBH), Lennar (LEN), PulteGroup,  (PHM) and Toll Brothers (TOL).

On Monday, the National Association of Home Builders released its Housing Market Index for June which showed a rise of five points to 59, the highest level since September 2014. Unfortunately, the data for single family housing starts for May released on Tuesday showed a slump to an annual rate of 680,000 down 5.4% from the pace set in April.

The graph below shows the NAHB Housing Market Index versus single-family starts. The HMI (in blue with its scale on the left of the graph) shows the rise of five points to 59 in June. This index has been above the neutral reading of 50 for 12 consecutive months.

Single-family starts (in red with its scale at the right of the graph) shows the revised April rate of production not the May rate, which will be shown in July. At 680,000, single-family starts remain well below the normal annual rate of 1.1 million to 1.2 million units.

The NAHB touted the positive trend in building permits, which rose 11.8% to an annual rate of 1.275 million, the highest level since August 2007.

This may not be as positive as its sounds if homebuilders are constructing new homes on speculation that buying demand will increase which is questionable given tight credit conditions from mortgage lenders.

Homebuilders typically borrow funds from community banks in the loan category called construction and development loans. At the end of 2007 this real estate loan category as shown on the FDIC Quarterly banking Profile totaled $628.9 billion. As bad loans in this category increased eventually more than 500 banks failed. The low for the cycle for C&D loans was $201.6 billion in the first quarter of 2013. Since then C&D lending rose by $44.5 billion to $246.1 billion in the first quarter of 2015. This is the fuel that homebuilders used to increase inventory of new homes on speculation.

The daily charts below courtesy of MetaStock Xenith, show the trading ranges for the five popular homebuilders.

D.R. Horton, at close to $27, is up 6.5% year to date, down from a gain of 5.9% on May 19. The low end of the trading range is the 200-day simple moving average of $24.92 with the 2015 high of $29.29 set on April 6 as the high end of the range. The 50-day simple moving average of $26.64 is between these extremes.

KB Home, at $15, is down 9.6% year to date, increasing the loss from 8.8% on May 19. The trading range is between the Jan. 16 low of $11.76 and the $16.37 high set on April 15. The stock is below its 50-day and 200-day simple moving averages of $14.97 and $15.21, respectively.

KB Home is scheduled to report quarterly earnings before the opening bell on Friday and analysts expect this homebuilder to earn 9 cents a share. 

Lennar, at $47.64, is up 6.3% year to date, down from a gain of 8.6% on May 19. The low end of the trading range is the Jan. 16 low of $41.25 with the upper end being the April 6 high of $53.67. The stock is between its 200-day simple moving average of $45.64 and its 50-day simple moving average of $47.68.

PulteGroup, at $19.63, is down 8.5% year to date, increasing the loss from 6.6% on May 19. The low end of the trading range is the Oct. 13 low of $16.56 with a price gap between the April 22 low of $21.46 and the April 23 high of $20.74. The stock is below its 50-day and 200-day simple moving averages of $20.13 and $20.46, respectively, which is a "death cross."

Toll Brothers, at $37.29, is up 8.8% year to date, down from the gain of 11% on May 19. The low end of the trading range is the 200-day simple moving average of. $35.15 with the April 6 high of $40.33 the upper end of the range. The 50-day simple moving average is in-between at $37.19.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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