The weak stock performances of homebuilders DR Horton (DHI) , KB Home (KBH) , Lennar (LEN) , Pulte Group (PHM) and Toll Brothers (TOL) show why the U.S. economy can't base its recovery on a foundation of single-family homes.
From a technical standpoint, each set 52-week lows on Wednesday and all are in bear market territory, down between 20% and 43% from their 2015 highs.
Fundamentally, recent data on the housing market clearly show the market for new homes continues to stall at 60% of potential. Homebuilder sentiment is stuck at 60, and single-family starts are about 60% of the longer-term average annual pace.
On Tuesday, the National Association of Home Builders reported its Housing Market Index for January, then on Wednesday the Commerce Department released housing starts data for December.
The NAHB HMI Index for newly built single-family homes held steady at 60 in January from December, when the figure had been revised downward. The association expects the market for new single-family homes to steadily improve in 2016, but declining prices for homebuilder stocks do not support this notion.
The NAHB must not look at price charts or economic data because it believes the economy continues to show gradual improvement and the economic environment should bode well for home sales in the year ahead. The charts and data do not support this notion.
The graph above 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 unchanged reading of 60 in January. Single-family starts (in red with its scale on the right of the graph) shows the data for November not December, as this graph is produced each month before the release of the latest reading on housing starts.
In December, single-family starts fell 3.3% to 768,000 units versus an upwardly revised November reading of 794,000 units. At the current pace starts are just above 60% of the normal annual rate of 1.1 million to 1.2 million units. For all of 2015 single-family starts gained 10.4% to 715,000 units, below the normal threshold.
Here's a scorecard for the five major homebuilders and the housing and banking indices for the regional and community banks that provide real estate loans.
Note that the PHLX Housing Market Index set a 52-week low on Wednesday and is in bear market territory. The Regional Banking Index also set a 52-week low and is also in bear market territory. The Community Banking Index set a 52-week low, and is in correction territory.