August Housing Data Show Stalling Home Construction And Sales At Near Record Prices

Richard Suttmeier

On Aug. 15, the National Association of Home Builders reported that their Housing Market Index jumped four points in August to 68. This measure of housing sentiment peaked at 71 in March versus its all-time high of 72 set in June 2005, one month before the homebuilder stocks peaked.

On Aug. 16, the Census Bureau reported that single-family housing starts, the NAHB benchmark, slipped by 0.5% in July to a seasonally-adjusted annual pace of 856,000 units from an upwardly revised pace in June.

Monthly Graph of the NAHB HMI vs Single-Family Housing Starts

Courtesy of the National Association of Home Builders

The NAHB HMI at 68 in August is shown in blue with the scale at the left side of the graph. Single-family housing starts are in red and are shown on the right side of the graph. This reading is 849,000 for June, which is the level in today’s graph. Note that the HMI is leading the rise in starts by a significant margin, which should be considered a warning. When the index was 72 in June 2005, single-family starts were approaching 1.8 million units, not struggling at more than half that pace.

The NAHB says that homebuilders are increasingly concerned over rising building costs, notably lumber. Homebuilders remain optimistic that growth in the job market and the economic recovery will bring in more buyers into the market for new homes. Homebuilders are also concerned about tightness in building lots and labor.

Existing-Home Sales – July Sales Slide Again

June existing home sales declined in July to a seasonally adjusted annual rate of 5.44 million units, down 1.3% from June and up just 2.1% year over year. The 5.5 million threshold has been the stall point vs. the peak of 7.25 million in mid-2006.

New Home Sales Pulled Back In July

New home sales declined by 9.4% in July to a rate of 571,000 units, falling back below the 600,000 milestone. As the chart shows this threshold of sales is well below the July 2005 high of about 1.3 million. While the trend is rising, it’s well below potential.

Scorecard For The Five Largest Homebuilders

D R Horton (DHI) ($35.29 on Aug. 29) is in bull market territory 32.2% above its Nov. 9 low of $26.69, and set its multiyear intraday high of $37.44 on July 12. The stock is 17.6% below its July 2005 peak of $42.82.

Courtesy of MetaStock Xenith

The weekly chart is negative with the stock below its five-week modified moving average of $35.54. The 12x3x3 weekly slow stochastic reading is projected to fall to 68.08 this week down from 73.34 on Aug. 25. Investment Strategies: Sell strength to my monthly risky level of $37.63. Buy weakness to my semiannual value level of $30.48.

KB Home (KBH) ($21.30 on Aug. 28) is in bull market territory 50.3% above its Nov. 8 low of $14.17, and set its multiyear intraday high of $24.37 on July 12. The stock is 75.1% below its July 2005 peak of $85.45. This stock is also in correction territory 12.6% below its July 12 high.

Courtesy of MetaStock Xenith

The weekly chart is negative with the stock below its five-week modified moving average of $22.30. The 12x3x3 weekly slow stochastic reading is projected to fall to 47.29 this week down from 58.90 on Aug. 25. Investment Strategies: Sell strength to my monthly risky level of $24.43. Buy weakness to my quarterly value level of $17.87.

Lennar (LEN) ($50.81 on Aug. 28) is in bull market territory 28% above its Nov. 9 low of $39.68, and set its multiyear intraday high of $55.75 on June 20. The stock is 26.2% below its July 2005 peak of $68.86.

Courtesy of MetaStock Xenith

The weekly chart is negative with the stock below its five-week modified moving average of $52.20. The 12x3x3 weekly slow stochastic reading is projected to fall to 34.49 this week down from 46.09 on Aug. 25. Investment Strategies: Sell strength to my weekly and monthly risky levels of $52.43 and $56.92, respectively. Buy weakness to my semiannual and quarterly value levels of $48.94 and $45.54, respectively.

PulteGroup (PHM) ($24.90 on Aug. 28) is in bull market territory 40.8% above its Nov. 9 low of $17.69, and set its multiyear intraday high of $26.00 on Aug. 17. The stock is 48.4% below its July 2005 peak of $48.22.

Courtesy of MetaStock Xenith

The weekly chart is neutral with the stock above its five-week modified moving average of $24.89. The 12x3x3 weekly slow stochastic reading is projected to fall to 78.04 down from 79.08 on Aug. 25. Investment Strategies: Sell strength to my monthly risky level of $26.52. Buy weakness to my quarterly value level of $21.17.

Toll Brothers (TOL) ($37.85 on Aug. 28) is in bull market territory 42% above its Nov. 9 low of $26.65, and set its multiyear intraday high of $41.07 on July 10. The stock is 35.5% below its July 2005 peak of $58.67.

Courtesy of MetaStock Xenith

The weekly chart is negative with the stock below its five-week modified moving average of $38.46. The 12x3x3 weekly slow stochastic reading is projected to fall to 45.52 down from 53.48 on Aug. 25. Investment Strategies: Sell strength to my weekly and monthly risky levels of $38.47 and $41.94, respectively. Buy weakness to my annual and semiannual value levels of $35.71 and $33.46, respectively.

My call is that these homebuilder stocks peaked 12 years after they set their all-time intraday highs, so the strategy is to sell strength.

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