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

Richard Suttmeier

On July 18, the National Association of Home Builders reported that their Housing Market Index slipped two points in July to 64. This measure of housing sentiment peaked at 71 in March versus its all-time high of 72 set in June 2005.

On July 19, the Census Bureau reported that single-family housing starts, the NAHB benchmark, rose by 6.3% in June to a seasonally-adjusted annual pace of 849,000 units.

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

The NAHB HMI at 64 in July is shown in blue with the scale at the left side of the graph. Single-family housing starts is in red and is shown on the right side of the graph. This reading is 799,000 for May, 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 consumer interest in new homes will remain strong. Keeping an optimistic view, they note that single-family starts are at their second highest pace this year.

Existing-Home Sales – June Sales Slide

June existing home sales declined in June to a seasonally adjusted annual rate of 5.52 million units. There’s been a lull in contracts over the last three months on the lack of supply and affordability issues. The chart shows that existing home sales have stalled around the 5.55 million threshold vs. the peak of 7.25 million in mid-2006.

New Home Sales Rise Slightly In June

New home sales rose slightly in June to 610,000 units. 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, its well below potential.

Home Ownership Rate

This statistic peaked at 69.2% in 2004 and has been declining rather steeply to a recent low of 63.4%. At the end of the second quarter, the home ownership rate rose slightly to 63.7%. One issue is affordability.

Case-Shiller 20-City Composite For Home Prices

The 20-City Composite peaked in July 2006, and declined by 35.1% in March 2012. I estimated that this low was on the normal inflation-adjusted down trend that goes back to the year 2000. Since this low home prices are up 48.4% to the latest reading in May. This is just 3.7% below the 2006 high as a re-inflated bubble.

Scorecard For The Five Largest Homebuilders

D R Horton (DHI) ($35.69 on July 31) is in bull market territory 33.7%above its Nov. 9 low of $26.69, and set its multiyear intraday high of $37.44 on July 12. The stock is 16.7% below its July 2005 peak of $42.82. Sell strength to my monthly risky level of $37.63.

KB Home (KBH) ($22.92 on July 31) is in bull market territory 61.8% above its Nov. 8 low of $14.17, and set its multiyear intraday high of $24.37 on July 12. The stock is 73.2% below its July 2005 peak of $85.45. Sell strength to my monthly risky level of $24.43.

Lennar (LEN) ($52.44 on July 31) is in bull market territory 32.2% above its Nov. 9 low of $39.68, and set its multiyear intraday high of $55.75 on June 20. The stock is 23.8% below its July 2005 peak of $68.86. Sell strength to my monthly risky level of $56.92.

PulteGroup (PHM) ($24.42 on July 31) is in bull market territory 38% above its Nov. 9 low of $17.69, and set its multiyear intraday high of $25.20 on July 7. The stock is 49.4% below its July 2005 peak of $48.22. Sell strength to my monthly risky level of $26.52.

Toll Brothers (TOL) ($38.59 on July 31) is in bull market territory 44.8% above its Nov. 9 low of $26.65, and set its multiyear intraday high of $41.07 on July 10. The stock is 34.2% below its July 2005 peak of $58.67. Sell strength to my monthly risky level of $41.94.

My call is that these homebuilder stocks are peaking 12 years after they set their all-time intraday highs.

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