Higgenbotham - Saturday July 27th, 2013 wrote:
This week new home prices were reported down while Ryland and DR Horton said their order books are collapsing due to cancellations. Housing stocks in general are well off their May peaks. In the last cycle housing stocks peaked in late July 2005, two years ahead of the general stock market but new home prices didn't start dropping until a year later. Things seem to be moving quickly.
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John wrote:
U.S. NEWS
Updated July 24, 2013, 5:10 p.m. ET
WASHINGTON—Sales of new homes surged in June despite higher mortgage rates, maintaining momentum for a key sector driving the economic recovery.
New-home sales increased 8.3% last month to a seasonally adjusted rate of 497,000, the Commerce Department said Wednesday. That was the highest level since May 2008. Sales were up 38% from a year earlier.
John wrote:
Who do you believe?
When you are comparing the prices of fruit you need to make sure you are comparing the same types of fruit and using the same units of measure.
Statistical data on house prices appear as many different types of fruit.
By ALAN R. ELLIOTT, INVESTOR'S BUSINESS DAILY, Thursday 07/25/2013 wrote:
Homebuilders collapsed Thursday as investors pulled the plug after a spate of quarterly results.
PulteGroup (PHM) drilled as much as 13% lower before closing down 10%. D.R. Horton (DHI) and Ryland Group (RYL) tanked 9% and 5%, respectively.
Pulte reported a 100% increase in earnings, less than forecast by analysts. More important, its orders declined and deliveries undercut analyst views. D.R. Horton met earnings expectations, but missed on the revenue line. Deliveries and net new orders both stopped far short of analyst views.
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Homebuilder stocks have traditionally rallied at the front end of housing recoveries. The group rallied for 16 months when the home market turned up in 1990-92. It rallied for another 17 months starting late in 1992. When housing rebounded in 1997-98, the group rallied for 15 months.
The stocks rallied for five full years through July 2005. Now, depending on how you count, homebuilder stocks rallied for either 17 or 19 months to their late-March peak. Has the industry reverted to its old, 15-to-17-month pattern?
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Higgenbotham - Saturday July 27th, 2013 wrote:
This week new home prices were reported down while Ryland and DR Horton said their order books are collapsing due to cancellations. Housing stocks in general are well off their May peaks. In the last cycle housing stocks peaked in late July 2005, two years ahead of the general stock market but new home prices didn't start dropping until a year later. Things seem to be moving quickly.
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H. is talking about the decline in stock prices of companies that build and sell new homes,
NOT the price of new homes and Not about the stock of houses for sale..
When H is talking about orders they are talking a leading indicator that is out in the future maybe six months. When H is talking about cancellations they are talking about orders for homes months ahead of delivery.
Even though the earnings of one of these companies increased by 100% in the quarter just ended the stock tanked. Home Builder Stock prices are leading indicators and are very sensitive to the effect rising mortgage interest rates will have on profits 6 to 12 months from now.
Higgenbotham wrote: Consider this chart of 2 month change in new home prices. Biggest drop since 2009. I didn't know that when making the previous post, just knew they had dropped. There are better ways to present this data and I will look for something better,
http://www.zerohedge.com/sites/default/ ... Change.jpg
John wrote:
Who do you believe?
Here we are talking about different fruit and likely different units of measure as well.
Home builder stock prices, orders from home builders, signed real estate contracts, and closings are all different types of fruit, and very different types of fruit prices.
The price of the stock of a home builder is a very different unit of measure.
Raw home sales data and seasonally adjusted home sales data are slightly different units of measure.
Calender month comparisons year to year, and month to month, are different units of measure than two month windows from mid month one month to mid month two months later.
Real Estate Sales Contracts entered into by brokers and actual sales closed ( which includes both sales closed with, and without brokers ) are are leading indicators and trailing indicators respectively, and do not match up chronologically for comparison purposes, even if you ignore the fact that one is apples and one is oranges.
More importantly than that, strange aberrations happen, for a couple of three months, in the housing market when it is widely perceived by all the market players that a long term shift in mortgage rates from historic lows to ever increasing mortgage interest rates occur.
Some low end Buyers have locked in interest rates that allow them to buy at lower interest rates for a month or two after the rate increases start. Thus a surge in raw numbers of sales.
Sophisticated high end buyers ( high home price buyers ) have stock profits they can roll in to high end, high price, housing. They are motivated to do this because stock prices are likely to fall as mortgage rates, and interest rates in general, increase. Real Estate has historically been a superior hedge against both inflation and recession if the investor can buy and hold for decades.
Sellers fearful of the negative effect middle term increases in interest rates will have on the price, and even the ability to sell their homes, will cause sellers to make concessions to sell, some of these concessions will show up in lower prices in sales contract price and/or closing prices., many such concession will NOT show up in one, the other, or either statistic as lower prices for the first months of this transition in the market.
All of these factors will result in the surge in the numbers of homes sold for some number of months, but they will also cause aberrations in the sales prices for a month or three.
The longer term effect should be more predictable as some buyers are forced out of the market at the lower end due to rising interest rates, a slowing in sales / increase in the inventory of houses listed for sale, and eventually a drop in house prices starting at the entry level homes.
All this is the normal cycle and should continue unless the economy collapses or an inflation driven false expansion takes hold.
