Last week we saw a glimpse of what is expected to be a better spring season for real estate, with a 4.3% rise in January existing home sales, along with a drop to from 6.4 to 6.1 months of inventory, but a somewhat neutral 321,000 new construction sales number.
Yet both reports led to a fierce selloff in homebuilder stocks. So what’s going on?
Well, a number of forces are at work. First, homebuilder stocks have run up extensively since October 2011, so it will take some powerful numbers to continue that trend.
However, the tepid new homes report last week just did not measure up. As a result, many homebuilder stocks — such as Ryland Group (NYSE:RYL), Beazer Homes USA (NYSE:BZH), Lennar Corp. (NYSE:LEN) and KB Homes (NYSE:KBH) — were blasted lower. RYL was down more than 3% on Friday, and KBH dropped about 2.6%.
Second, we saw a revision upward in the December new home numbers from 307,000 to 324,000, which actually meant the January sales of 321,000 were down, and this spotlights one of the recent problems in the housing industry. Just a few months ago, the National Association of Realtors had to wipe the egg off its face when the organization admitted its existing home sales reports from the past several years were flawed.
If an industry loses credibility with its data, how can stock analysts trust the numbers that are being presented? Plus, in an election year like 2012, could political pressure be exerted on industry groups to make their numbers appear better?
It seems that more and more data is being revised from previous months. This is a very disturbing trend for three reasons.
- First, people either made or lost money on incomplete or phony data that initially was reported.
- Second, the newest data must be interpreted off revised numbers, which are different than what the analysts used to make their predictions. That changes whether the report exceeds analyst expectations, which often is what moves prices higher or lower.
- Third, instead of trusting the data, Wall Street has to wonder, “Will this new report be revised next month, and if so, will that revision be better or worse?” Without the confidence that reports will be accurate, it is more difficult to assess stock values.
Spring Season Expectations
The real estate industry always looks forward to spring, because that is when homebuyers emerge in full force. With huge price decreases since 2006, historical low interest rates, and recently reported improvements in both employment and housing, it would seem a fait accompli that investors should expect a rosy spring season from the housing market.
Not so fast.