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Stuck in Neutral: Real Estate’s Mixed Q2 Results

Homebuilders and homebuilding stocks stagnate as the real estate industry tries to right itself after a tough winter

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NAR’s Pending home sales index ( index of homes under contract that have yet to close) increased 0.4 % to 97.8 in April from 97.4 in March. However, in April, 2013, the index was as high as 107.7. Regions were also mixed, as the Midwest and Northeast showed gains, while the West and the South had declines. The next report is due out on June 30.

In addition, the Standard & Poors/Case-Shiller 20-city home price index released this week showed an annual gain of 10.8%. However, the rate of gain has been slowing throughout the quarter. The West Coast had returns that dropped by 3%, and only Boston produced an annual rate improvement.

Bottom Line

So in summation, we have a total mixed bag of results for the real estate industry, and homebuilding stocks very much reflect this. The SPDR S&P Homebuilders ETF (XHB) was $32.55 on March 30, and hasn’t moved much since. The leading individual homebuilding stocks right now are D.R. Horton (DHI) and Lennar Corp. (LEN), while Hovanian (HOV) and Ryland Homes (RYL) continue to lag while trading below their 200-day moving averages.

dr horton dhi chart
Source: Stockcharts

As the accompanying chart shows, DHI, up 13% this quarter, is one of the very few homebuilding stocks that has done well. KB Home (KBH) has recently climbed above its 200 day moving average, which bodes well for the homebuilding stock.

My forward outlook for the homebuilders, as it is for the XHB, is that they remain stuck in neutral. Occasional positive reports will boost these stocks over the short term, but we still lack a compelling number of first-time buyers or higher paying jobs to propel homebuilding stocks higher over the coming quarter. The ongoing Homebuilder Confidence Index number that remains below 50 confirms that the homebuilders don’t see a big change coming soon either.

If you really like the real estate sector, buy DHI or KBH, but leave the rest alone for the time being.

Ethan Roberts doesn’t own any of the companies mentioned in this article.

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