The bad housing news got worse this week. New home sales plunged 32.7% in May to their lowest level on record — and April’s figures were revised down significantly, to 446,000. The expiration of the home buyers’ tax credit is a likely culprit, but doesn’t make the housing market news any easier. Worse, the new home construction pace is only in the 300,000s.
The housing results have taken a toll on two exchange-traded funds indexed to housing stocks, with both ETFs tumbling after the Commerce Department’s announcement Wednesday. The IShares Dow Jones U.S. Home Construction Index Fund (ITB) is off about -3.5%and SPDR S&P Homebuilders ETF (XHB) is off nearly -4% this week. Both housing ETF funds are down about 13% so far in June.
Fears are mounting of a double dip in home values. Possible mitigating circumstances could be that inventories of homes for sale fell for the third straight month to 213,000, its lowest level in nearly 40 years. The number of homes available for sale is lower than in any other recession, Wells Fargo says.
Also, CoreLogic reported earlier this week that national home prices – including distressed sales – increased by 2.6 percent in April compared with April 2009. And that was an improvement over March’s year-over-year price increase of 2.3 percent.
CoreLogic said, however, that the peak-to-current change in its national housing price index – April 2006 to april 2010 — was off 21.1 percent, excluding distressed sales.
So are housing stocks like homebuilders Toll Brothers (TOL) or Pulte Group (PHM) and housing ETFs oversold? Maybe, but that’s a big bet. Even in California, Nevada and Florida, demand for new construction homes will lag as the enormous inventory of foreclosures and short sales are drawn down.
As of this writing, Wayne Faulkner did not own a position in any of the stocks or ETF funds named here.
