7/19/2012
By David Urani, Research Analyst

More Articles by David Urani

Homebuilder Confidence Back Up

Market Valuation Entering "Fair" Territory

Can Brunswick Float Your Boat?

Existing home sales were quite the disappointment today when they came in at a 4.47 million annual rate in June, down 5.4% from May and below the 4.65 million consensus. After revisions, May turned out to be flat, so this means the existing market was soft for two months running.

One trend that's been showing up in recent months has been a shortage of inventory in some places, and that may be holding sales back to an extent. That's especially true in the West, including parts of California where foreclosure supply has actually run dry. Looking at the non-adjusted figures, the West was flat while the other regions actually increased, so the low inventory observations may hold true in this case.

Yet, looking at the broader picture, seasonally adjusted sales were down in all regions which suggests there's more at play. As I've been warning, it seems demand has finally been dented by the overall macroeconomic panic. That being said, on a non-adjusted basis sales were up overall (+3.1%) which is typical this time of year. But, considering June is usually a good month and there was a whiff of slowdown the increase was smaller than usual.

The way I see it, home sales are still holding up but are not currently impervious to the macro-picture as some might have been thinking. We can still take solace from the fact that non-adjusted sales continued to be higher than the previous month, and that median and average prices were reportedly stronger while inventory was down 3.2%.

Homebuilding stocks are taking a hit today on the news as some measure of exuberance over the perceived housing rebound is rubbing off. But nevertheless, as I've stated previously, I think new home sales can be a little stronger than existing considering the aforementioned shortages of supply in markets like mid-priced homes in California, natural gas-boom areas like North Dakota and Pennsylvania, and various other places like D.C.

Yet, what may be hitting homebuilders as much as the existing sales report is quarterly results from NVR (ticker: NVR), which missed on revenue due to an increased order cancellation rate to 16.3% from 12.5% year over year. Hopefully this isn't a widespread trend, we'll see soon from other builders' reports. Perhaps the latest economic malaise is starting to give some buyers cold feet; that would certainly be a natural reaction. I think the housing rebound can continue over time as the supply/demand picture continues to show improvement but it makes sense that a faltering economy like this would reign in the excitement.

David Urani
Wall Street Strategies