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Housing Data Show Stalling Home Construction And Sales As Prices Rise – Trading 5 Homebuilders

Homebuilder sentiment and single-family housing starts slipped in September and August, respectively.

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On Sept. 18, the National Association of Home Builders reported that their Housing Market Index slipped four points in September to 64. This measure of housing sentiment peaked at 71 in March versus its all-time high of 72 set in June 2005, one month before the homebuilder stocks peaked.

On Sept. 19, the Census Bureau reported that single-family housing starts, the NAHB benchmark, slipped to 851,000 in August down from 856,000 units in July.

Monthly Graph of the NAHB HMI vs Single-Family Housing Starts

Courtesy of the National Association of Home Builders

The NAHB HMI at 64 in September is shown in blue with the scale at the left side of the graph. Single-family housing starts is in red and is shown on the right side of the graph. This reading is 856,000 for July, which is the level in today’s graph. Note that the HMI is leading the rise in starts by a significant margin, which should be considered a warning. When the index was 72 in June 2005, single-family starts were approaching 1.8 million units, not struggling at half that pace.

The NAHB is concerned about the communities affected by Hurricanes Harvey and Irma as some homebuilders are helping with rebuilding and restoration. The areas of the country affected by the storms cover about 14% of national production.

Existing-Home Sales – August Sales Slide Again

Existing home sales declined by 1.7% in August to a seasonally adjusted annual rate of 5.35 million units down from 5.44 million in July. The year over year increase is only 0.2%. The 5.5 million threshold remains the stall point vs. the peak of 7.25 million in mid-2006.

New Home Sales Pulled Back In August

Courtesy of Advisor Perspectives

New home sales declined by 3.4% in August to a seasonally adjusted rate of 560,000, moving further below the 600,000 threshold. As the chart shows this threshold of sales is well below potential considering that the July 2005 high was approximately 1.3 million units. The reading for August was the lowest for 2017, but sales are 7.5% above the pace of a year ago.

The National Association of Home Builders is concerned about rising supply-side costs, and the economic disruptions as communities affected by hurricanes recover to more normal housing activities.

S&P CoreLogic Case-Shiller Indices

The Case-Shiller 20-City Composite rose 5.8% year over year in July up from 5.6% in June. This index peaked at 206.52 in July 2006 and plunged 35.1% to a low of 134.07 in March 2012. Since then it’s up 50.7% to 201.99 in July, just 2.2% below the all-time high.

Scorecard For The Five Largest Homebuilders

D R Horton (DHI) ($40.27 on Oct. 3) is in bull market territory 50.9% above its Nov. 9 low of $26.69, and set its post-election intraday high of $40.64 on Oct. 3. The stock is just 6% below its July 2005 peak of $42.82.

Courtesy of MetaStock Xenith

The weekly chart is positive but overbought with the stock above its five-week modified moving average of $37.66. The 12x3x3 weekly slow stochastic reading is projected to rise to 81.86 this week moving above the overbought threshold of 80.00.

Investment Strategy: Sell strength to my monthly risky level of $40.57. Buy weakness to my quarterly, semiannual and annual value levels of $37.09, $36.39 and $35.05, respectively.

KB Home (KBH) ($24.65 on Oct. 3) is in bull market territory 74% above its Nov. 8 low of $14.17, and set its post-election intraday high of $25.19 on Oct. 4. The stock is 71.2% below its July 2005 peak of $85.45.

Courtesy of MetaStock Xenith

The weekly chart is positive with the stock above its five-week modified moving average of $22.72. The 12x3x3 weekly slow stochastic reading is projected to rise to 38.05 this week.

Investment Strategy: Sell strength to my monthly risky level of $27.12. Buy weakness to my quarterly value level of $23.30.

Lennar (LEN) ($55.35 on Oct. 3) is in bull market territory 39.5% above its Nov. 9 low of $39.68, and set its post-election intraday high of $55.99 on Oct. 4. The stock is 19.6% below its July 2005 peak of $68.86.

Courtesy of MetaStock Xenith

The weekly chart is positive with the stock above its five-week modified moving average of $52.53. The 12x3x3 weekly slow stochastic reading is projected to rise to 38.39 this week.

Investment Strategy: Sell strength to my semiannual and monthly risky levels of $57.73 and $58.66, respectively. Buy weakness to my quarterly value level of $49.37.

PulteGroup (PHM) ($27.51 on Oct. 3) is in bull market territory 55.5% above its Nov. 9 low of $17.69, and set its post-election intraday high of $27.76 on Oct. 3. The stock is 42.9% below its July 2005 peak of $48.22.

Courtesy of MetaStock Xenith

The weekly chart is positive but overbought with the stock above its five-week modified moving average of $26.18. The 12x3x3 weekly slow stochastic reading is projected to rise to 85.34 this week moving above the overbought threshold of 80.00.

Investment Strategy: Reduce holdings now versus my monthly risky pivot of $27.46. Buy weakness to my quarterly value level of $24.95.

Toll Brothers (TOL) ($41.93 on Oct. 3) is in bull market territory 57.3% above its Nov. 9 low of $26.65, and set its post-election intraday high of $42.16 on Oct. 4. The stock is 28.5% below its July 2005 peak of $58.67.

Courtesy of MetaStock Xenith

The weekly chart is positive with the stock above its five-week modified moving average of $40.06. The 12x3x3 weekly slow stochastic reading is projected to rise to 71.94 this week.

Investment Strategy: Sell strength to my weekly and monthly risky levels of $38.47 and $41.94, respectively. Buy weakness to my annual and semiannual value levels of $35.71 and $33.46, respectively.

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