Analyzing June Housing Starts, Sales, and Permits

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Part 4
Analyzing June Housing Starts, Sales, and Permits PART 4 OF 4

New Home Sales Not the Only Reason for the Bullish Housing Market

Existing home sales increased

Once per month, the NAR (National Association of Realtors) reports existing home sales figures. The seasonally adjusted numbers relate to completed transactions in single-family homes, condominiums, townhouses, and co-ops.

New Home Sales Not the Only Reason for the Bullish Housing Market

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The report includes data points such as existing home sales, inventory of houses for sale, median house prices, mortgage rates, and median times on the market. In June 2016, existing home sales reached an annualized ~5.6 million. In May, existing home sales were ~5.5 million. This means that on a YoY (year-over-year) basis, they’ve risen by 3%.

Restricted supply

At the end of June, there were 2,120,000 existing homes for sale, which represents a 4.6-month supply. A level of 6 months–6.5 months means a balanced market. Days on the market rose to 34 days from 42 days in May.

First-time homebuyers accounted for 33% of sales in June, which was up 3% from last month. Builders such as PulteGroup (PHM) and D.R. Horton (DHI) are particularly exposed to first-time homebuyers.

Rising prices

The median sale price for an existing home in June reached nearly $247,700, up 4.8% YoY. Of course, income growth has been tough to come by, which is again stretching the historical relationship between wages and home prices.

The ratio of median home prices to median income ratio is 4.4x, which is above the historical range of 3.2x–3.6x.

Spring selling season is almost done

Second quarter earnings are pretty much over, with the exception of Toll Brothers, and Lennar (LEN) kicked off the season with good numbers. Pulte (PHM) and D.R. Horton (DHI) also did well. For the most part, builders reported declining gross margins, which means that buyers are getting more price conscious and that builders need to promote more to get buyers to step up.

Builders have also started allocating resources to multifamily construction. This is especially true for Toll Brothers (TOL), which is concentrating on luxury urban apartments.

Investors who want to gain exposure to the entire homebuilding sector should look at the SPDR S&P Homebuilders ETF (XHB).


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