Gains In Home Sales Helps Reduce Backlog

Gains in new and existing home sales for November helped reduce the backlog, but remain over 20% below the 2009 level. Low building permit numbers are not a …

Gains in new and existing home sales for November helped reduce the backlog, but remain over 20% below the 2009 level. Low building permit numbers are not a hopeful sign despite stronger investment in the sector, and imposed bans account for the recent misleading drop in US foreclosure activity. See the following article from The Street for more on this.

Sales of newly built homes rose 5.5% in November to a seasonally adjusted annual rate of 290,000, the Commerce Department said Thursday morning.

The figure was expected to come in at a rate of 300,000, according to consensus estimates listed on Briefing.com, after sales of newly built homes fell in October to downwardly revised rate of 275,000 units. October’s figure was originally reported at 283,000 units.

Despite the uptick, November’s new-home sales data remains 21.2% below year-earlier levels.

The median sales price of new homes sold last month was $213,000 while the average sales price was $268,700.

On a seasonally adjusted basis there were 197,000 new homes for sale at the end of November. That represents an 8.2-month supply at the current sales pace, down from an 8.6-month supply at the end of October.

The government data followed a report on Wednesday from the National Association of Realtors which showed that sales of previously occupied homes rose 5.6% in November to a better-than-expected seasonally adjusted annual rate of 4.68 million units.

“Continuing gains in home sales are encouraging, and the positive impact of steady job creation will more than trump some negative impact from a modest rise in mortgage interest rates, which remain historically favorable,” said NAR chief economist Lawrence Yun, commenting on existing-home sales, indicating he is hopeful about the housing market in 2011.

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A variety of factors have kept potential buyers from making home purchases in recent months. High unemployment, a lack of credit and the expiration of federal tax credits for homebuyers are obvious reasons. The recent foreclosure scandal also plays its part.

Last week’s disappointing homebuilding permits data further confirms that the “housing market recovery remains fragile at best,” Kevin Brungardt, CEO of RoundPoint Financial, a mortgage origination and servicing firm, told the TheStreet.

He cited the usual suspects of high unemployment, potential buyers’ low confidence among in the stability of home prices and the large inventory of distressed properties that still need to be cleared.

Foreclosure activity declined dramatically in November, but Brungardt said the 21% month-over-month drop was “a false positive,” a result of the so-called “robosigning” scandal that led to procedural delays and foreclosure moratoriums at servicers like Bank of America(BAC_) and JPMorgan Chase(JPM_). Even Fannie Mae(FNMA.OB) and Freddie Mac(FMCC.OB), which stand behind the vast majority of U.S. mortgages, have said they won’t push forward on foreclosures during the holiday season.

Brungardt estimated that the shadow inventory of homes could take two to three years to clear to a point when housing supply and demand begin to match up again, and that no acknowledged housing bottom will appear until that shadow inventory is significantly curtailed.

Homebuilders should expect material dampening of new-home purchases until then, Brungardt forecast. Current homeowners will also continue to be impacted unfavorably, he told TheStreet last week.

Brungardt added that the recent spike in mortgage rates — a jump of 70 basis points over a short period of time — also worked to delay a housing market recovery. Rates are still historically low, he conceded, but need to stay in the 4.5% to 4.75% range in order to fuel a meaningful recovery. He expects mortgage rates will fall again and then level out for a period of time.

Stocks in the homebuilder sector moved higher this week, but the run-up was likely not based on expectations for this week’s housing data, said Michael R. Widner, homebuilder analyst at Stifel Nicolaus.

Widner told TheStreet earlier this week he would be surprised if investors were bidding homebuilder stocks higher ahead of this week’s housing data. “There’s no reason to believe the numbers will be particularly good,” he said, “though I suppose there’s no evidence that things have fallen off, in terms of buyer activity, so maybe the risks are weighted to the upside.”

Widner suggested that recent homebuilder gains may also be a result of “people looking to continue to ride the risk trade,” and are “running out of places to put their money.”

The homebuilder sector is well off this year’s late-spring peak, when buyers were rushing to take advantage of federal tax credits for homebuyers, and is only slightly higher than at the beginning of 2010. Whereas other sectors have begun a rebound in earnest, the housing sector continues to lag.

Some potential homebuyers have decided to go ahead and sign contracts, hoping to lock in still-relatively-low mortgage rates.

The SPDR S&P Homebuilders(XHB_), an exchange-traded fund that tracks the homebuilder sector, remains more than 60% off its peak of $46.08 in early 2006. The iShares Dow Jones US Home Construction(ITB_) ETF remains more than 70% off its peak of $50.10 in the spring of 2006.

Homebuilder stocks were mostly lower Thursday morning. The XHB fell 0.2% in early trading following the new-home sales report while the ITB lost 0.7%. Among individual builders, D.R. Horton(DHI_) lost 0.9%, Toll Brothers(TOL_) 1.7%, PulteGroup(PHM_) 2.1%, Lennar(LEN_) 2.5% and KB Home(KBH_) 2.3%.

Small-cap builder Hovnanian Enterprises (HOV_), which posted disappointing quarterly results early Wednesday, saw its shares shed 4%.

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