Homebuilder ETF’s Hope This Is A Bottom (XHB, ITB)

There was another positive number on new home sales data for the month of February.  It looks like new home sales came in UP 4.7% at 337,000 annualized units.  The SPDR S&P Homebuilders ETF (NYSE: XHB) is up 7% at $11.51 and the iShares Dow Jones US Construction ETF (NYSE: ITB) is up over 7% at $9.54.

This is much better than the  estimates of about 300,000 annualized units.  The Commerce Department also signaled that the revision is still very negative compared to a year-over-year basis but the revision for January is now 322,000 annualized units from 309,000 annualized units that was originally reported.  These are better than expected, but they are still dismal compared with historic sales and the numbers are so low that you may wonder about the celebration.

When you compare this to February 2008 the numbers are actually down 41.1%.  The median price drop is also huge and that may account for any gains.  The median price was down 18% to $200,900.00 year-over-year in February.  This housing median price is also much lower than the $206,800.00 number from January.

With the economy and with the price drops, you can bet what the supply side looks like.  The level of homes for sale was listed as 330,000 at the end of February.  That is at least lower than the 340,000 in January.  If you want to know what these numbers are really boiling down to, this is all based on a total number of only about 27,000 new homes being sold for the entire month.

Sales rose 6.6% in the West and rose 9.7% in the South; but the Midwest saw a huge hit of -9.1% and the Northeast took a hit of -3.3%.

The good news is that the rate of change is continuing to compress and a bottom may be forming.  The bad news is that this is like taking your kid to pick out any gift he or she wants for a birthday present.  At the dollar store.

Jon C. Ogg
March 25, 2009