Questionable Confidence Among Builders (XHB, ITB)

The confidence among home builders looked like it was creeping higher, but the most recent data from the National Association of Home Builders showed a decrease in June.  This drop put the index down to 15 for June from 16 in the survey.  There were hopes that we were going to have our third consecutive gain in the index.  That was not in the cards.  The SPDR S&P Homebuilders (NYSE: XHB) and the iShares Dow Jones US Home Construction (NYSE: ITB) ETF’s are staying down on the news.

Mortgage rates are up about 75 basis points from the prior survey, which may have something to do with the results.  We have seen a trend of stabilizing new home sales and the affordability is running at multi-year highs for those who can get the mortgages.  Much of this drop from the builders also coincides with the 30 to 60 days after the resumptions of bank foreclosures.  That puts new construction in competition with fire sale prices.

The current sales component of the survey remained flat at 14, and the traffic of prospective buyers also remained flat at 13.  It is the expectations component that slid to 26 from 27 the month before.  For a comparison t how low these figures are, 50.0 is the break-even level with 50+ being good sales and under 50 being weak or poor sales.

As this survey comes from 548 home builders, there is always the notion that there could be room for error here.  Either way, this only brings more wonders about how deep the roots are in all those green shoots.

SPDR S&P Homebuilders (XHB) is down by 3.7% at $11.69 and the iShares Dow Jones US Home Construction (ITB) is down 3.35% at $9.55.

Jon C. Ogg
June 15, 2009