Lower Housing Prices Generating Much Higher Sales (XHB, ITB)

The Commerce Department’s data on new home sales did not just rise in June for a third straight month.  The new home sales rose sharply.  The headline number came in at an 11% gain to a seasonally adjusted annualized figure of 384,000.  Dow Jones had an estimate of a 2.3% gain to 350,000 on an annualized basis.  This has the SPDR S&P Homebuilders (NYSE: XHB) and the iShares Dow Jones US Home Construction (NYSE: ITB) on the move.

We have also seen a drop in inventories as well, down to 281,000 from 292,000 on the market as of now.  The data compared to May’s new home sales gaining 2.4% to an annualized figure of 346,000.

One of the issues helping the data is the average selling prices.  The median price for a new home was $206,200 in June, which is down 12.0% from the $234,300 reported back in June-2008 and down still on a monthly basis from May-2009 at $219,000.

The good news is that new houses are selling.  There is still a reality check happening where much of this gain is still part of what a future equilibrium for new housing (and existing homes) will be in price discovery.  There is also some seasonality here as housing traditionally does better in the summer.  The main culprit here looks to be the actual prices paid.  And there is the wild card of ‘incentives’ where buyers can demand more in appliances, extras, closing costs, and more.

The ETF’s for housing are rising as well.  The SPDR S&P Homebuilders (NYSE: XHB) ETF is up 2.1% at $13.85.  The iShares Dow Jones US Home Construction (NYSE: ITB) ETF is up 1.9% at $11.63.

Jon C. Ogg
July 27, 2009