New Home Sales Highlight Softness (XHB, ITB, DHI, LEN)

The Commerce Department has just shown a report that new home sales for the month of September turned south.  This may increase the call for that first time home buyer $8,000.00 tax credit, but it also highlights that housing prices are not going to rocket higher and highlights just how sensitive the home-buyer sector of the economy is with or without a tax handout.  The report came in at 402,000 annualized units, down from the 417,000 annualized number for August and very far under the 440,000 expected according to Dow Jones and under the 440,000 expected from Bloomberg.  We are watching the SPDR S&P Homebuilders (NYSE: XHB) and the iShares Dow Jones US Home Construction (NYSE: ITB) ETFs fall in response.  DR Horton Inc. (NYSE: DHI) and Lennar Corp. (NYSE: LEN) are two of the hardest hit housing stocks today after the news.

This comes on the heels of five consecutive increases, and that August figure is revised slightly lower.  Inventories shrank in the houses for sale September (251,000 vs. 261,000 in August), but the excess supply has hit housing prices by 9.1% from a year ago down to $204,800.00.  The Midwest was a large gain if you count anything around today’s level as positive with a 34% gain, but the Northeast was flat and there was a 10% drop in each the South and in the Western regions.

DR Horton Inc. (NYSE: DHI) is down some 4.75% at $11.25 and Lennar Corp. (NYSE: LEN) is down 6.8% at $12.71 after the news.  The SPDR S&P Homebuilders (NYSE: XHB) is down 3% at $14.16 and the iShares Dow Jones US Home Construction (NYSE: ITB) ETF is down 2.8% at $11.45.

JON C. OGG