Sometimes logic can’t be used when trading economic data and stocks.  The National Association Of Realtors report shows a drop of about 27% this morning for July’s existing home sales fell to a seasonally adjusted 3.83 million units on an annualized basis.  This was far worse than expected, yet the homebuilder stocks are up now for the day.  We are tracking the gains seen in Meritage Homes Corporation (NYSE: MTH) up 2.26% at $16.66, Ryland Group, Inc. (NYSE: RYL) up 1.8% at $16.04, Lennar Corporation (NYSE: LEN) up 1.8% at $12.95, and KB Home (NYSE: KBH) is up 2.35% at $10.03.  Beazer Homes USA Inc. (NYSE: BZH) is trading lower by 1.7% at $3.49 as one of the worst performers of the homebuilders we track.

Dow Jones was expecting roughly 4.6 million units annualized versus a Bloomberg consensus estimate of 4.65 million units.  It is very rare to catch a month where numbers are off versus estimates by that much.

The drop was almost twice as bad as economists expectations.  Common sense would dictate that investors would be selling homebuilders.  Homebuilders sell new homes rather than existing homes.  But you rarely have a crummy market for new homes without the same happening in existing homes, even if there is often a month or two lag in the comparisons of each.

Supply at the current sales rate also grew from an already high June reading of 8.9 months to 12.5 months in July.  That is the highest reading in years.  The silver lining here is the housing prices.  Prices were only down by 0.2% with the median price at $182,600.

Realtors and some still-hopeful bulls are sticking to the notion that the sales were hampered after the end of the home-buyer tax credits.  That acted to steal from later months to keep things going in the front months.

Keep in mind that NEW HOME SALES are due on Wednesday and consensus estimates are 340,000.  Chances are that this ‘guestimate’ figure has come down significantly after the existing home sales were such a disappointment.

The SPDR S&P Homebuilders (NYSE: XHB) has been fighting between positive and negative all day.  The current count is that shares of the ETF are down 0.2% at $14.02.

The counter-headline move here is a rather simple case.  Investors are assuming that the after-effect of the housing tax credit will not last forever.  There is also probably a notion that this number was so bad that it may mark a bottom or be close enough to the bottom that tip-toeing back in is the best bet today.  These stocks are just about all so close to 52-week lows that many investors are thinking these stocks don’t likely have much room to fall.  There is also this recent research report calling for consolidation among many of the stocks in the homebuilder sector.

If the number of new home sales somehow manages to be this far from expectations like this morning’s data, then analysts are going to start rethinking their numbers for the rest of the year.

JON C. OGG

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