{"id":33413,"date":"2016-03-06T17:41:42","date_gmt":"2016-03-07T01:41:42","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=33413"},"modified":"2016-03-06T17:42:04","modified_gmt":"2016-03-07T01:42:04","slug":"housing-market-review-february-2016","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2016\/03\/06\/housing-market-review-february-2016\/","title":{"rendered":"Housing Market Review – A Struggle for Rebirth Ahead of Spring (February, 2016)"},"content":{"rendered":"

The last Housing Market Review<\/a> covered data released in January, 2016. At the time, I warily looked at a nervous market and insisted that the steep decline in the iShares US Home Construction ETF (ITB) and individual home builder stocks presented a great buying opportunity. I was conservative in my expectations including looking out to 2017 for realizing the bulk of the potential upside. Fortunately, my positions have already experienced siginficant upside well ahead of schedule largely thanks to a very strong push from February’s lows and the last oversold period<\/a>. I will cover some individual names in the “parting thoughts” section at the end of this review.<\/p>\n


\n
\"The<\/a>
The iShares US Home Construction (ITB) is making a well-deserved comeback.<\/figcaption><\/figure>
\nSource: FreeStockCharts.com<\/a><\/strong>
\n<\/center><\/p>\n

GDP<\/strong>
\nOn Friday, February 26th, the U.S. Department of Commerce\u2019s Bureau of Economic Analysis reported revised GDP results for Q4 2015<\/a>. Q4 GDP includes a continuing strong performance for domestic private residential investment. Since Q4 of 2014, the quarterly percentage changes have ranged from 8 to 10% – very healthy numbers. These numbers are not surprising given the other strong results for 2015<\/a>.<\/p>\n


\n
\"Strong<\/a>
Strong growth in residential gross private domestic investment for the last five quarters<\/figcaption><\/figure>
\nSource: Bureau of Economic Analysis<\/a><\/strong>
\n<\/center><\/p>\n

New Residential Construction (Housing Starts)<\/a> – January, 2016<\/strong>
\nPrivately owned housing starts for 1-unit structures came in at 731,000. The December 1-unit starts were revised slightly downward to 761,000. These numbers are well within the on-going uptrend in housing starts.<\/p>\n


\n
\"Housing<\/a>
Housing starts for 1-unit structures continue a volatile upward trend that restarted in late 2014.<\/figcaption><\/figure>
\nSource: US. Bureau of the Census, Privately Owned Housing Starts: 1-Unit Structures [HOUST1F], retrieved from FRED, Federal Reserve Bank of St. Louis<\/a>, March 6, 2016.<\/strong>
\n<\/center><\/p>\n

The 3.5% year-over-year gain and 3.9% month-over-month drop are consistent with another mixed picture from the confidence of home builders (see below). The South led the regions with the only positive year-over-year gain at 10.7%. The South region includes Texas and thus continues to show remarkable resilience in the face of the collapse of the oil patch. The West led decliners with a 6.7% drop.<\/p>\n

The overall trend and momentum for housing starts continue to encourage me.<\/p>\n

New Residential Sales<\/a> – January, 2016<\/strong>
\nNew single-family home sales came in weak at 494,000. The 5.2% year-over-year drop and 9.2% monthly drop was a marked contrast from the year-over-year and monthly gains from the report on December, 2015. This performance places new home sales into a potential range that could soon contrast with the rising trend in starts.<\/p>\n


\n
\"New<\/a>
New home sales may be stalling – sales for the Spring selling season will be critical to matching up with rising housing starts.<\/figcaption><\/figure>
\nSource: US. Bureau of the Census, New One Family Houses Sold: United States [HSN1F], retrieved from FRED, Federal Reserve Bank of St. Louis<\/a>, March 6, 2016.<\/strong>
\n<\/center><\/p>\n

The drop in sales brought new home inventory from 5.2 months to 5.8. This more in-line with the six months typically considered balanced. Hopefully, the boost in availability will get more sales going in the coming months. The Northeast bucked the trend for the month with a surge in sales which increased 100% from year-ago levels. This was a direct contrast to December’s 6.5% year-over-year drop. So, the Northeast is likely just being volatile. The Midwest and the South had low single-digit losses. The sales in the South are continuing to slow down, so I remain on alert for Texas despite the strong showing for housing starts in the South. The West was the region that really drove the plunge in new home sales with a 24.1% year-over-year drop. Given this was a flip-flop from December’s 21.9% year-over-year surge, I will cause this performance a wash.<\/p>\n

Existing Home Sales<\/a> – January, 2016<\/strong><\/p>\n

Existing home sales performed a lot better than new home sales. The National Association of Realtors (NAR) reported “Existing-home sales crept forward in January to the highest annual rate in six months, and subpar supply levels propelled price growth to the fastest increase since last April…The West was the only region to see a decline in sales in January.” On a year-over-year basis, existing home sales increased a very healthy 11.0%. This is the best year-over-year performance since the 16.3% gain in July, 2013. The robust sales for existing homes gives me confidence that new home sales will pick up again soon.<\/p>\n


\n
\"Existing<\/a>
Existing single-family homes are still selling at a relatively high post-recession pace.<\/figcaption><\/figure>
\nSource: National Association of Realtors, Existing Home Sales\u00a9 [EXHOSLUSM495S], retrieved from FRED, Federal Reserve Bank of St. Louis<\/a>, March 6, 2016.<\/strong>
\n<\/center><\/p>\n

Although housing inventory increased 3.4% from the prior month this is still down 2.2% from a year-ago. Months of inventory nudged up from 3.9 to 4.0 months. Last months inventory was the lowest since 3.6 months of supply in January, 2005. This inventory is far too low for a balanced market and is contributing to blistering price increases. The 8.2% year-over-year jump in the median sales price was the highest since April, 2015. Prices have climbed for 47 straight months. The low supply and surging prices are causing concern for NAR’s chief economist Lawrence Yun regarding the Spring selling season:<\/p>\n

“The spring buying season is right around the corner and current supply levels aren’t even close to what’s needed to accommodate the subsequent growth in housing demand…Home prices ascending near or above double-digit appreciation aren’t healthy \u2013 especially considering the fact that household income and wages are barely rising.”<\/p><\/blockquote>\n

The poor inventory and price environment has not detered first-time homebuyers at least. They represent 32% of the market which is up from 28% in January, 2015.<\/p>\n


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