I don't think the National Association of Realtors' statistic that sales of existing homes dropped in July for the fifth straight month should send Fools running by itself. Rather, the record level of unsold homes should have investors rushing like bulls in Pamplona toward other industry sectors.
Indeed, I have a high regard for the homebuilding likes of Centex
That downdraft is comprised of difficult-to-come-by loans (especially for first-time buyers), increasing foreclosure rates, expanding inventories of unsold homes, and, consequently, declining prices. As such, the mortgage lending business will have to strengthen for companies like Countrywide
According to the usually optimistic NAR, sales of existing homes slid 0.2% in July, compared to June, to a seasonally adjusted rate of 5.75 million units. But more importantly, that rate was fully 9% below the level a year ago. At the same time, the median price of homes sold during the month was down to $228,900, a 0.6% decrease from a year ago.
From where I sit, the increase in the inventory of single-family homes to a 9.2-month supply should be especially daunting to investors eyeing the builders. You see, all of the figures I just told you about are based on sales that generally occurred in May and June. Indeed, the condo market now sits with an 11.9-month supply of units. But it seems that, with credit standards becoming more restrictive almost by the day, those inventory numbers must get worse before they can get better.
So we're moving toward September and an increasing likelihood that the Federal Reserve will lower the Fed funds rate, perhaps by a half percentage point. Should that occur, there'll be a natural tendency to want to buy the homebuilders. But I hope that my Foolish friends will let others jump into the homebuilding pool and test the waters before taking the plunge themselves.
For related Foolishness:
- Battered Builders Falling Faster
- Keeping the Builders at Arm's Length
- Homebuilders: Bargains or Value Traps?
Meritage Homes is a Motley Fool Stock Advisor recommendation. Take a free 30-day trial and find out why the Stock Advisor team is beating the market by 36%.