This morning it was announced that new-home sales declined in October, while September's numbers were revised downward. New single-family home sales fell last month by 0.3% from September, and when adjusted for seasonal factors, new-home supply is now 147,000. At current sales rates, it would take 4.8 months to clear the inventory. On a positive note, the median price for a new home sold in October was $237,000, a 5.7% increase from this time last year.
The housing numbers, plus some negative comments from famed investor Warren Buffet, led the Dow Jones Industrial Average (DJINDICES:^DJI) to a rocky start this morning, but the index has since moved higher. As of 12:50 p.m. EST, the Dow is up 68 points, or 0.5%. So far during today's trading session, just seven of the Dow's 30 components are in the red, and three of the losers can be tied directly to the housing numbers.
Dow stocks taking a hit
Due to the poor housing numbers, both of the Dow's banking stocks are getting hit today. Bank of America (NYSE:BAC) fell about 1% today before clawing its way back to breakeven, while JPMorgan Chase (NYSE:JPM) is down 0.5%. With new-home sales slowing down, the banks may have to rely on riskier operations in order to turn a profit, and most of us remember how well those operations have worked out. But more importantly, our economy needs homes to be sold and new households created in order for it to move forward. Banks' fortunes are probably tied to the health of the overall economy more than those of any other sector.
Another Dow component praying for a housing-market recovery is Home Depot (NYSE:HD). Shares traded sharply downward this morning but have since made their way back to square one. The stock has been on a tear recently and is up 52% year to date. While today's numbers weren't good for Home Depot, they could be much worse. Home Depot's bread and butter is the small contractor, which is not building new homes, but rather fixing and replacing items and updating rooms in older homes. The more important indication for Home Depot is the sales price of existing homes. When homes are worth more money, people are traditionally willing to put more money into them, thus leading contractors to spend more money. This pullback for Home Depot should be temporary, and even though the stock price is at a 52-week high, I still believe it's a buy today.