The blanket of white snow covering the Northeast today gave lots of kids an excuse to miss school and parents to play hooky from work. It may also serve to give investors pause as to what it might mean for first-quarter revenues for home builders.
According to the Commerce Department, new home sales dropped more than 9% in January to a seasonally adjusted rate of 1.11 million units. That's a far cry from the 2.5% increase economists had predicted. At the same time, the median price of a new home slid like icicles from a gutter, falling more than 13% to $199,400. The declines hit every part of the country except the sunny West, where they apparently don't have to contend with shoveling out their driveway every other week.
It was the bad weather of January -- otherwise called "winter" -- that allegedly played havoc with sales and prices. Yet we had snow in February, too, and March ain't off to a great start either (though I'm sure some people are hoping the old saw that if March "comes in like a lion it goes out like a lamb" comes to pass). It could mean builders will see depressed earnings for what would be the second fiscal quarter for many of them.
That would be quite a turn for the companies that have been powering the housing industry to ever new heights. Toll Brothers, for example, just reported first-quarter numbers that doubled earnings from last year. D.H. Horton reported a 30% jump in profits in January, while Pulte Homes reported a 60% increase in its fourth quarter that ended in December.
As a group, analysts are expecting home builders to continue to report stellar earnings growth of more than 30% for the coming quarter. Will the winter snows send a chill through them?
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The housing sector has long been thought to be riding the rising side of a bubble with investors looking for any excuse to burst it. Some, however, might suggest that even with the temporary setbacks a cruel winter might impose, the bust and boom of the building cycle has been licked. Yet if simple snow falls can damage growth prospects so easily, considering it does come around every year, how sturdy is the foundation upon which the housing market is built?
Certainly in my neck of the woods in the Northeast, winter or no, housing prices seem to rise unabated regardless of what the Commerce Department might show. Nor does there seem to be any lessening of demand for housing around here. So as long as the laws of economics still hold sway, with prices rising and falling to meet the equilibrium of supply and demand, Old Man Winter might just have nothing to say about how our nation's builders will ultimately perform.
In the meantime, until they start to report their earnings, you can use the winter snows as an excuse to read more about the housing industry here:
Fool contributor Rich Duprey goes through a boom and bust cycle of his own looking for a house to buy. He does not own any of the stocks mentioned in the article.