Last month’s new residential sales data fell short of expectations—but the gauge of new home activity was still historically elevated.
New home sales dropped to a seasonally-adjusted annual rate of 959,000, down from August’s revised rate of 994,000, according to the data jointly released by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. Consensus, meanwhile, had expected sales to keep rising. Economists polled by FactSet were looking for a seasonally-adjusted annual rate of 1,015,000.
September’s rate represents a 3.5% slowdown from August. But this month’s rate was 32.1% higher than the same month last year, and was the highest rate in September since 2006, according to historic data.
While the report took the consensus off-guard, the slowing wasn’t entirely unexpected after a summer that saw demand for homes surge and builder stocks rise to new highs. “The pace of new home sales growth over the summer was going to slow given that the gap between sales and single-family construction reached an all-time high in August,”
chief economist at the National Association of Home Builders, said in a press release. “Indeed, September sales of new homes that had not started construction were up 47 percent compared to a year ago.”
The miss didn’t help builder stocks Monday, which continued to fall after rocky trading last week. Two exchange-traded funds that track builders, the
SPDR S&P Homebuilders ETF
(ticker: XHB) and the
iShares US Home Construction ETF
(ITB), were down about 3.7% and 4.1%, respectively. Large builders like
(DHI), Lennar (LEN),
(PHM) were all down more than 3%. For comparison, the
Dow Jones Industrial Average
were down 2.6% and 2.2%, respectively.
As a hot summer for the housing market enters fall, analysts are split on home builders. Zelman & Associates downgraded seven builders—
Taylor Morrison Home
Tri Pointe Group
(TPH)— to Hold from Buy on Monday, citing looming order growth deceleration as rates return to more sustainable levels, soaring valuations, affordability concerns, and other factors.
Also on Monday, a Raymond James analyst upgraded D.R. Horton and Toll Brothers to Outperform from Market Perform and PulteGroup to Strong Buy from Outperform. In the report, Raymond James analyst Buck Horne cites recent data, including historically elevated builder confidence reported by the NAHB Housing Market Index, low levels of existing inventory reported by the National Association of Realtors, and a surge in single-family building permits, as reflecting the strength of homebuyer demand.
“With our confidence growing in the continuing strength and sustainability of new home demand amid the pandemic recovery, we are using the sector’s recent pullback to better align our homebuilding ratings with our overall bullishness on U.S. single-family housing and the likelihood of a durable new housing cycle,” he writes.
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