Remember all that talk that may home buyers would shrug off rising mortgage rates? Well, for one month at least, it looks to be just that–talk.
Scott Dalton Sales of single-family homes fell 13.4% to an annualized rated 394,000 in July, the Census Bureau reported today, well below forecasts for 487,000.
Homebuilding stocks have plunged on the news. The Ryland Group (RYL) has fallen 4.6% to $35.15, Toll Brothers (TOL) has dropped 3.1% to $31.45, KB Home (KBH) has declined 3.1% to $16.67 and DR Horton (DHI) is off 2.8% at $18.74. Pulte Group (PHM) has dropped 2.7% at $15.80.
Not everyone thinks the drop is such a big deal, however. Here’s Peirpont Securities’ Stephen Stanley:
I am highly dubious, however, that new home sales have weakened in any meaningful way. The anecdotal and survey evidence do not support such a dramatic weakening in the demand for homes. Perhaps the backup in rates has had a marginal impact, but July's reading was roughly 25% lower than expectations, and there is nothing I've seen that corroborates anything like that! Keep in mind that this series tends to be very volatile, and I would wait to see the August reading before getting too excited.
Marketfield’s Michael Shaoul calls the report a “glaring outlier.” He writes:
Regarding the Census Bureau report it is simply too early to be sure. Public statements from homebuilders (and private surveys too) have not suggested a rapid deceleration of housing demand and the NAHB survey (which had no problem registering bearish sentiment in recent years) would generally have been expected to decline sharply if the surveyed homebuilders had actually seen demand destruction on this level…
[We] doubt whether the New Home market has suffered a reverse close to the magnitude contained in this report, but we respect the fact that for the time being the market will keep the homebuilding sector under a cloud, at least until corporate earnings and additional data prove the matter one way or another.
Sounds like good advice.
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