There is a trend developing in the housing market and it may cast a dark cloud over many housing and building related sectors. In April, housing starts came in at below economist estimates for the second straight month at 1.849 million units, well short of the estimate of 1.95 million units. But what is evident is the cooling in the housing market has housing starts have now declined for three consecutive months and clearly does not bode well for housing stocks.
Likewise, Building Permits for April also saw a shortfall, coming in at 1.984 million units, well short of the estimate of 2.04 million units. It was below estimates for the second straight month and has declined for three straight months. Clearly this minor trend is supporting the widespread belief that the housing sector is cooling.
The downturn in the housing market was also confirmed by an industry report that suggested the weakest outlook for the single- family real estate market since the mid-1990s. The May Housing Market Index came in at 45, its lowest point since 1995. A reading below 50 indicates more builders view sales conditions as poor than good.
Clearly, the aforementioned trends point to continued cooling in the real estate sector. We will see less price competition and multiple bidding in the higher demand areas of the nation. If you are a buyer, it is good news. I suggest you avoid homebuilder stocks for now. Even home renovation stocks like bellwether Home Depot Inc. (NYSE/HD) reported some softness in its first quarter sales growth that was shy of Wall Street estimates. On May 22, rival Lowe’s Companies Inc. (NYSE/LOW) report was released. This report indicated whether Home Depot is suffering from company specific issues or from an industry wide decline in demand.
You also have to consider comments from former Federal Reserve Chairman Alan Greenspan who a short time ago said the U.S. housing market’s “extraordinary boom” has ended. “The boom is over, and you can say that with a fairly strong degree of confidence,” Greenspan suggested.