Important news that is coming out this week:
6/25/07: Existing Home Sales (volume) reported by the National Association of Realtors(R).
6/26/07: New Home Sales reported by the U.S. Department of Commerce
Both of these are reported at 10:00am EST on their respective days.
Why are the above reported economic data important?
The housing industry has been getting a lot more attention in the latter part of 2006 and first half of 2007 as some parts of the country continually report weaker sales volumes and prices. Although there have not been signs of an entire industry collapsing, a.k.a. “The Bubble” bursting, the slowdown does cause concern if it continues over multiple quarters. This is because more and more homeowners have come to rely on their homes’ value to borrow against for purchases of new cars, take out loans for home improvement, paying off other forms of debt such as revolving (credit card), or to finance other big purchases such as boats, vacations, or to send Jr. to college. Of course, if the homes are decreasing in perceived market value - primarily through an increase in supply of homes on the market, this can create a domino effect of those same consumers not purchasing as much and therefore affecting other areas of the economy (such as consumer confidence, etc).
My personal prediction or expectations of these upcoming reports and their affect on the stock market in the coming week:
I fully expect Existing Home Sales to be on par with expectations and that this factor will not surprise the market. Seasonally adjusted sales should be in line with expectations because mortgage rates have remained stable over the past month.
New home sales may fall short of expectations and I think you would see a brief dip in most homebuilder stocks as a result. My experience and observations here in the Cincinnati & Dayton, Ohio real estate markets the past few months leads me to believe builders are having a hard time unloading newly constructed, completed, vacant houses right now. This belief is based on a few things:
1) I have seen increased incentives offered by builders to Realtors and buyers to sell “spec” homes, or homes that were built purely with the intent to sell upon completion and not to be used as model homes. Many homebuilders are throwing bonuses in the form of increased commission to Realtors or even offering cruises and trips to buyers or agents that refer homebuyers to them. Buyers are also receiving an increasing amount of “upgrades” in their new homes… things that they once had to pay extra for are now being advertised as included or “FREE” when they buy a new home through the builder… preferably one that is already built!
2) I have seen an increase in the number of builder representatives coming into the local Realtor offices to drop off sales literature, i.e. flyers, business cards, and floor plans on models, as well as bringing food, candy and pens with them. This signals that these builder representatives are not having many “walk-ins” in their Model Homes throughout their various subdivisions as they are spending more time developing relationships with local agents.
In addition to increased visits from builder representatives, there seems to be an increased number of mass-emails being sent out by builders to the entire local area Realtor membership base (through the contact list on the Multiple Listing Service) with attachments to these emails containing long lists of inventory available and their respective prices and sales incentives.
3) Finally, I visited the annual Cincinnati Homearama Tour of Homes Luxury Edition (in Montgomery, Ohio) on 6/12. This annual event is held to showcase new luxury homes by various builders as well as demonstrate the numerous products found in the homes. Normally these luxurious homes are already sold when you walk through them. This year I can only think of 1 or 2 out of the 10 homes in the showcase that were already sold. The remaining homes were still being marketed by local Realtors on behalf of the builders.
Overall thoughts on the stock market this week:
I fully expect that the major stock market indices (The Dow Jones Industrial Average - DJIA, the S&P 500, etc) will finish the week lower as investors, hedge funds, mutual funds, etc look to sell some equities and lock in some profits to close out the first half of this year. The Dow and the NASDAQ reached new record levels during the first half of 2007 and every portfolio manager that made a decent return will want to lock in those returns (converting them from paper gains to realized gains) in order to use those results in their marketing efforts to attract new investors to their funds during the second half of 2007.
Some smaller individual investors may want to lock in some returns and cash out some money from their investment accounts for the upcoming July 4th holiday, perhaps to pay for a vacation or to use on some home improvement project they have underway this summer.
Here’s looking forward to the week ahead! As always, your feedback and comments are welcome…
