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There are three data points on housing today:

(1)    CNBC is flashing breaking news - “Geithner: It will take a long time to heal damage from the housing crisis”

(2)    KB Homes reports earnings numbers that do not support a housing recovery. 

(3)    Existing home sales are at the lowest level in eight months.

If the housing recovery story is not working with significant government support in place, when is it going to work?

A picture of the housing "recovery" (or lack thereof) is shown in the two graphs below - supply and demand.  We have also included a six-month moving average to remove some volatility of late to see the trends more clearly.  Regardless of volatility, existing home sales have stagnated and the supply of new homes is starting to grow again.   

Today, the NAR reported that sales of existing U.S. homes fell 0.6% in February, declining for a third month.  The 5.02 million annual rate reflects the lowest level in eight months and is significantly below the 6.5 million annual rate seen in 2H09. 

Importantly, the number of previously-owned homes on the market jumped 9.5% to 3.59 million.  At the current annual run rate, the month’s supply moved to 8.6 months from 7.8 months last month.

We have been cautious on the housing recovery story and today’s news provides no evidence to change our stance.  The Consumer Discretionary (XLY) is up 8.4% over the past month (the best performing sector in the market) and the housing names have significantly underperformed.

There is basically one month left for consumers to qualify for the current government housing support program.  Given the lack of consumer acceptance for the current program (weather related issues or not), it is hard to see a light at the end of the tunnel for housing.

Howard Penney

Managing Director