Thursday, March 23, 2006

February existing home sales

Home builders had a good day today. Beazer (BZH) went up 4.77% to end at $67.60, putting my short position in the red. One catalyst might have been the earnings report from KB Homes (KBH). Traders seemed to have concentrated on their stellar earnings, even though orders were down by double digits.

The other catalyst might have been the February existing home sales that were higher than expected. Headlines were touting the YoY price appreciation of 10.6%. The actual report paints a different picture. The sales volume was just under the year ago level. The inventory level increased to 5.3 months of supply from 4 months a year ago. Both the median and mean prices logged their fifth consecutive monthly decline. At the current pace, we will likely see YoY price declines starting in April when even the most rose colored glasses will not hide the fact that the nation's housing market is in full retreat.

The regional housing markets are not moving in sync. The Northeast seems the strongest and the West and Midwest weakest. A good resource for tracking the asking prices in various metropolitan markets can be found here.

The existing home sales figure is a lagging indicator: the sales are registered after the closing. Tomorrow is the release of the new home sales figure which is a leading indicator: sales are registered after signing the contract. We will have a clearer picture then. As for BZH, it was tempting to short more today. I didn't only because I strictly adhere to the rule of not adding to a losing position.