New Home Sales Disappoint

In Friday’s market action, we note that GOOG had its up day after being inducted into the SP500, well, the announcement of induction.  We now await the actual induction day, which should also be greeted by a pop in the price of GOOG, although that would be for the purposes of the SP500 index funds to enter the position.  With the GOOG in the news, there is little else to report of any consequence…wait just a minute, that’s not exactly true.  There is the housing report that we saw on Friday morning, too.

For some reason the market seemed to pay attention to that report, due to the fact that the Market seems to think bad news is good news because bad news means the Fed doesn’t have to continue its string of interest rate hikes.  As you know, this is a fickle market and thinks one way on one day and another on the next.  We wouldn’t pretend to think the market knows much of anything at the moment.  We continue to wait but we are of the notion that the current overbought market needs to let some air out.  Back to the housing report…

The housing report should be a flashing red light to anyone paying attention.  What you see just on the surface is powerful enough.  The 10.5% drop in new home sales was the largest in about ten years.  This idea of trading your existing home in for another existing home is one thing but the fact that Builders are seeing over a 10% drop in home sales should be bone chilling.  These home builders have put up “spec” houses and have been doing it at a fairly nonstop rate for quite a while.  In case you are wondering, like I was a few years back, what a “spec” house is, I thought I’d mention that it is a builder will speculate that a buyer can be found once the house is up, hence the term “spec” house.

Let’s look deeper into the report for more details.  We have been reporting since mid-summer last year that the housing market was rolling over and now the results are in plain view.  If you are reading a paper on Monday morning and there is a piece on the housing report read it carefully to see if you can see these items:

1. New home sales are down 10.5%, most in nine years


2. Inventory of new homes rose to a Record 548,000


3. At current pace, there are enough homes to satisfy demand for 6.3 months


4. AND, The Year over Year median price fell 3%

The median price fell is the key one that most articles do Not want to indicate.  But, October’s median price set the record at $243,900 and now they are below that by 5.5%.  Yes, the price of houses varies from city to city but on a country wide basis prices have Fallen 5.5% for New Homes.  The stock market should be paying strict attention to this because the driver for the economy (besides the government with its never ending red ink) is starting to sputter hard.

In other news on Friday, the durable goods orders were up 2.6% but the report was taken as negative due to the “modified” durable goods report which excludes the “volatile” transportation sector.  The number the market looked at showed a decline of 1.3%.  Again, this report taken along with the housing report, bolstered the market because both reports were weaker than the market expected and therefore…you guessed it, a double whammy on the Fed raising rates forever.  Therefore, buy stocks.

The power lasted for a while but there wasn’t much follow through, for the Dow, at least.  The NASDAQ Comp still is below its 2333 number and we continue to wait for the market to go down due to the over bought condition.  Maybe we will know more this week…in the mean time…

Be Careful out there…

Dow Industrials:  11,279.97  +9.68
RYVNX:   18.78
RYAIX:  22.09
TLT:  89.06
BEGBX:  13.00