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Homebuilder Shares Dramatically Underperforming: Consumer Confidence Didn't Help Homebuilder shares are down 12% to 23% while the stock market is up 9%. Housing data has been miserable. The Wall Street Journal reports Home-Builder Shares Miss Out on Stock Rally
None of this is surprising given the housing data. Existing home sales are down for the fourth month. New home sales fell 1.7%. Mortgage rates are rising and the yield curve is flattening. The question is "where to from here?" Confidence? So What?
The obvious problem with the confidence theory is that reality doesn't match. Even with the surge in consumer spending on the heels of tax cuts, it did not translate into home sales. Why? Affordability. Wages are not keeping up with inflation. And inflation is way understated because home prices, which have soared are not counted in inflation stats. It will take a decline in home prices, lumber prices, and fixture prices to fix this problem. Guess what? If all those happen, consumer confidence will not be so high. When people cannot afford to buy homes, they eventually stop buying them. What took them so long?
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