Disconnected from Reality?
An Early Look at the 2016 Spring Selling Season
While still early, our proprietary single family housing listing data, from our partner Altos Research, provides an initial glimpse into the spring selling season. In a nutshell, things look pretty good so far on the ground, which may present an opportunity in Homebuilder stocks. Our leading data suggests prices and new home sales volumes should continue to move higher at a healthy pace.
Y/Y Change in SFH Median Asking Prices: We continue to observe strong Y/Y growth in median asking prices. At the end of January, prices were up nearly 13% vs. a year ago and 2.4% vs. December. Based on a lack of supply, we believe the trend in prices should continue to the upside.
SFH Listing Absorption Trends: While not as strong as the price increases we have observed, volumes are increasing at a healthy clip (+7.5% Y/Y). We will be keeping a close eye on absorption trends in the coming weeks and months, looking for any meaningful trends.
Y/Y Change in Inventory Levels: Listing growth continues to be anemic, which is clearly helping to drive prices higher as demand continues to outstrip supply. We aren't exactly sure why listing growth continues to be lackluster. Some obvious potential reasons for the lack of inventory include the following: 1) Large increase in rental single family units; 2) Homeowners don't have enough equity in their current homes to enable them to buy a new home; and/or 3) People aren't moving. Regardless of the reasons, there are two main takeaways from the current inventory dearth: 1) Prices should continue to move higher at a healthy pace as long as demand remains stable and 2) New home sales (i.e., Homebuilders) should continue to increase their share of the total home sales pie.
Median Asking Prices for New Listings: While we are just about at the seasonal trough, new listing prices clearly continue to be in an uptrend and are growing double digits Y/Y, suggesting pricing should remain strong for the next several months.
Homebuilders vs. S&P 500 and Russell 2000: A market cap weighted index of 16 publicly traded Homebuilders has sold off nearly 20% since Dec. 1 while the S&P 500 has declined ~8% and the Russell 2000 has fallen 14%.
Homebuilder P/TBV: With Homebuilders trading near their lowest P/TBV levels over the past 13 months, there may be an opportunity in the group based on underlying market fundamental data which suggests a healthy spring selling season. TOL, WLH, LEN and BZH are the furthest below their trailing 12-month average P/TBV ratios (as of 2/1/16).
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