Investors are not impressed with the latest reading on homebuilder confidence, even though it fits in nicely with a recent string of reports pointing to meaningful improvement in the long-suffering U.S. housing sector.
Perhaps it’s simply due to exhaustion. U.S. homebuilding stocks have been on fire throughout most of the year, with the S&P 500 homebuilding index up 57 per cent in 2012 – making it by far the top performer among the 154 industry groups in the S&P 500, with a 20 percentage point gain above the next best performer.
Earlier gains had come from a series of reports that suggested the housing market, while still fragile, was making noticeable improvements. For example, housing starts are well off their peaks seen during the housing bubble, but have clawed their way up to four-year highs.
We’ll get a look a June housing starts on Wednesday – but on Tuesday there was already some good news to chew on, in the form of an upbeat report on builder confidence from the National Association of Home Builders. The survey for July rose to 35 from 29 in the previous month, which was well above expectations for a reading of 30.
Like other upbeat reports, this one has to be put into context. The good news is that this latest reading is the highest since 2007, and the six-point gain is the biggest one-month move in nearly a decade, according to Bloomberg News.
Yet, there are plenty of reasons to take it with some caution. A reading below 50 means that more respondents believe conditions are poor, so the reading of 35 is hardly a sign that builders are jumping for joy. As well, keep in mind that readings before the housing bust were generally well above 60.
Still, if other housing reports were good enough to give homebuilding stocks an upward jolt, you have to wonder why this one is being ignored. The S&P 500 homebuilding index was down 1.2 per cent in late morning trading on Tuesday, after the NAHB confidence report’s release. Though the index is hovering near four-year highs, it is still 68 per cent below its 2005 peak.