The latest housing data released Monday further confirm what
homebuilder ETFs started warning the
months ago: Sales are slowing.
The Pending Home Sales Index fell a fourth straight month in
September, sliding 5.6% month to month and 1.2% year to year to a
reading of 101.6. It undercut consensus expectations of flat
The sales slowdown comes as rising prices amid shrinking
inventory and fattening mortgage rates are making it ever more
difficult for people to afford the American dream.
IShares U.S. Home Construction ETF (
), peaked in May and trades 11% below its 52-week high, while
SPDR S&P 500 (
) kisses new historic highs daily. That suggests
in ITB started pricing in weak sales five months ago. ITB, last
year's top-performing ETF with a 79%, has returned merely 9% year
to date, while SPY gained 24%.
SPDR S&P Homebuilders (
) has climbed nearly 17% year to date. It holds many of the same
homebuilders as ITB in addition to home improvement and
furnishing retailers. Both ITB and XHB are among very few ETFs
that are still a far cry from regaining their pre-bear market
Sales tumbled the most in the Northeast, 9.6%, and West, 9%,
the National Association of Realtors reported. The indicator
based on contract signings hovers at its lowest level since
"The data can be volatile, but there has clearly been some
genuine slowing," Jim O'Sullivan, chief U.S. economist at High
Frequency Economics in Valhalla, N.Y., wrote.
Lawrence Yun, chief economist at the NAR, attributed part of
decline to the government shutdown as workers and contractors
were laid off without pay and the uncertainty hurt consumer
Credit Suisse projects overall pending home sales will
increase 7% to 4.99 million this year after jumping 9% in 2012.
Sales are expected to rise 6% to 5.29 million in 2014. Although
2014 would mark the fourth straight year of rising sales, they
would still remain 25% below their 2005 peak.
"This as a brief blip in the context of the overall housing
recovery that we expect to pick back up at the turn of the year,
as we begin to exit the seasonally slower months of the
fall/winter and start to enter the spring selling season," Credit
Suisse analysts wrote in a report.
The median price for existing single-family homes fell 5%
month to month in September but rose 11.4% year to year to
$199,300, according to Credit Suisse.
Affordability, currently at a five-year low, has been the
major culprit hindering sales growth as mortgage rates climbed 1
percentage point over the summer, according to IHS Global
Insight. What's more, scarcity of distressed sales makes it
harder for prospective buyers to find deals.
"Since incomes have not improved at the pace of the recovery
in housing prices, flood insurance rates are rising and credit
remains fairly tight, many would-be homeowners are putting off
the purchase until conditions improve," Stephanie Karol, U.S.
economist at IHS, wrote. "When mortgage rates declined in late
September, it was not enough to entice more would-be buyers to
sign contracts. Fiscal uncertainty loomed, dampening consumers'
attitudes towards making a major purchase.
"The mortgage approval process is a slow one, and many
applications that were filed several months ago have yet to be
approved," Karol added. "We anticipate existing-home sales to
decline in the fourth quarter."