Market Overview

New Home Sales Rise More than Expected

New Home Sales measures the number of new single-family homes that were sold during the prior month; this report is somewhat strongly correlated to Existing Home Sales.

The Survey states that 321 thousand new single-family homes were sold in January. This is lower/higher than the 315 thousand expected by analysts. This is essentially bullish/bearish for the U.S. housing market.

From the report, sales of new single-family houses in January 2012 were at a seasonally adjusted annual rate of 321,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.

This is 0.9 percent below the revised December rate of 324,000, but is 3.5 percent above the January 2011 estimate of 310,000.

The median sales price of new houses sold in January 2012 was $217,100; the average sales price was $261,600. The seasonally adjusted estimate of new houses for sale at the end of January was 151,000. This represents a supply of 5.6 months at the current sales rate.

An increase in new homes sold implies a healthy housing market, and because of the multiplier effect, housing has an impact on the rest of the economy. Increases in homes sold suggest increased household income and in turn an economic expansion, and visa versa.


ACTION ITEMS:

Bullish:
Traders who believe that a beat in Existing Home Sales is positive for the economy, you might want to consider the following trades:
  • Long building companies like PulteGroup (NYSE: PHM) because more houses being sold increases demand in more homes and as a result means more demand for home builders.
  • Long companies like Louisiana-Pacific (NYSE: LPX), who manufacture and distribute products and materials for home construction.
Bearish:
Traders who do not believe that the Survey is a leading indicator for the general housing market, you may consider alternative positions:
  • Short building companies like KB Home (NYSE: KBH) because fewer mortgage application and home sales in turn means less demand for housing and home-builders.
  • Long do-it-yourself stores like Lowes (NYSE: LOW) or Home Depot (NYSE: HD) because if home sales decreases, it mean consumers are likely to just fix-up their existing house.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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