06/24/15   Reference Point, Reference Point, Reference Point

Editor’s Corner

Ron Rowland

When it comes to real estate, it’s all about location.  When it comes to real estate statistics, it’s all about the location of the reference point.  Reports on the sales of both existing and new homes were issued earlier this week.  While the headlines want to trumpet the favorable aspects, the data provides a view of the negatives.

On Monday, the National Association of Realtors claimed that the pace of existing-home sales jumped 5.1% in May versus April.  The seasonally adjusted rate for May came in at 5.35 million units.  This was the strongest month since November 2009 and 9.2% better than a year ago.  However, compared to the 6.94 million unit rate of February 2006, sales need to increase almost 30% more than current levels before a new high can be declared.

Much of the gains for May were attributed to a jump in first-time home buyers.  Indeed, the share of existing-home sales to first-time buyers rose to 32%, a big increase from the 25% share a year ago.  Historically, that percentage hovers above 40%, so there is still a long way to go.

Yesterday, the Census Bureau released its new-home sales figures.  The annualized pace in May was 546,000 units, a 2.3% increase over the prior month and a hefty 19.5% gain from a year ago.  The May figure turns out to be exactly double the 273,000 rate of February 2011, when the cyclical low occurred.  A 100% gain in a little over four years is certainly impressive.  Once again, measuring from the peak tells a different story.  New-home sales hit an annualized rate of 1.39 million units in July 2005, which is two months short of 10 years ago.  May’s impressive figure is 60.7% below where it was at the peak, and it will require another 154% jump from current levels before it returns to its previous high.

Many analysts like to claim that comparisons to 10-year-old data are not fair because 2005 was a bubble year.  However, the pace of new-home sales is currently lower than in 1963, when statistics first started being collected.  Today’s pace is 7.2% below where it was 52 years ago in 1963.  Additionally, it is currently 24% lower than it was 30 years ago, and 23% below the pace of 20 years ago.  Go ahead and exclude 2005 if you want to – the long-term picture is still not pretty.

Investor Heat Map: 6/24/15


It was a good week for Health Care stocks, and the sector widened its lead by a substantial margin.  Consumer Discretionary continued its recent rebound by climbing another notch higher to second while pushing Financials down to third.  Technology held its fourth-place ranking for a third week, although it now has to contend with a challenge from Telecom.  Three sectors moved from red to green as Telecom moved one step higher, Consumer Staples jumped two places upward, and Industrials slipped a spot despite its momentum improvement.  Materials fell two spots as stronger sectors overtook it.  Three categories remain in the red: Energy, Utilities, and Real Estate continue to post double-digit negative momentum scores and lag the broader market.


The market rally of the past week helped all of the style categories, although the smaller capitalization segments once again received the most benefit.  Micro-Cap extended its time at the top to three weeks.  The Small-Cap categories have occupied the next three positions for the same three weeks.  Even though the Small-Cap segments are displaying more momentum than the other capitalization groups, there is a noticeable falloff in strength between Small-Cap Growth and Small-Cap Value.  Last week, the lower seven style categories were very compressed with only two points separating the extremes.  That range expands to six points this week with the Growth categories getting the largest boosts.  Large-Cap Growth moved two spots higher to place itself directly below Mid-Cap Growth.  Large-Cap Value fell three spots to ninth, Mega-Cap slid lower to tenth, and Mid-Cap Value is on the bottom again.


Japan had the lead all to itself a week ago but is facing competition from many other regions today.  Europe posted a great week on optimism that its Greece problem may be resolved, allowing it to change from red to green and jump four places higher to second.  The UK held steady in third, and EAFE improved a notch to fourth.  Despite having a good week for stocks here in the states, the US category fell from second to fifth on a relative strength basis, which also pushed World Equity down to sixth.  China managed to bounce enough to move it back into the green, although its relative position remains unchanged.  Four categories are still in the red, although they all managed to eliminate their double-digit negative momentum readings.  Pacific ex-Japan heads up this list of laggards, followed by Latin America and Emerging Markets.  Canada was the leader of this foursome a week ago but finds itself on the bottom today.


The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.


“I often refer to the current situation in housing as the ‘silent crisis,’ because I don’t believe many well-off Americans understand the circumstances millions of families face trying to find affordable housing in a decent location.”

Ron Terwilliger, chairman of the J. Ronald Terwilliger Foundation for Housing America’s Families (former CEO of real estate firm Trammell Crow Residential)


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