New home sales jump 7.8% in February. New home sales jump 24.8% in past 12 months. New home sales surge 99% from levels of four years ago. You’ve probably seen one or more of these headlines the past couple of days. All are true, and they all paint an impressive and optimistic picture. However, you have to look at more history to get an accurate understanding of the status of new home sales.
New home sales for February come in 3.6% lower than 20 years ago. Pace of new home sales declines 34.7% versus 15 years ago. Despite recent gains, new home sales remain 61.2% below their peak. These are also all true, but now the one-sentence summaries do not sound so rosy. It’s all a matter of perspective.
The accompanying chart helps display the big picture – the last 20 years anyway. The Census Bureau has data going back to 1963. If you think I have cherry-picked the timeframe displayed, you would be incorrect. The first data point in the bureau’s database is a seasonally adjusted annual rate of 593,000 homes for January 1963. In other words, 52 years ago new home sales were running at a 10% higher annual pace than today. That’s negative growth over a 52-year span.
Stocks of homebuilders tend to react to recent events and the outlook going forward. For owners of homebuilder stocks, this is good news. The SPDR S&P Homebuilders ETF (XHB) and iShares US Home Construction ETF (ITB) are two such beneficiaries. Both are outpacing the S&P 500 by about 5% year-to-date and by nearly 20% since their October lows. Much like the new home sales data, longer-term results are not as impressive unless measuring from the 2009 low for the industry.
Health Care is on top for a second week, and it extended its margin over the rest of the pack. Consumer Discretionary enhanced its grip on second place as retailers continued to rally and homebuilders bounced higher. Real Estate jumped three more places to third, but it has not fully recovered its February decline. Technology held steady in fourth, and Financials slipped a couple of spots to fifth. Many analysts went on record claiming banks were the stocks to own with the prospect of an interest rate hike looming. So far, that advice has not panned out. Telecom climbed a notch to sixth, while Industrials posted lagging returns for the week and fell two spots. The bottom four categories maintained their same relative order as a week ago. Consumer Staples is the only one of the bunch with positive momentum, and the sector received another boost today with the merger announcement between Kraft Foods (KRFT) and privately held H.J. Heinz. Utilities and Energy had market-beating returns the past week but not enough to eliminate their negative trends.
Small size continues to be the primary characteristic determining relative strength among the style categories. This week, Small Cap Value climbed into the top five to solidify the recent transition from a Growth-dominated ranking. Small Cap Growth combines both characteristics to extend its reign to nine weeks. Micro Cap, the smallest of the small, is securely in second place. Small Cap Blend overtook Mid Cap Growth in a testament to the current importance of the size factor. As mentioned previously, Small Cap Value climbed two places higher to join the upper tier after being in tenth place two weeks ago. The ascent of Small Cap Value pushed Large Cap Growth and Mid Cap Blend lower. Toward the bottom of the rankings, Mid Cap Value and Large Cap Blend swapped places as did Large Cap Value and Mega Cap. Although the changes were subtle, the categories representing smaller capitalization segments came out ahead. Following this scenario, it seems appropriate that Mega Cap is now on the bottoms.
Japan continues to gain momentum, and the short-term weakness in the U.S. dollar was a positive contributor this week. EAFE and Europe were also beneficiaries of a pullback in the dollar, as they both climbed two spots higher while pushing China and the U.S. lower. China managed to post a good return for the week and only fell one spot. Although U.S. stock prices moved higher and momentum increased, the category fell five places in the rankings. World Equity landed between China and the U.S. this week. The bottom five categories maintained their same relative rankings as in our previous update. However, all five had significant improvements in their momentum scores. Pacific ex-Japan, the U.K., and Emerging Markets moved from negative to positive trends. Canada and Latin America are now the only two global categories remaining in the red.