Monday, November 23rd, 2009
Existing Home Sales Jump 10% in October
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Toll Brothers (TOL), Pulte Homes (PHM), and DR Horton (DHI) are a few real estate and homebuilding companies that are in focus following the surprise jump in existing home sales.
Existing home sales beat market expectations with a 10% jump in the month of October, according to the National Association of Realtors. Existing homes were selling at an annual rate of 6.1 million homes, compared to market expectations of 5.70 million and a Briefing forecast of 5.85 million homes. The biggest gain was in single-family homes, which rose 9.7%.
Some experts insist that the surprise jump indicates significant pent-up demand for housing, with an increasing number of buyers exhibiting enough confidence to take the plunge and purchase a house. However, others believe that the bullish sentiment should be somewhat toned down given that prices have dropped some 7.1% from October 2008.
There is also concern that a large portion of these sales are coming from foreclosure sales. Foreclosure filings surpassed 300,000 for an eighth straight month in October as rising unemployment made it more difficult for homeowners to pay their bills. Still, companies like Hovananian Enterprises have signed contracts to expand in anticipation of a market recovery.
However, homebuilders have largely taken a break as they wait to find out if the first-time homebuyer tax credit would be extended. In fact, builders in October broke the ground on the fewest number of houses since April’s record low annual pace. Investors are hopeful that today’s news will help boost confidence as the government continues to mull extending the incentives.
The Takeaway…
- Existing home sales increased 10.1% in October, which is stronger than expected.
- Foreclosures (more than 300,000) and low prices (down 7.1%) are two key drivers behind the jump, and do not necessarily indicate a robust recovery.
- Homebuilders are starting to gain confidence, particularly as the government looks at expanding the housing credit further.
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-- Written by Simon Monger
