On New Home Sales It’s Builders vs. Government

Home builders have become a positive bunch lately, relieved after reporting narrowed year-over-year losses, increased traffic and reduced cancellations. When luxury developer Toll Bros. detailed improved quarterly results early Wednesday, Chief Executive Bob Toll said “we believe the housing market is still in choppy waters but the seas are getting calmer.”

Strong, positive words from a honcho known for saying it like it is. That’s what made the Commerce Department’s new-home sales data from such a head-scratcher. Sales plunged 11.2% in January to a seasonally adjusted annual rate of 309,000, a record low. Shares of builders tumbled on the news, with Lennar falling nearly 6% while sector giant Pulte saw a drop topping 4%. (The sector recovered slightly by the closing bell.)

Turns out, we’ve seen this disconnect before. “The disharmony between today’s data release and home builder commentary bears a striking similarity to the events which transpired a year ago,” writes Josh Levin, an analyst with Citi. “Despite the fact that home builders in early ‘09 reported better sales in 1/09 relative to late ‘08 sales, the government reported that 1/09’s new home sales totaled 329,000.” Until today, that was the lowest data on record.

Deeper into ‘09, new-home sales trended up and the stocks followed. “We expect a similar pattern this year,” Mr. Levin says.

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