The housing sector was hit with a major setback in the latest new home sales data released on Thursday. The most recent snapshot showed sales slid 2.2% last month compared to November. December's weakness dragged on the entire year, making 2011 the weakest on record for sales of new homes in the U.S., and prices dropped 12.8% year-over-year.
Home Builder Stocks Under Pressure After Weak New Home Sales
Meanwhile, home builder stocks (XHB), a sector up 12% so far in 2012, took a hit on this data, raising questions about the validity of their year-to-date rally. Stocks like Lennar (LEN), Ryland (RYL), D.R. Horton (DHI), Pulte (PHM), and Toll Brothers (TOL) all pulled back roughly 2-3% on the data.
According to Todd Schoenberger, managing director at LandColt Trading, you shouldn't have touched these home builder stocks anyway. He explains in the attached video why the fundamentals of the housing market are still too broken to consider investing in the sector through home building stocks, and through traditional home ownership for that matter.
Schoenberger points to the U.S. homeownership rate which is currently at 66%. He believes this is too high, especially compared it to the historical average of 64%.
"You still have too many people that own homes that should not be owning a home right now," he says. "Those are your toxic mortgages that you hear about."
Is Now a Good Time to Buy a Home?
Combine this with excess supply on the market and historically low 30-year fixed mortgage rates, and you only see Schoenberger's case grow stronger. He sees oversupply creating further home price depreciation and mortgage rates that will only move lower.
"So why would you go out now to buy a home?" he asks Jeff Macke. "You can buy probably the same home a year or two from now with a 20% discount with a cheaper mortgage rate… And as a result of that thesis, that is why you want to stay away from home builders."
Simple, straightforward, and gloomy. So when will the housing depression begin to turn around?
Schoenberger turns to Fed Chairman Ben Bernanke as his magic 8-ball. Last August, Bernanke & Co. announced that the federal funds rate would remain near zero through mid-2013. However, just last Wednesday the Fed updated that outlook, extending the timeline out through late 2014.
Thus, Schoenberger's bottom line prediction: "Spring of 2014 will be the time that you would start to consider to buy a home."