Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

PulteGroup, Inc. (PHM), D.R. Horton, Inc. (DHI): Hold Your Horses! There Was Good News Today

Existing-home sales increased last month to the highest level since November 2009, and if you exclude the momentary boost from the first-time home-buyer tax credit that year, it was the highest reading since May 2007. Lest there be any doubt, this is unquestionably good news.

According to the National Association of Realtors, total existing-home sales — defined as “completed transactions that include single-family homes, townhomes, condominiums, and co-ops” — increased by 4.2% in May over the preceding month and 12.9% over the same month of last year. In addition, the national median sales price for previously occupied homes rose to $208,000, a 15.4% increase over 2012.

PulteGroup, Inc. (NYSE:PHM)

At the same time, however, all is not well in the land of housing. “The housing numbers are overwhelmingly positive,” NAR chief economist Lawrence Yun noted. “However, the number of available homes is unlikely to grow, despite a nice gain in May, unless new home construction ramps up quickly by an additional 50 percent.”

Yun is referring here to the available supply of homes for sale. And, as you can see in the chart below, it remains significantly depressed. The current inventory of homes on the market equates to only 5.2 months’ worth of sales. The long-run average, meanwhile, is 7.2 months, or 39% higher.

Paradoxically, on the heels of this otherwise good news, shares of the nation’s largest homebuilders are plummeting. PulteGroup, Inc. (NYSE:PHM) is down by 10.8%, D.R. Horton, Inc. (NYSE:DHI) has lost 8.8%, and Lennar Corporation (NYSE:LEN) has dropped 7.8%. What gives?

The answer is tied to fear that the U.S. Federal Reserve is on the verge of tapering its purchases of long-term Treasuries and mortgage-backed securities. At a news conference yesterday, Fed Chairman Ben Bernanke hinted that it could do so later this year and into 2014. The net result would be to increase mortgage rates (which have already shot up), which, in turn, would increase the cost of purchasing and owning a home.

Over the past few quarters, all three of these companies have seen new-home sales pick up considerably. On a year-over-year basis, PulteGroup, Inc. (NYSE:PHM)’s are up by 23%, D.R. Horton, Inc. (NYSE:DHI)’s have gained 34%, and Lennar Corporation (NYSE:LEN)’s are up 28%. If prices head considerably higher, however, these gains could be in jeopardy.

The one consolation for these companies is that they aren’t alone. The Dow Jones Industrial Average lost more than 300 points today, with every one of its 30 components trading in the red. This marks the eighth day in a row in which the blue-chip index has notched a triple-digit move. All told, since its high point at the end of May, the Dow is down by 3.4%.

The article Hold Your Horses! There Was Good News Today originally appeared on

John Maxfield has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!