Wells Fargo & Co (WFC), D.R. Horton, Inc. (DHI), Toll Brothers Inc (TOL): Why People Are Concerned About Housing

Since the first week of May, applications to finance an existing mortgage are off by 63% while those secured to purchase a new home are down by a comparatively paltry 16%.

Now, to be clear, any decline in the latter isn’t a good sign. But the volume is still higher than it was last year, and more importantly, the most recent estimate of existing-home sales suggests it’s had little to no impact on actual sales.

There’s no getting around the fact that the construction and sale of new homes is important. But it’s nowhere near as important as the existing-home market.

In the month of July, for example, the Commerce Department estimated that roughly 400,000 new homes were sold on an adjusted annual basis. During the same month, meanwhile, the rate of existing-home sales equated to an annual rate of 5.39 million.

To drive this point home, check out the following graph, which certainly suggests the housing recovery is far from over.

How we’ll know if things stay on track
At this point, it remains to be seen what will happen to the recovery. Could it go off track? Certainly. But it hasn’t yet.

One of the things that investors should watch closely are the quarterly earnings releases of homebuilders, which, like the market overall, paint a conflicting picture of the industry.

On one side of the equation are builders like D.R. Horton, Inc. (NYSE:DHI) and Toll Brothers Inc (NYSE:TOL), which have recently notched dramatic improvements in net new contracts signed. In the most recent quarter, the former’s were up by 12% over the same quarter last year, while the latter’s improved by 26%.

On the other side of the equation are PulteGroup, Inc. (NYSE:PHM) and Beazer Homes USA, Inc. (NYSE:BZH), which saw their quarterly order volumes fall by 12% and 11%, respectively, causing both stocks to plummet after the results were announced.

The article Higher Mortgage Rates Haven’t Killed the Housing Recovery — Yet originally appeared on Fool.com and is written by John Maxfield.

John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Wells Fargo.

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