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The National Association of Home Builders (NAHB) Housing Market Index (HMI) surged to an all-time high in September. The S&P CoreLogic Case-Shiller 20-City Composite for home prices was up a solid 3.9% year over year in July, its latest reading. In this backdrop, shares of homebuilder stocks DR Horton (DHI), KB Home
Here are the key housing statistics and how to trade these homebuilder stocks.
The Graph of the NAHB Housing Market Index
NAHB HMI Show Housing Market Strength
The NAHB Housing Market Index scales from zero to 100. A reading of 50 is neutral. A reading above 50 indicates a positive reading for home sales. A reading below 50 is a negative reading.
In April, the Covid-19 pandemic caused the NAHB Housing Market Index to plunge by a record 42 points to 30. Homeowners living in urban or big cities began to sell their homes to move into the suburbs or rural areas. The theme is to live in homes with an extra room as an office. Many will continue to work from home as the economy recovers from the lockdown. As a result, the HMI rose to a record high of 83 in September.
Single-family housing starts rose by 4.1% in August to a seasonally adjusted rate of 1,021,000 units. The July reading was revised to 981,000, which is shown in the chart above.
The S&P CoreLogic Case-Shiller 20-City Composite
I am tracking the 20-City Composite
Home prices continue to be in a reinflating bubble. The latest reading from the S&P CoreLogic Case-Shiller 20-City Composite is for July 2020.
The 20-City Composite first peaked in July 2006. The trough occurred in March 2012. The decline totaled 35.1%. The current reading for July is 64.5% above the March 2012 low.
Here is a Scorecard for the Five Major Homebuilders
Scorecard for the Major Homebuilders
DR Horton ($77.89) has a positive but overbought weekly chart. The 12-week slow stochastic reading peaked at 91.34 during the week of August 28. This was a reason to reduce holdings as the stock was in an inflating parabolic bubble formation. DHI has an elevated P/E ratio of 14.53% with a dividend yield of 0.9%, according to Macrotrends. The downside risk is to its fourth quarter value level at $61.23.
KB Home ($39.81) has a positive but overbought weekly chart. The stock has a P/E ratio of 11.99% and a dividend yield of 0.90%, according to Macrotrends. The downside risk is to semiannual, annual and quarterly pivots at $38.00, $37.36 and $34.50.
Lennar ($83.86) has a positive but overbought weekly chart. The 12-week slow stochastic reading peaked at 91.20 during the week of August 21. This was a reason to reduce holdings as the stock was in an inflating parabolic bubble formation. The stock has a P/E ratio of 11.70% and a dividend yield of 0.60%, according to Macrotrends. The downside risk is to annual, quarterly and semiannual pivots at $75.17, $66.98, and $60.68, respectively.
PulteGroup ($47.53) has a positive but overbought weekly chart. The 12-week slow stochastic reading peaked at 90.97 during the week of August 28. This was a reason to reduce holdings as the stock was in an inflating parabolic bubble formation. The stock has a P/E ratio of 11.77% and a dividend yield of 1.01%, according to Macrotrends. The downside risk is to annual, quarterly and semiannual pivots at $45.47, $44.09 and $40.37.
Toll Brothers ($49.79) has a positive but overbought weekly chart. The stock has a P/E ratio of 15.04% and a dividend yield of 0.88%, according to Macrotrends. Its quarterly value level is $41.52 with a semiannual pivot at $46.37, and annual risky level at $52.44.
