Why Analysts Can’t Just Blame the Weather for Poor U.S. Housing Market Numbers

By: DailyGainsLetter

John Paul Whitefoot writes: No matter where you turn, bad earnings or economic indicators are being blamed on the cold weather. Weak January car sales figures were blamed on the weather; disappointing January housing data was blamed on the weather; Wal-Mart Stores, Inc. (NYSE/WMT) revised its earnings guidance lower because of the weather; and even Panera Bread Company (NASDAQ/PNRA) says the cold weather negatively impacted its results.

Because no one saw the cold winter weather coming, Americans have been left hungry, cold, and without vehicles or shelter. Though somehow, people too cold to get bread, groceries, or other staples still managed to stock their shelves with soup. Campbell Soup Company (NYSE/CPB) bucked the winter-blaming trend and said its quarterly profits surged 71% year-over-year to $325 million, or $1.03 a share.

But that’s not what I’m getting at…

The most recent industry to use the weather-related get-out-of-jail-free excuse is the housing market. I mentioned recently that the National Association of Home Builders (NAHB) said its monthly housing market sentiment index experienced its largest drop in history, from 56 in January to 46 in February. A score above 50 indicates positive sentiment; below that, it’s negative. (Source: “Poor Weather Puts a Damper on Builder Confidence in February,” National Association of Home Builders web site, February 18, 2014.)

In line with negative homebuilder sentiment, perhaps it’s not a huge surprise to discover that construction of new homes sank in January. U.S. housing market starts tanked 16% in January to a seasonally adjusted rate of 880,000—the lowest reading since September and the largest month-over-month drop in three years. Further breaking down the housing market starts, single-family housing construction dropped 15.9%, while apartment construction was down 16.3%. (Source: “New Residential Construction in January 2014,” U.S. Census Bureau web site, February 19, 2014.)

Again, judging by all the headlines, you’d have to be daft to think the sharp decline in housing market construction could be blamed on anything but the weather. But if you actually delve into the numbers a little, you’ll see that weather is the least of the housing market’s problems.

By region, construction was actually up a staggering 61.9% in the snow-pounded Northeast after two months of declines. In the Midwest, construction dropped 67.7% to a record-low 50,000 units at an annualized rate. Construction was also down 12.5% in the sunny south and 17.4% in the balmy west.

What about building permits? With the warm spring weather around the corner, surely building permits (a future predictor) are on the rise, right? Nope. Housing market building permits fell 5.4% to a seasonally adjusted rate of 937,000 in January.

Analysts had great expectations for the housing market as we entered 2014. The jobs data was, they figured, improving, and mortgage rates continued to be attractive for first-time homebuyers. Unfortunately, first-time homebuyers are being left out of the housing market—accounting for just 27% of all purchases. The 30-year average is 40%. First-time homebuyers are also being hindered by weak job prospects and stagnant wages.

Whether you’re short or long on the housing market, you can always research home improvement giants, such as The Home Depot, Inc. (NYSE/HD) or Lowes Companies, Inc. (NYSE/LOW). Digging deeper, two often overlooked but solid companies that serve the housing market include Lumber Liquidators Holdings, Inc. (NYSE/LL) and Patrick Industries, Inc. (NASDAQ/PATK).

This article Why Analysts Can’t Just Blame the Weather for Poor Housing Numbers was originally published at Daily Gains Letter

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