Yesterday, during an appearance on CNBC, I said I would focus this week on housing numbers. The National Association of Realtors will release existing home sales figures tomorrow morning at 10:00 am EST. I'm expecting less than 6.6 million homes sold in July and more than 7 months of supply in inventory.
But I'm really more interested in prices. The median price in June was $231,000. That was up just 0.9% from June 2005. The median price in July 2005 was $228,000. Some investors are worried that the July 2006 price will fall below this number.
However, prices are skewed by concessions and incentives. For example, suppose a house sells for $230,000, but the seller agrees to swallow $5,000 worth of renovations and closing costs. The net price is $225,000. Yet the reported price of the transaction is $230,000.
As I explained on CNBC, if such givebacks were factored in, we could have already seen a year-over-year decrease in prices.
New home sales for July come out on Thursday. The expectation is about 1.1 million, which would be almost 20% less than July 2005's figure. Again, I will be looking more closely at prices.
Today's earnings report from Toll Brothers is a clear warning that the industry is slowing. Toll Brothers has a trailing PE ratio of less than 5, so many investors believe the stock is dirt cheap. But earnings are expected to decline. In fact, based on the fiscal 2007 estimate, the PE is more than 8. That's still pretty low, but it's usually not a good idea to invest in a negative growth stock. Even though the price has fallen back to 2004 levels, it could go lower.