Which Way For New Home Sales Data?

GOOD MORNING. Stocks in Asia closed higher today; U.S. futures are pointing to a higher open.

The Census Bureau will release new home sales data today at 10 a.m. and expectations are the figure will rise slightly for October. The uptick would add some extra shine to the housing market after Monday’s news that existing home sales rose 10.1% and suggest that the government’s prodding of the housing market is working. Even small growth would represent a sharp reversal after September, when new home sales declined 3.6%, upsetting expectations for 5.5% growth. A second month of surprise decline, however, would be a clear disappointment for Wall Street.

A deluge of buyers to meet the original November 30 deadline for the first time home buyers credit could result in a greater than expected increase. That’s exactly what happened earlier this week in existing home sales, which were reported to have increased by a much better than expected 10.1% in October. The supply of homes on the market has now fallen to a level that is closer to facilitating price stability, or a general balance between buyers and sellers, according to Lawrence Yun, NAR chief economist.

However, new home sales may suffer from less steady demand and credit-worthy buyers. New home sales fell unexpectedly in September, while existing home sales surged 9%. Another downside disappointment could be a drag on housing stocks Toll Brothers (TOL), KB Home (KBH), Lennar (LEN) and D.R. Horton (DHI), among others.

IN OTHER NEWS:

With Black Friday looming at the end of the week, two measures of consumer sentiment out this week offer a glimpse at how much consumers may be willing to spend. The Reuters/University of Michigan Consumer Sentiment Index, due out at 9:55 a.m., is expected to edge back up to 67.0 in today’s report, after declining to 66.0 in November’s preliminary reading. It also fell in October, to 70.6 from 73.5 in September.

The Conference Board’s Consumer Confidence Index, released yesterday, increased slightly this month, from 47.7 to 49.5. That comes on top of a steep decline in October.

Looking at the broad trends in both surveys, consumer confidence has rebounded from a March bottom but hasn’t gained much since June, says Keith Hembre, the chief economist at First American Funds. The Conference Board’s index is still below the lowest level it hit in the past two recessions, dragged down largely by the tough job market, Hembre says.

The fact that consumer confidence and sentiment are still low “doesn’t set a very good scene in terms of holiday sales,” says David Hefty, the CEO of Cornerstone Wealth Management. Even if confidence does start rising again, it won’t necessarily translate to increased spending, he says. “Americans want to spend, they love to spend money, but their ability to spend is going to be hampered,” Hefty says. Two-thirds of Americans say the economy will affect their holiday spending this year, and the average consumer plans to spend 3.2% less than last year, according to the National Retail Federation.

The Reuters/University of Michigan Consumer Sentiment Index will provide additional clues to consumers’ feelings about the economic environment, but shopping and feeling optimistic about shopping are two different things. Traders won’t know until after the weekend whether a change in sentiment can trigger a bump in Black Friday sales.

Among retailers, discount chains like Costco (COST) are still likely to be relatively stronger as shoppers seek bargains this holiday season, says Brian Sozzi, an analyst with Wall Street Strategies who covers retail stocks. Investors can watch sales at Abercrombie & Fitch (ANF) to see if slightly-more-confident consumers are willing to trade up to a higher price point, he says.