Another Dose of Bad Builder News

News flash, Fools: The housing market was depressed last year, clinically, financially, economically, officially, and any other way you can conjure up.

The latest negative housing numbers, released by the Commerce Department early this week, showed that the sales rate of new houses was lower last year than any time since we inhabited caves (or at least, since we started keeping track of housing figures). In 2007, 774,000 new homes sold, a 26.4% drop from 2006.

Amazingly, prices actually rose during the year, creeping up 0.2% to $246,900. Tell that to the managements of Hovnanian (NYSE: HOV  ) , Lennar (NYSE: LEN  ) , Ryland (NYSE: RYL  ) , Beazer (NYSE: BZH  ) , and Pulte (NYSE: PHM  ) , all of whom have been chopping prices faster than sushi chefs. Those efforts yielded a median price for December sales of $219,200, 11% below the full-year figure.

If you're considering building a neat little position in one or more of the homebuilders, you might want to think twice:

  • Not only are new home sales continuing to plummet, but as the National Association of Realtors told us recently, sales of existing homes fell by 13% last year.
  • At current sales rates, the inflated inventory of new homes for sale equates to nearly a 10-month supply.
  • That says nothing about the backlog of existing homes, which will be fattened further this year by an almost certain acceleration in mortgage foreclosures.
  • Too many owners of homes on the market still insist upon unrealistic asking prices. Until they change their minds, this market will remain in a very smelly place.
  • The mortgage lending industry is still a mess, and probably will be for some time. After all, it's been less than six months since the bottom dropped like lead from that sector, and things this complex rarely turn themselves around on a proverbial dime.

So Fools, if you're determined to buy into the homebuilding industry, be very, very careful. This is no time to be tripped up by an insubstantial builder balance sheet.   

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