Has Housing Turned?

A nutritional movement has been around for years that operates under the adage, "You are what you eat." I hope, however, that it doesn't become accepted lore that, "You know what you read." If it does, those who glace at headlines like this one will be in a world of hurt.

You see, that headline, "Surprise rebound in housing, outlook still shaky," is only half correct, and it's the latter half. The outlook is still as shaky as ever, but you have to really divert your gaze to a specific part of the homebuilding sector -- apartments -- to come anywhere close to chancing onto a surprising "rebound."

What really matters?
Overall, starts were indeed up 8.2% from the March level, but that was only a month-over-month comparison, which, in the big picture, matters very little. That's especially true since the whole thing was driven by a 36% jump in apartment building.

Looking at the most important metrics released by the Commerce Department, single-family housing starts slipped by 1.7%. That was far more important than any movement in the apartment sector. Multifamily numbers bounce around like a cork in a storm, and they have little to do with consumer sentiments and the revival -- or lack thereof -- in housing.

Also, while the overall improvement for the month appears impressive at first, month-to-month comparisons can be thrown off by all manner of factors, certainly including weather -- or distortions in apartment building. The real data here is that housing starts were below April 2007 by 30.6%. And because the brakes on housing had already been slammed by this time last year, a drop from that level of nearly one-third indicates real shakiness. So you see, half the headline was correct.

But beyond the ballyhooed start numbers, other housing-related items that emerged late last week:

  • According to the National Association of Homebuilders, builders' sentiments for May slid a notch to 19, down from 20 for February through April, and just above December's all-time low of 18. Continued gloominess among builders may be the surest sign that housing remains a long way from healing. It takes a score of 50 just to indicate so-so feeling among the folks who do the building.
  • In a move billed as a way to help resuscitate the flagging mortgage market, Fannie Mae (NYSE: FNM  ) said Friday that it'll lower down-payment requirements between 3% and 5% in markets with falling real estate prices. A program requiring higher minimums in those markets had been instituted in December.

Bumbling Beazer
Beazer (NYSE: BZH  ) , which, like its brethren, is fighting the ravages of the housing apocalypse, also has internal issues -- lots of them. Late in the week, the company announced that, with its sales cut significantly during the two most recent quarters (Q1 and Q2 of fiscal 2008), it lost a combined $368.1 million, or $9.55 a share, compared to a negative $137.1 million, or $3.57, for the comparable periods a year earlier.

The company had delayed releasing results for the two quarters while it conducted an internal accounting review. Earlier in the week, it had announced the restatement of results all the way back to 1998, following the discovery of accounting errors.

Beazer is also the subject of inquiries by a U.S. Attorney's office and the SEC. (Despite its Atlanta base, I don't mean the Southeastern Conference.)

About 90 days ago, Beazer announced that it would cease to originate mortgages. Instead, it points its customers in the direction of Countrywide (NYSE: CFC  ) for mortgage assistance.

A look at the players
Let's take our customary quick look at how some homebuilders have fared at the hands of Mr. Market so far in 2008:

Price 12/31/07

Price 05/19/08

Change

Beazer (NYSE:BZH)

$7.43

$8.14

9.6%

KB Home (NYSE:KBH)

$21.60

$24.49

13.4%

Pulte (NYSE:PHM)

$10.54

$14.26

35.3%

Ryland (NYSE:RYL)

$27.55

$33.02

19.9%

Toll Bros. (NYSE:TOL)

$20.06

$24.40

21.6%

Unweighted Average

   

19.9%

Source: Yahoo! Finance and TMF calculations.

Conclusions
Builders' shares continue to trudge slowly northward. At the same time, the news surrounding housing and homebuilding remains mostly negative. Clearly, we haven't seen the beginning of a slide in foreclosure numbers, the world of mortgage remains a mess, and builders are still way down in the dumps. Beyond that, every time a prospective homebuyer pulls up to a gas pump, the all-important consumer confidence level gets hosed.

With all these factors still weighing against a meaningful housing turnaround, Fools would be well advised to exercise extreme caution in acquiring homebuilders' stocks. Buy if you must, but buy only with an eye to a longer-than-usual investment timeframe. 

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