Has Housing Turned?

The messy housing sector continues to churn out news, although you're far more perceptive than I am if you can determine a direction for the space. Indeed, that news is decidedly mixed, as is the performance of the builders' shares all of a sudden:

  • According to the Commerce Department, new home sales for April increased for the first time in six months. The seasonally adjusted rate improved by 3.3% to 526,000 units. Perhaps more importantly, though, that level remains at its lowest in the past 17 years.
  • Standard & Poor's/Case-Shiller was more negative, noting that its index of national home prices fell by 14.4% in March versus the year-ago period. Indeed, prices in 19 of the 20 cities reflected in the index fell, with only Charlotte, N.C., bucking the trend. The decline was the biggest since the index was founded 20 years ago.

Government help on the way?
If you're one who thinks it's the role of the federal government to interject itself into the shaky world of housing and mortgage foreclosures, you're no doubt pleased that the House and the Senate are still separately pushing their way toward a housing rescue deal. The Senate's current version has thus far been approved only by the Senate Banking Committee.

The version received a 19-2 backing from the committee. It would have initial losses on defaulted loans covered by fees charged to Fannie Mae (NYSE: FNM  ) and Freddie Mac (NYSE: FRE  ) , rather than hitting taxpayers.

But a signed and sealed rescue program is anything but a done deal. The Senate will soon vote on its committee's version, and then -- assuming passage -- will begin what could be rancorous and complicated House-Senate negotiations. So don't look for anything resembling a rescue deal to see the light of day before the middle of the summer.

Lennar's California dream
Miami-based Lennar (NYSE: LEN  ) , which heretofore has been a largely suburban builder, will face a vote in San Francisco next week. The vote will determine the fate of the company's proposed mixed-use plan that would see it building about 10,000 homes, including a football stadium that would serve as the home for the San Francisco 49ers. The project would cover a site in an area of the city that includes what was once the Hunters Point Navy shipyard and Candlestick Point.

One of the key questions that could determine the outcome of the vote involves the portion of the project that will be set aside for low- and moderate-income residents. Lennar has agreed to a 32% weighting -- up from an earlier 25% -- but a competing measure calls for a 50-50 split.

Fools with a desire to own homebuilders should watch this one: Should it pass, the project could set a new standard for urban developments undertaken by major builders.

Standard Pacific's bigger bank account
Irvine, Calif.-based Standard Pacific (NYSE: SPF  ) will receive $381 million from affiliates of MatlinPatterson Advisors. The private equity firm will receive preferred shares convertible to 125 million Standard shares at a price of $3.05 per share and will back the company in an upcoming offering of common stock.

Treatment by Mr. Market
Let’s take an updated gander at how a few of the homebuilders are faring at the hands of the market:

 

12/31/07

05/29/08

Change

Beazer (NYSE: BZH  )

$7.43

$7.20

(3.1%)

KB Home (NYSE: KBH  )

$21.60

$20.86

(3.4%)

Pulte (NYSE: PHM  )

$10.54

$12.39

+17.6%

Ryland

$27.55

$28.33

+2.8%

Toll Brothers

$20.06

$21.03

+4.8%

Unweighted average

 

 

+3.7%

Sources: Yahoo! Finance and TMF calculations.

Whew! After heading steadily northward throughout the first four months of this year, the builders have been taken to the market's woodshed during just the past couple of weeks. In fact, when we took the temperature of the same group during the middle of this month, the average improvement since the end of 2007 was 19.9%. But with Beazer and KB Home falling into negative territory -- and the gains of the others doing the old shrinking routine -- the picture now is far less robust.

Conclusion
Until the last half of May, the builders had generally seen their share prices rise by 20% or more in 2008. However, the recent sharp pullback, along with Standard Pacific's need to go to the financing well, indicates that the group is far from out of the woods. On that basis alone, Fools might be well-advised to take a summer vacation from the group.

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Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned. He does welcome your questions or comments. The Fool has a disclosure policy.


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  • Report this Comment On June 06, 2008, at 2:38 PM, FurTrapper wrote:

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