What's really occurring in the U.S. housing market? The U.S. Department of Commerce's latest preliminary housing start and permit numbers for November, released earlier this week, were far better than October's. However, they still indicated softness in many areas of the nation.

For November, starts rebounded 6.7% from October, to an annualized pace of 1.588 million units. That's up from the 1.488 million starts in October, which itself had plunged 13.7 percent from September. However, the permit level, often viewed as a look at builders' current market sentiments, slipped 3% in November, following a 5.2% drop in November. (My colleague Seth Jayson had an interesting take on November numbers.)

On the same day that November starts were released, Mexican cement manufacturing giant and Motley Fool Stock Advisor pick Cemex (NYSE:CX) gave investors a look at its anticipated fourth-quarter and full-year 2006 results. Management reaffirmed its expectation that earnings would improve by 15%. It'll be a good year for Cemex, a company that remains one of our top international picks for Foolish investors.

But Cemex also declined to forecast its 2007 results, blaming uncertainty about the U.S. housing market for clouding any meaningful forecast. Indeed, the company noted that the residential sector in the U.S. continues to decline more quickly than was generally expected as recently as the beginning of this year.

Mixed signals? Maybe not. From my perspective, I'd make two key comments to Fools who are thinking about investing in housing stocks as we head into the final trading days of 2006:

  • This week's housing numbers appear to be yet another indication that, while the residential market is far softer than it was just a year ago, we may be seeing it brighten ever so slightly.
  • Owning housing stocks is very different from owning a house. It's not only a liquidity thing, but a timing one as well. By my reckoning as a former homebuilding analyst (which means I don't know any more about the subject than you do), we'll be well into 2007 before the U.S. housing market turns meaningfully. But the stocks of many of the homebuilders are up 25% to 30% from their July 2006 lows. Those stocks are far more apt to be leading indicators than concurrent indicators of housing strength -- or a lack thereof.

With all this in mind, I am sticking by my advice of a few weeks ago that Fools -- especially those with slightly longer-than-normal investment time horizons -- consider nibbling ever so gently at some of the stronger and more diversified homebuilders. No big bites, now; just nibbles.

My earlier favorites were Centex (NYSE:CTX), Toll Brothers (NYSE:TOL), and Ryland (NYSE:RYL). That opinion hasn't changed. I believe there's money to be made in those names over the next year or 18 months.

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Fool contributor David Lee Smith currently owns stock in Centex, but doesn't hold shares in any of the other companies mentioned. He welcomes your questions or comments. The Fool has a disclosure policy .