This morning we received earnings results from homebuilder Lennar
It wasn't Lennar's earnings being down 78% that was the giveaway -- a poor showing was expected. It was the company's announcement that it was pulling its guidance for the rest of the year and that it wasn't seeing the typical increase in sales activity that normally comes in the spring. Fellow homebuilderKB Home
This is why it continues to surprise me that there are folks predicting a bottom in housing. There are still a number of negative factors out there, including the fact that home prices are still too high in many urban markets for the average family, sub-prime teaser loans are drying up, lending standards are being affected, and there's increasing chatter of credit standards tightening. Foreclosures, on the other hand, are still rising, which points to additional inventory of homes coming on the market. That's not a recipe for a recovery, and it looks like there will be more pain before there's a recovery.
That housing is a mess isn't good news, but as an investor, it makes me curious. Things might not get better right away, but when things are the messiest is when they tend to be cheapest. If I can find a home builder that's reasonably valued on its 2003 or 2004 earnings and has a reasonable balance sheet, I think there's potential for a great long-term investment there. It just requires some patience while all the nastiness gets wrung out. I don't know if that's Lennar, KB Home, MDC Holdings, Pulte
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At the time of publication, NathanParmelee had no financial interest in any of the companies mentioned. He was ranked 34th out of 25,100 Motley Fool CAPS investors. The Motley Fool has an ironclad disclosure policy.