To all of the various problems affecting U.S. housing, we can now add a case of schizophrenia.
The most widely watched housing authorities -- the National Association of Homebuilders and the National Association of Realtors-- appear to be gazing into completely different crystal balls. On Tuesday, the folks in the Realtors' group, adorned in their most stylish rose-colored glasses, released a report stating that "the data shows a broad stabilization." As senior economist Lawrence Yun explained further, "... we see that the existing-home market is stabilizing in a broad cyclical trough and moving in the right direction, with a modest gain from the fourth quarter." Uh-huh.
But on the very same day, the builders' organization across town noted that "homebuilder confidence sank to a 15-year low in May as lenders made it more difficult for borrowers to qualify for mortgages and order cancellations mounted." As a result, its Housing Market index descended to a reading of 30, versus 33 in April. As the group said in releasing May's results, "Readings below 50 mean more builders view market conditions as poor rather than favorable."
And as if these divergent opinions weren't enough, the U.S. Commerce Department reported on Wednesday that construction of new homes and apartments rose by 2.5% in April, but still remained nearly 26% below the year-ago level. At the same time, April permits were down 8.9%, clearly substantiating the NAHB group's sentiment.
Furthermore, national builders including Pulte (NYSE:PHM), Beazer (NYSE:BZH), and Centex (NYSE:CTX) refuse to forecast their 2007 results in the face of market uncertainty. And in prereleasing its quarterly results last week, luxury builder Toll Brothers (NYSE:TOL) said that "the impact of stricter lending standards arising from problems in [the subprime mortgage] market is negatively affecting affordability at lower price points." The result, the company said, is affecting the entire "housing food chain."
So what to make of this confusing commentary? I'm inclined to credit the Realtors' relative ebullience to their need to err on the side of optimism. And while it seems to me that we could move into 2008 before we encounter tangible signs of a housing turnaround, I also believe -- given the tendency of housing stocks to anticipate market movements -- that Fools ultimately will be able to benefit from slowly building positions in the likes of Toll or Centex.
For related Foolishness:
- Subprime's Expanding Toll
- Housing's Maladies Hammer Builders FirstSource
- Foolish Forum: Homebuilder Havoc
Join the discussion at Motley Fool CAPS to see what other investors are saying about homebuilders and thousands of other stocks.
Fool contributor David Lee Smith does own shares in Centex but not in the other companies mentioned. He welcomes your questions or comments. The Motley Fool has a disclosure policy.
