Thursday's developments in the homebuilding sector left this Foolish analyst confused and babbling. But given the past year's housing market, I've been similarly afflicted for quite a while now.
At first, the nearly simultaneous releases of the Commerce Department's April new-home sales and luxury homebuilder Toll Brothers' (NYSE:TOL) earnings results appeared to send completely different signals. Toll's earnings slid nearly 80% year over year, but new home sales appeared to jump by 16.2% from March levels -- the biggest sequential increase in 14 years.
But those numbers might not be as contradictory as they seem. Toll did earn $36.7 million, or $0.22 a share, down 79% from $174.9 million and $1.06 a share. And while the company's cancellation rate was 18.9% -- higher than the normal 7%, but down from nearly 30% a quarter earlier -- writedowns took $0.44 per share off the most recent quarter, versus just $0.04 a year earlier.
At the same time, the Commerce Department's number looks good at face value. But the most recent survey by the National Association of Homebuilders suggests that its members, while probably not clinically depressed, aren't exactly jumping for joy about their market's apparent prospects.
Commerce also said that the average new-home selling price slid 11.1%, from $257,600 to $229,000. Either the builders are chopping prices at a breakneck pace, or any burgeoning recovery is starting at the low end. The Commerce Department's numbers also count all home sales as final transactions, even those that are later cancelled. Given the still high walk-away rates among homebuyers, that seems a little like including all first dates among marriage statistics. In my opinion, that renders the month's sales jump at least moderately questionable.
Bob Toll, Toll Brothers' CEO, seems as uncertain about housing's short-term future as I am. In releasing his company's results, Toll joined peers such as Centex (NYSE:CTX), Pulte (NYSE:PHM), and Hovnanian (NYSE:HOV) in not providing forward guidance because of lingering market uncertainty.
It probably won't surprise my Foolish friends to hear that housing clearly isn't out of the woods yet. At the same time, Bob Toll did state in his conference call that he's "a little more confident" than he was just a month ago. That's not reason enough to start buying shares left and right, but I still believe that slowly building a position in companies such as Centex or Toll could yield profits down the road.
For related Foolishness:
- Subprime's Expanding Toll
- Before the Call: The Bell Tolls for Toll Brothers
- Centex Gives Inventory the Chop
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.
