Homebuilders Up 25% in One Day?

Crazy? Absolutely. And housing's flood of bad news since then has already washed away the results.

David Smith
David Smith
Aug 16, 2007 at 12:00AM

I hope my Foolish friends didn't participate in last week's expensive lesson that the housing market provided. Indeed, a silly itch to find the precise bottom to housing's sharp slide led more than a few investors to glom onto a comment by Toll Brothers' (NYSE:TOL) CEO Bob Toll. They ended up driving shares in the builders as much as 25% higher in one crazy day -- a day that I'm tempted to call Nonsense Day.

Toll's comment about a "pent-up demand" for housing has since been washed away by all manner of subsequent negative news for housing. That bad news includes today's Commerce Department release of July housing-start numbers, which, at 1.38 million units, came in 20.9% lower than the rate in July 2006. And permits, which serve as something of a measure of builders' confidence levels, were down 2.8% in July.

As if those numbers weren't enough, we also got news today that Countrywide Financial (NYSE:CFC), the nation's largest mortgage lender, borrowed $11.5 billion from 40 banks to fund its housing loans. If that doesn't signal the quagmire that housing credit has become, perhaps only a complete cessation of mortgage lending would do so.

Further, Atlanta-based builder Beazer Homes (NYSE:BZH), which was the most notable beneficiary on Aug. 8 -- Nonsense Day -- when its shares were boosted by a wacky 25%, had its quarterly release delayed this week by an investigation of "accounting irregularities." When the company's unaudited results were disclosed, they included a loss of $123 million in the quarter -- $3.20 per share -- compared with earnings of $102.6 million, or $2.37 a share just a year earlier.

By now, the deluge of negative news from the housing sector has washed away all of Beazer's Nonsense Day share-price increase, along with those of such other major builders as Centex (NYSE:CTX), D.R. Horton (NYSE:DHI), and Lennar (NYSE:LEN). And with the National Association of Home Builders saying on Wednesday that builders' sentiments declined another 2 points this month to a score of 22 -- for context, anything lower than 50 indicates that builders are less than optimistic -- it looks as though a turn in housing is likely way, way out yonder.

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Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned. He welcomes your emails. The Motley Fool has a disclosure policy.