One of the more challenging tasks for investors involves trying to make heads or tails of the barrage of information released almost daily on the housing industry. Whether from the Commerce Department, the National Association of Realtors, or the homebuilders group, the steady spray of numbers and statistics about housing and homebuilding can make getting a real perspective on the sector extremely tough.
Our goal in this regular Housing Roundup feature will be to provide an overall perspective on where housing stands. We hope our efforts will help to clarify the health of this important sector for our Foolish friends.
The housing stats
Surprise, surprise: There's been a raft of information about the state of the U.S. housing market in recent days:
- February housing starts slid by 28.4% from a year ago to a seasonally adjusted rate of 1.07 million units. Beyond that, perhaps the more meaningful figure was the 40.5% fall from a year ago for the single-family portion of the industry.
- The Standard & Poor's/Case-Shiller home price index of 20 cities indicated that January house prices generally fell by nearly 11% from the prior year, while the decline in hardest-hit Las Vegas and Miami was both 19.3%. Prices in Charlotte headed in the other direction, rising nearly 2% from January 2007.
- New home sales dipped 1.8 % to a 13-year low in February. The Northeast checked in with easily the biggest drop at 40.6%, while the South achieved a 5.7% increase.
- And while not purely a housing statistic, the Conference Board reported earlier this week that consumer confidence plunged to a 64.5 level in March, from February's revised 76.4. That's the lowest since March 2003, which roughly coincided with the invasion of Iraq. Obviously, it's difficult for house sales to flourish in the face of a collectively down-in-the-mouth consumer sentiment.
So the numbers continue to descend, in some cases amazingly so. To those who forecast a meaningful turnaround this year, I'd argue that a more realistic predication would target some time in 2009.
And Lennar's quarter
On Thursday, Miami-based Lennar (NYSE: LEN) "swung" to a loss, to grab the media's favorite verb for describing a builder taking the brunt of the housing market apocalypse and rolling out the red ink. The company lost $0.56 a share in the quarter, versus earnings of $0.43 a year ago. Without charges, its quarterly loss would have been $0.18. Sales fell 62% in the quarter. But despite the "swing" into negative territory, the results still exceeded the dart throwers' expectations for the quarter.
How are the builders doing?
Let's look quickly at how some representative national builders have performed thus far in 2008:
|
12/31/07 Price |
03/27/08 Price |
2008 Change | |
|---|---|---|---|
|
Beazer (NYSE: BZH) |
$7.43 |
$9.00 |
21.1% |
|
KB Home (NYSE: KBH) |
$21.60 |
$25.79 |
19.4% |
|
Pulte (NYSE: PHM) |
$10.54 |
$14.42 |
36.8% |
|
Ryland (NYSE: RYL) |
$27.55 |
$32.36 |
17.5% |
|
Toll Brothers (NYSE: TOL) |
$20.06 |
$22.78 |
13.6% |
|
Unweighted Average |
21.7% |
Clearly, while housing statistics continue to plummet, and likely will do so for some time, the builders have begun to lift off slowly. In any change in housing's fortunes, you'd expect the homebuilder prices to anticipate that change by several -- perhaps many -- months.
Other things to think about
But before we get too carried away with the improvement in builders' fortunes or assume that a general housing recovery is imminent, we need to consider two additional factors:
- The mortgage lending sector continues to be in disarray and likely will be for months, perhaps years. It'll be difficult for housing to experience a full-scale recovery until lending becomes completely functional.
- While the rate of home foreclosures will be slowed somewhat by lower interest rates, which will soften the severity of resets, the foreclosure pace will likely remain strong enough to be a drag on home sales throughout 2008 and into next year.
Conclusions
The table above will make it difficult, if not impossible, to dissuade Fools from building positions in the homebuilders. But with the idea that we're hardly out of the homebuilding woods, my advice is to jack up your patience by buying slowly and with an eye toward an extended investment time horizon. At the same time, you'd be wise to limit your purchases to those builders with the lowest debt rations and the overall strongest balance sheets.
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