Since I'm preparing to sell my house sometime in 2007, I've become even more cognizant than before of the current confusion surrounding the housing market. Plenty of people seem to have opinions about where that market will hit bottom; unfortunately, none of those opinions quite match up.
Various homebuilders have weighed in lately with actual or implied thoughts on the market during the releases of their quarterly results. First up was Bob Toll, the CEO of luxury builder Toll Brothers
The level of housing starts thus far has told us little about housing's overall health, or even the direction of the market's movement. January starts and permits won't be released for a couple of weeks, but December's did little more than add to the confusion. At an annual pace of 1.64 million, the month was stronger than anticipated, but the key single-family number actually declined 4% in the month. At the same time, building permits, often viewed as a gauge of builder confidence, jumped 5.5% in the month.
A Monday Wall Street Journal article was, however, sobering in its description of an "often-overlooked measure of how many homes for sale in the country are empty." According to the Journal, that measure "has climbed to its highest level since the Census Bureau began tracking it four decades ago." Now at 2.7%, versus 2% a year ago, the national homeowner vacancy rate perhaps indicates the effect on the market of speculators who earlier had bought homes and flipped them for profits. Now they're simply trying to sell these houses, sometimes for whatever price they can fetch.
Nevertheless, the housing market and the homebuilders do not march in lockstep. Despite all the negative news that continues to emerge about the market, Toll is up about 55% from its July low, Ryland's shares have climbed more than 65% in that same period, and Centex is up about 18% in the past six months. I therefore believe that a careful monitoring of these three names, and a slightly extended investment time horizon, can be a solid first step toward profiting from the homebuilders.
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