Home Builders - Why So Blue?

The National Association of Home Builders (NAHB) reported its Housing Market Index (HMI). The HMI is a measure of homebuilder sentiment, and it showed homebuilders were blue about February. The shares of the SPDR S&P Homebuilders (NYSE: XHB) came down off a gap-open higher open once the HMI report was released. The report showed the HMI fell in February to 53, from 55 in January. Readings above 50 indicate a generally positive mood, but the decrease in the HMI was the third consecutive decline and it is approaching that breakeven mark. See my full report on housing here.

Homebuilder Shares	03-16-15
Pultegroup (NYSE: PHM)	+0.2%
D.R. Horton (NYSE: DHI)	+1.0%
K.B. Home (NYSE: KBH)	-0.4%
Toll Brothers (NYSE: TOL)	-0.6%
Beazer Homes (NYSE: BZH)	-0.7%
Ryland Group (NYSE: RYL)	+0.3%
Lennar (NYSE: LEN)	+0.2%
Hovnanian (NYSE: HOV)	-1.5%

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Ignore the Home Builder Pessimism

By The Greek:

Earlier this week, the National Association of Homebuilders’ (NAHB) Housing Market Index showed an intensified level of pessimism for homebuilders. Yet, I’m telling you not to worry about it, because it doesn’t matter.

The NAHB’s Housing Market Index (HMI) dropped 2 points in March, after shedding a point in February. The HMI fell to a mark of 44 in March, from 46 the month before, and made fools of economists who on average were expecting the index to improve by one point to 47.

The NAHB explained the falloff and the third straight month of flat to deteriorating data on ancillary issues. The industry group said that builders were still seeing increasing demand for new homes, but were frustrated by “bottlenecks in the supply chain for developed lots along with rising costs for building materials and labor.” And despite what seems like a better capital position for housing lenders like Bank of America (NYSE: BAC), according to the Federal Reserve, credit availability was reported as an ongoing problem. The NAHB also regularly mentions faulty appraisals, which include the values of sold distressed properties as comparables.

Yet, I’m telling you that there’s nothing to worry about. This index has remained underwater since the real estate market collapse, despite the nascent success of the nation’s largest builders. That’s the issue here. The NAHB is made up of builders, large and small, liquid and insolvent. Many small builders remain constrained by an inability to access capital. However, the large publicly traded builders including those listed herein are doing fine and dandy and are on an optimistic high today. They have access to capital, and the ability to steal market share from their humbled brothers. The evidence of their success is clear here.

Publicly Traded Builder	Year-to-Date Gain Thru 03/21/13
SPDR S&P Homebuilders (NYSE: XHB)	+13%
K.B. Homes (NYSE: KBH)	+40%
D.R. Horton (NYSE: DHI)	+26%
PulteGroup (NYSE: PHM)	+16%
Ryland Group (NYSE: RYL)	+14%
NVR (NYSE: NVR)	+14%
Toll Brothers (NYSE: TOL)	+10%
Lennar (NYSE: LEN)	+10%
MDC Holdings (NYSE: MDC)	+5%

They are not all higher on the year though. Beazer Homes (NYSE: BZH) and Hovnanian (NYSE: HOV) are in the red. Some of the difference has to do with regional variation. Some of the once hottest markets fell far from their peaks, but those same markets are on fire today again, including Phoenix, Las Vegas, California and Florida. K.B. Homes’ (KBH) west coast operations are a big reason for its performance this year. The HMI Report showed that the three-month moving average for the West Regional Index was up four points in March, and was easily in positive territory above 50 at a mark of 58. The Northeast Index was unchanged at 39, while the Midwest and South Indexes skidded by a point each to 47 and 46, respectively.

The part of the report I’ve always found most interesting is where builders are asked to report on current sales conditions, forward expectations and actual prospective buyer traffic. I find the first two measures are purely perceptional, and that the measure of real traffic tells a different and truer story for the majority of builders, who are mostly small. The index measuring current sales conditions fell by four points to reach a mark of 47. The measure of sales expectations for the next six months rose by one point to 51. However, the measure of prospective buyer traffic rose three points, and still measured deeply under breakeven sentiment at a mark of 35. Remember, though, it doesn’t matter because the real estate recovery is underway nonetheless. It’s just being enjoyed by a select few publicly traded companies which have garnered a good deal of market share from the least among their peers.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Homebuilder Mood Slightly Less Suicidal

The National Association of Home Builders (NAHB) Tuesday reported its Housing Market Index. The metric is a measure of the mood of homebuilders, and has been mired in the mud where home foundations might otherwise be for years now. The popular press jumped on the news of improvement in the index, but failed to note, except in the details few Americans likely read, that the absolute value of the Housing Market Index is still dreadful.

Our founder, Markos Kaminis, earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: Nasdaq: ITIC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Homebuilder Mood Slightly Less Suicidal

The NAHB/Wells Fargo Housing Market Index (HMI) improved by four points to a mark of 18 in October. That information alone set the real estate wire on fire Tuesday with news of “good news in housing.” While I’ve been forecasting growth in real estate for the second half of 2011, until noting this year that economic complications would stall the real estate recovery, I must point out that the homebuilder mood is not sanguine; suicidal would be a better description for homebuilders, though perhaps slightly less so this month. You see, the divider between a positive and negative mood is set at an index reading of 50. While my math is not as sharp as it once was, I can say pretty confidently that October’s reading of 18 is still deeply discounted to that break-point.

Now that I’ve made that important point, I have to note why the positive change still matters. It’s because “change,” or delta as mathematicians might refer to it, matters to the stock market. I favor delta myself in decision making, as it is a catalyst for profit in my view. That said, can we really say there’s a spark in housing based on this latest measure of the homebuilder mood? I think not, and even if it were, it would soon be smothered out by an economic situation that is at least less enthusing and possibly even defusing.

Looking more closely at the data, the report shows improvement across most of the spectrum of sub-measures. The HMI’s component measure for current sales activity shows a four point improvement to a mark of 18. The gauge counting prospective buyer traffic rose three points to a reading of 14. Where we really see the most robust change in the data, though, is in expectations. When surveyed regarding where homebuilders saw things going over the next six months, well that resultant component index gained seven points to a mark of 24. So what’s got homebuilders hopeful now?

I think they’re basically buying into the numbers. We’re seeing year-over-year results beating many of last year’s low bar marks. It’s amazing to me that it takes this actuality for people, including homebuilders and many of my readers, to realize it. We’ve been forecasting it since the start of the year here, and I’ve found mostly resistance to my “growth” statements. But what you have to understand is that, one, the base for growth is at a dramatic low point, and that, two, the growth we’re forecasting is nothing to write home about. Yet, it’s growth nonetheless. I suppose the clearing away of the negative trend, or the delta, helps sentiment, however surely it should have been expected.

My view regarding this measure is that its great dependence on the views of smaller builders, which are greater in number and which have suffered more than the larger, publicly traded players, who have easier access to capital, has weighed on it. Thus, it’s been mired in this mud of low-teen readings for months. Whenever it has changed, it’s been mostly due to expectations, not significant changes in real sales activity or traffic.

As we look regionally, we see the largest market of the Northeast stuck at a reading of 15. I suppose that is because of the well developed nature of the region. In the West, the component reading improved by nine points to a mark of 21. The Midwest and South saw increases of four points, to readings of 15 and 19, respectively.

The report and the reporters of the report have noted all the usual suspects behind the absolute low level of confidence, including the weight of foreclosures on appraisal values and competitive properties, and the obstacle of tighter lending criteria. When seeking a reason for the gains made this month on a relative basis, those same scribblers attributed the move to record low mortgage rates. Certainly, the lower rates fall, the more folks qualify for homeownership. Still, the real barriers to this housing recovery are the result of our economic illness, including high unemployment and the hangover we must bear due to our previous housing overindulgences. Therefore, I say temper your enthusiasm until the latest economic stumbling blocks are cleared away.

Stocks of homebuilders reacted to the news just the same, with the shares of Toll Brothers (NYSE: TOL) up 9.9%; Hovnanian (NYSE: HOV) +6.7%; D.R. Horton (NYSE: DHI) +8.5%; Lennar (NYSE: LEN) +7.9%; Beazer (NYSE: BZH) +11.3%; and K.B. Homes (NYSE: KBH) up 8.1% at about two hours ahead of the close.

Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Real Estate Insights from Homebuilders and Us in August

The National Association of Home Builders (NAHB) reported its Housing Market Index for August. This is a measure of homebuilder sentiment, and as you might expect, it has reflected a miserable mood for an extended period. However, this month’s report offered some insight from the mouths of builders and inspired some theorizing on our part as well.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Real Estate Insights from Homebuilders and Us in August

The NAHB Housing Market Index held at a miniscule mark of 15 in August, reflecting the ongoing misery of homebuilders. In the past, we’ve noted that this measure should lag other metrics tied to Real Estate, and it has generally missed the recent slight rebound seen in other measures. We see the reason for this as two-pronged. One big reason is that the new home market should lag existing home sales recovery, simply due to the degree of distressed property and related value available in the overall market as a result. Secondly, the index surveys a broad range of home builders, including a significant number of smaller distressed operators, who may never enjoy recovery. As we’ve mentioned previously, this creates opportunity for larger well-capitalized and often publicly traded builders to gain market share. But any enthusiasm seen in those larger builders will be watered down by the many smaller builders expressing their negative views in this survey.

Before we get to the insight we’ve garnered from the latest report, let’s review the data details. First of all, a reading of 50 would reflect a positive mood, so at 15 the index really does portray the pure misery of construction. On a regional basis, a better mood was seen in the Northeast segment index (+4 to 19) and West (+1 to 15), while the South held steady at 17 and the Midwest fell 2 points to 10.

The weakness actually reflects improved current conditions being offset by reduced expectations for the future. Home builders saw better traffic in August, with that component index gaining a point to 13. They also rated current sales conditions better, with that component index gaining a point to 16. As one might expect, and as seen across several consumer sentiment measures, the component index measuring builder expectations for sales conditions six months down the road deteriorated two points to 19. We can mostly blame Washington for this, with some attribution going to S&P and European economic issues, in my view.

One intriguing insight offered by the HMI was that 41% of respondents indicated that they had lost sales contracts due to buyers’ inability to sell their current home. This speaks to the bifurcation of our economy, between the employed and underemployed. So, this is an example of the unemployed impact on the broader marketplace, where it impedes the fluid economic progression of the employed, or the healthy market participants. But, where an old home must be sold cheaper than preferable, a new home is also acquired at better value, so I’m not sure the argument here is not limited to the psychological.

This does not speak to another factor holding up the employed from buying homes, and that is uncertainty. The employed remain worried about their own job security, which they see tied to overall U.S. economic health. This drives concern about the purchase of a home, because if the employed man or woman’s own independent situation changes they could be left without means to maintain their progressive or newly extended lifestyle. Another important concern of the employed and capital unconstrained is their worry about the future of the real estate market, specifically the risk of losing value post closing. Nobody wants an underwater mortgage or to lose value, despite its being tied to a tangible asset with utility.

I heard a real estate player on Bloomberg radio suggest that if our government or private organizations could alleviate that concern, suppose by insuring against the risk of real estate value decline, then that might lead an important number of prospective buyers off the fence and give traction to the real estate market. But this does not play to the capitalist tune; instead the government should find ways to normalize market conditions by alleviating uncertainty where it can manage it. Given that the U.S. government is now capital constrained, creative ideas like the aforementioned may be impossible anyhow.

If record low interest rates and deeply discounted home prices from their peak cannot bring buyers to the floor in a more significant way, perhaps only time will, as market factors like lending and employment heal. In other words, the housing market might not be capable of healing in a meaningful way until the economy does, and so the effects of direct stimulus are limited. Still, the disruptive relics of the real estate bubble, including the inventory overhang, must be cleared to allow economic improvement to more effectively flow through to real estate.

Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Don't Sweat Softer New Home Sales

New Home Sales were reported lower in June, but I suggest you not read too much into the report. Sales were expected to be slow, and the new home market is seen lagging broader recovery. That said, there was also plenty of good news for those willing to read the report or Wall Street Greek.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Don't Sweat Softer New Home Sales

New Home Sales ran at an annual rate of 312K in June, down just slightly from May’s revised rate of 315K. Economists surveyed by Bloomberg had been forecasting for a sales pace between 309K and 342K, with the consensus sitting at 321K. Thus, the report was relatively disappointing, but the data effectively shows no change in activity nonetheless. While that was also less than enthusing, it was expected, as the new home market is especially burdened by the heavy inventory of distressed properties on the market and held by banks in so-called shadow inventory.

Distressed property inventory has driven down home prices generally, and put a good number of relatively new properties for sale below replacement cost or the price of a new home. Given the prudent management of most large better-capitalized builders and the capital-strapped positions of the smaller ones; and most importantly a generally light demand for housing in an uncertain economic environment, new home sales are not going to lead the real estate recovery. However, just as I’ve recently written, housing is on the road to recovery in a broader sense.

A closer inspection of the data shows June sales softness in the Northeast (-16%) and West (-13%) was partly offset by strength in the Midwest (+9.5%) and South (+3.4%). Good news was also seen in housing inventory, which showed that despite the slower pace of sales, new home inventory fell to 6.3 months from 6.4 months supply in May. The number of homes for sale continues to ease, which is a necessary pain to find solid support for the next growth market for new homes. At this level of activity, when new home demand revives, it should be akin to a big blue fish taking a hook - there’s no doubt about it when it happens.

More good news was found in the home price data. The median price of a new home increased 5.8% in June, to 235,200. The average price of a new home increased 1.8% to 269K. And while the quick-to-print popular press and investors are crying over S&P Case Shiller data for May that shows year-over-year price decline, they’re missing year-over-year price increase seen in June via this report. It’s pretty substantial too, with the median price of a home up 7.2% on a year-to-year basis.

So in conclusion, I suggest readers and real estate players not lose any sleep over June’s New Home Sales Slippage. All your nightmares should be about our Congress’ potential failure to raise the debt ceiling before a major rating agency downgrades American credit. I even continue to favor homebuilder shares for long-term investment, as when recovery is clearly seen, the stocks should outperform the broader market. However, I must continue to qualify these recommendations and forecasts on the passage of debt ceiling legislation and the maintenance of the AAA rating for the United States. A scenario that includes a failure to do so is one wildly different than most living Americans can ponder in my view.

Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Home Builder Confidence Devastated, So Buy Housing Stocks Now

The National Association of Home Builders, in conjunction with Wells Fargo (NYSE: WFC), released its tally of builder confidence for June Wednesday morning. A relatively new factor acted like the last nail in the coffin of home builder confidence this month, sending almost all component measures toward record lows. Yet, “The Greek” still loves the shares of the best publicly traded home builders.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Home Builder Confidence Devastated, So Buy Housing Stocks Now

Piling on home builder misery, rising construction materials costs simply took the pressure from intense to unbearable for home builders in June. The NAHB/Wells Fargo Housing Market Index fell 3 points to a reading of 13, as a softer than hoped for spring selling season also deflated builder mood moving into the summer.

We blamed it on the rain in April, the wettest on record. We looked toward gasoline prices in May, as they breached the point of no return for consumer spending impact. In June, we’ve still got wild weather in portions of the country, though arguably not any wilder than any other year now. We still have tough comparable property costs from heavy existing home inventory, weighed down by distressed property sales. And now, inflation everywhere but in housing offers the latest blow.

"It’s truly scary that the component replacement cost of homes - construction materials (plus labor) - might provide the ultimate floor for home prices."

With home prices still on the decline, prospective first-time buyers have little incentive to enter the market. Current home owners can’t get enough value from their existing home to leverage to a step up new home. On a relative basis, existing homes offer a better deal to most prospective buyers. Gasoline prices are on the decline, but construction materials costs are on the rise. It’s truly scary that the component replacement cost of homes - construction materials (plus labor) - might provide the ultimate floor for home prices. Builders certainly aren’t feeling good about that.

The NAHB reports that its surveyed home builders, which include many smaller builders who have borne the brunt of this downturn and have little capital access to emerge from it, noted declines in current sales conditions and in the traffic of prospective buyers in June; these component indices dropped 2 points each to index measures of 13 and 12, respectively. This thus led builders’ forward hopes back into despair, with the latest measure of sales expectations for the next six months dropping four points, to its lowest in history, at 15. The last time builders’ forward confidence marked this floor was in the heat of economic battle in March of 2009.

Looking across the nation’s regions, there was one bright spot, the Northeast, which saw its HMI rise 2 points to 17 in June. Across the West (down 4 points to index value of 12), Midwest (down 3 to 11) and South (down 2 to 14) there was nothing but bleakness. Most publicly traded builders have broad nationwide exposure, with important interests in the faster growing regions of the nation. Thus, Toll Brothers (NYSE: TOL), Pulte (NYSE: PHM), Hovnanian (NYSE: HOV), Beazer (NYSE: BZH), Lennar (NYSE: LEN) and D.R. Horton (NYSE: DHI) all have a presence in the Northeast.

Looking forward, we remind securities investors that there should be a divergence between real estate investment and homebuilder share investment in the earliest stages of recovery. It’s very important to understand that the NAHB’s survey includes many devastated smaller builders in its query, which explains the depth of despair; a mark of 50 signifies the break between a “good” or “poor” marketplace. The strife of the smaller builders, and the tightening of the capital markets, including bank funding, provides an improved landscape for large publicly traded builders. Capital access and market share are available to them. Thus, I expect that at the slightest sign of turn, homebuilder shares will take off. So they will precede broad real estate market recovery. The bar for real estate sales growth is now very low, and so we can expect it in the second half of this year, barring any new interfering extraordinary factor.



Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

TOL Q2 2011 EPS - Toll Brothers Produces Positive Indicators

Quick Take
Toll Brothers

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

TOL Q2 2011 EPS

Toll Brothers (NYSE: TOL) shares were up about 2.3% through late-day trading, after being alone among homebuilders on the positive side in Tuesday’s trade. TOL reported positive data with regard to contract signings, home deliveries and home sales pricing. That forward looking information helped stave off concern about its EPS miss, as the company reported a $0.12 loss per share, against analyst expectations for a $0.04 loss. Based on my experience as an analyst, the operating figure was probably closer to the analysts’ view, especially considering that revenues came in about in line with the analysts’ view. However, the positive indicators were more than enough to support the shares today. Contract signings rose 8%; home deliveries rose 9%; and the average price of newly signed contracts improved 1%. The company also upped its delivery expectations for the year to 2,300 to 2,800, up from the 2,200 it previously said was possible. This verifies much of what we've been writing on the blog regarding our positive outlook for homebuilders this year, despite only marginal growth seen for real estate.

Article should interest investors in Investors Title (Nasdaq: ITIC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

New Home Sales Jump 7.3% - Ho-Hum?

New Home Sales growth surpassed economists’ expectations in April and housing stocks barely noticed. The 7.3% new home sales growth in April took the annual pace of sales to 323K, which was solidly above the economists’ consensus forecast for 300K. Yet, the S&P Homebuilders Select Industry Index (NYSE: XHB) declined in value by 0.4% Tuesday. The reason was clear; while the pace of home sales improved, the absolute level of activity remained pitiful.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

New Home Sales Jump 7.3% Ho-Hum?

New Home Sales ran at an annual rate of 323K in April, a notch plus above March’s revised rate of 301K. April blew economists away in actuality, as the highest economist estimate was for 320K. So why then were housing stocks almost unanimously lower Tuesday? It’s because the real estate market is not measured by new home sales alone. The 323K sales pace matched up against existing home sales of 5.05 million. That’s just 6% of total home sales, so when considering that existing home sales fell 0.8% in April, you can understand why investors paid no attention to new home sales growth Tuesday.

The details of the report showed that sales remained 23.1% short of the rate marked in April 2010, but that time period benefited greatly from tax incentive inspired activity. This latest data showed that month-over-month growth in sales was strongest in the Northeast (+7.7%) and the West (+15.1%), with growth also seen in the Midwest (+4.9%) and South (+4.3%). Yet, yearly comparisons were grossly unfavorable in each region.

Because of the increased rate of sales, inventory measured in months improved to 6.5 months in April from 7.2 months in March. Though in April 2010, supply was 6.2 months. There was relatively good news to be found in pricing data, as both the median price and average price of homes sold in April marked increases over March.

Still, the shares of homebuilders fell Tuesday, with Toll Brothers (NYSE: TOL) an exception, rising fractionally ahead of its earnings release. Toll likely also benefited from a burst in home sales ranging in price from $400K to $500K. Shares in Hovnanian (NYSE: HOV) fell 0.8%; KB Homes (NYSE: KBH) declined 0.6%; D.R. Horton (NYSE: DHI) dropped 1.7%; Pulte Homes (NYSE: PHM) fell 0.8%; and Beazer (NYSE: BZH) dropped 1.9%.



Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Making Sense of a Complex New Home Market

Real Estate

The latest data on homebuilder confidence indicates inflated gasoline prices have sucked the wind right out of a vulnerable, though prospective, spring selling season. However, we reiterate, the shares of publicly traded homebuilders should be less than perfectly positively correlated to the Housing Market Index.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT, AMEX: TWO, NYSE: SPG.

Making Sense of a Complex New Home Market

Earlier this year, builders had shown speculative enthusiasm, based on their view of the six-month forward outlook. However, based on more recent data released by the NAHB, it seems that prospective glimmer of hope is dwindling. The reason for dreams unfulfilled seems to be significantly higher gasoline and other energy prices, which have put the stops to many consumer spending decisions, including the big ticket new home purchase.

The National Association of Homebuilders’ (NAHB) Housing Market Index marked 16 in May, the same depressed level reported over six of the last seven months. An interesting aspect of the NAHB’s Index is that within it, components of its measurement have moved in different directions. While high hopes for something resembling recovery have faded through the first half of this year, actual potential buyer traffic has improved. The problem is that the net sum of all affairs is still a pitiful state.

The index measuring sales expectations for the next six months fell 2 points, to a measure of 20, while the metric covering traffic of prospective buyers gained a point, to inch its way to 14 on the NAHB’s scale. By the way, anything below 50 indicates that more builders view sales conditions as poor versus good. Clearly, while sitting this far below the bar, it’s a commonly shared viewpoint.

The concerns of builders in May covered all the same complaints about the operating environment mentioned over past months. Contractors talked about capital access constraints for both builder production and borrower qualification. They continued to blame a flawed appraisal process, which takes into account distressed property sales, thus skewing appraisal prices lower. As a result, prospective buyers are not able to get what builders believe is true value for the home they are leaving. This of course violates all free market truths. Distressed property inventory also weighs on the contractor’s marketplace opportunity by putting his properties into competition with cheaper options.

A couple new complaints surfaced this month indicative of an exhausted government that’s been worn out by the length of this burdensome economic weakness. Builders complained about the decreasing likelihood of any further government assistance to the industry. This has come into context this year especially, as comparisons against First-Time Homebuyer Tax Incentive assisted sales from last year have fared poorly. Secondly, builders raised concerns about the rising price of gasoline, which they feel is helping to price the prospective homebuyer on the margin out of home ownership. The two-point decline in the West Regional Index (to 16), where gasoline prices tend to be highest, would support that theory.

Northeastern builders seem to be faring worst of all, likely due to their operation in a well-developed market full of cheap existing homes. The Northeast Index fell 5 points in May, to 15. The Midwest saw no change, though stuck at a low measure of 14. The South improved a point on its way to 16.

Now that we’ve painted the bleak outlook builders seem to share, we reiterate that many of the publicly traded builder’s shares remain especially sensitive to positive news. As the real estate market is expected to grow this year, though off dead-bottom, it remains my view that the stocks of well capitalized, nimble builders will be early beneficiaries of new home growth both before and when it develops. And I reiterate that the NAHB survey is weighed on by its inclusion of a great number of smaller, undercapitalized builders, many of which may never recover. Thus, the movement of homebuilder shares and the Housing Market Index should be far from perfectly positively correlated.



Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Home Builder Sentiment Sinks in April

The NAHB Housing Market Index Fell but it Should Not be Construed as the Overriding Barometer for Real Estate

The National Association of Home Builders (NAHB) today released its latest tally of home builder sentiment, and the news reported was not good, especially for the heart of the important spring selling season. However, it does not necessarily reflect poorly for real estate generally, nor does it condemn housing stocks even.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ

Home Builder Sentiment Sinks in April

The home builders' association reported the NAHB/Wells Fargo Housing Market Index fell one point, to 16 in April. That reflects poorly for the voiced views of most home builders. However, using this index as a broad measure of the state of the real estate market would be a mistake. First of all, there is regional variation currently evidenced within this report, which should be expected at inflection point. Imagine taking a snow globe and rushing it downward to a sudden stop. You would find the "snow" inside unsettled, with some rising and some falling, rather than all rushing downward at once. The "globe" is in a situation of flux, from which broad direction is unclear. That's the state of the real estate market now. This report also does reflect the optimism that exists in some regions of the market.

The Southern Region of the nation basically drove the overall decline in sentiment, with the South falling four points to a regional index mark of 15. However, the congested Northeast saw improvement, gaining two points, to a mark of 20. The Midwest also rose, gaining two points to a slim mark of 14. The important Western region stuck at 17 in April. That said, the South represents the largest and most important new home market in the US currently, so weakness in the South still means a lot to the overall home building industry. Also, the absolute numbers reported here are all clearly weak. While that's important to home builders, change in direction and pace matter more to securities markets than absolute numbers in the determination of investment.

We remind readers that the NAHB includes the views of many small builders who face disadvantage now, given their more constrained capital situation. While large publicly traded builders are typically well capitalized, the smaller players, who are still aplenty, cannot get loans as easily today as they could five years ago. This index includes the small builder's views and is biased by them.

The NAHB lists the usual complaints from a builders' group that stands to benefit from government aid if its collective voice is loud enough. Some of these complaints are certainly true, and all of them carry weight though. These complaints include the effect of foreclosures on the appraisals of homebuyers making a trade up. Those homes for sale are burdened by the effect of foreclosure sales on a comparative pricing model. But the NAHB Chief Economist says "more foreclosures seem to be hitting the market," and that's just inaccurate. Just last week, RealtyTrac reported a 15% decline in first quarter foreclosure activity. It would be hard to fathom April being worse than the preceding months.

The NAHB reported that the index measuring current sales activity slipped one point, to 16. Even so, the measure of foot traffic of prospective buyers gained a point, to 13. However, the metric for the forward six month outlook fell sharply, shedding three points to a reading of 23. We expect this is directly related to rising uncertainty and creeping prices generally.

We believe that the most significant threat to this year's broadly anticipated housing recovery would be that caused by uncertainty with regard to the geopolitical situation and its impact on energy prices, namely gasoline. Gasoline is at a point now that it is affecting every consumption decision, especially those involving big ticket items like homes. Thus, while this data is not supportive of housing recovery on the surface, I'm not sure it should be expected to be an early indicator either.

Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO).

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Disturbing Housing Data Not a Bother

Real Estate

On Monday, Existing Home Sales were reported running at a significantly slower annual pace. Tuesday morning, the FHFA House Price Index showed further home price decline. That one-two punch has housing stocks hunching over. The S&P Homebuilders SPDR (NYSE: XHB) was off about a percentage point Tuesday, and down further after hours. Now let me tell you why I still see growth for the real estate market in 2011, and appreciation for homebuilders' shares too.

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Disturbing Housing Data Not a Bother

The annual pace of Existing Home Sales fell 9.6% in February, to a rate of 4.88 million, down from an upwardly revised 5.4 million pace in January (revised from 5.36 million). Since existing home sales measures completed contracts, we thought there might be a good chance it was weather impacted, given the massive snowfall that blanketed the country in the December to January span, when these contracts would have been first entered into.

The problem is that the drop in the rate of sales activity was not isolated to the weather battered Northeast and Midwest, which showed sales declines of 7.2% and 12.2%, respectively. Sales activity in the warmer South and West regions of the country also posted declines of 10.2% and 8.0%, respectively. It's not as if weather was perfect in those regions of the country either, but it's harder to apply that specific explanation across the whole of the country nonetheless.

Given the fact that sales were down a lesser 2.8% when compared against the pace from the prior year period, the seasonal factor may still carry some weight. We have not forgotten, though, that the economic well-being of the nation was far worse at that time than the January 2011 period we are otherwise comparing against. So, neither can we prove this theory to explain the weakness with certainty.

While interest rates have since come down, during the span measured in this report, Freddie Mac (Nasdaq: FMCC.OB) discloses the average contracted mortgage rate on 30-year fixed rate contracts rose to 4.95% in February, from 4.76% in January. This rate change certainly played a role in curbing activity on a national scale.

The representatives of the National Association of Realtors (NAR), interviewed in conjunction with the latest data release, listed all the usual suspects as factors behind the latest dip. There's a checklist that is regularly run down by industry experts discussing real estate weakness. Credit availability tops that list, as lending standards are significantly tighter these days then the boon years of free money. Gurus also point to the appraisal conflict against supply/demand determined pricing, as appraisals often include distressed property sales as comparables. Of course, distressed property sales are special events and not indicative of the broad market pricing scheme. That said, given the great inventory of distressed properties, there's an argument to be made for their inclusion now.

The NAR report showed the median price of a home fell to $156,100, which was 5.2% below the median price in February of 2010. Tuesday's FHFA House Price Index concurred generally, showing a 0.3% month-over-month drop in January. Over the trailing twelve months, prices were 3.9% lower in January. Despite being down 16.5% since their April 2007 peak, it seems home prices are still trying to find bottom. Indeed, that’s being aided by the distressed property overhang and the large lender owned shadow inventory. The percentage of distressed property sales increased in February to 39%, up from 37% in January, though that may have only been due to a decrease in overall sales activity. Yet, existing home sales still remain 26% higher than the low established in July of last year.

I continue to believe we will see growth in the housing market this year, albeit to a still depressing absolute level. Certainly, stresses remain on the real estate marketplace, and I also believe much of the country is still suffering through a stealth recession, based on my personal interactions with small businessmen and the observations I have made. We continue to face important risks and threats, including rising gasoline prices and likely higher food prices, and real inflation as cost of production and delivery increases feed through to finished goods. Yet, our economy also has natural drivers for growth working in its favor, and growth is not so difficult to attain from recent levels.

Finally, while the current situation is bad, it is not one that can in and of itself keep our great nation down. While I recognize and even look for other factors to help keep us relatively down, we must recognize that there is a change occurring in housing, from consolidation to growth. This supports the publicly traded and decently capitalized homebuilders' shares, as a light is finally visible that should lead long lost capital to flow their way. Market share also beckons them as smaller builders are strangled from capital.



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.