stangls Home Construction

I know things aren’t exactly rosy in the home building sector these days, but you’d think a 500-point rally in the Dow might nudge the builders up just a little bit. Not so much.

By noon today the Dow was well about the 500 mark, and the S&P Homebuilding index was down over 3 percent.

It seems one sector at least is still trading on the fundamentals. Traffic is just plain poor in the builders’ showrooms. Wachovia analyst Carl Reichardt, who does a Neighborhood Watch” report, says traffic is at its weakest levels since January 2001. In fact, the fourth quarter “may prove (to be) the weakest climate for new home sales since the production homebuilding business effectively began in the late 1940s,” he wrote.

Meanwhile over at Credit Suisse, analyst Dan Oppenheim downgraded Toll Brothers

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[TOL  Loading...      ()   ] and Ryland

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[RYL  Loading...      ()   ]. Oppenheim sees an additional 45 percent drop in raw land values and very weak order trends. Given continued price drops, he thinks Toll brothers is risky, given its “premium valuation and high-end focus.”

On the brighter side, Oppenheim says “the stocks now reflect overly bearish assumptions for home prices and further asset write-downs,” and he believes the stocks will benefit from less supply in 2009 as well as a potential post-election stimulus.

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Paul Puryear over at Raymond James concurs: “I think it’s time to start looking!” He tells me. He calls valuations “compelling” and is buoyed by the government’s intention to turn housing around. Wild card: consumers and the economy. As opposed to Oppenheim, he claims Ryland and Toll have the best balance sheets.

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