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Empty Houses? Why Furniture Stocks Are Falling

Furniture stocks such as La-Z-Boy and Ethan Allen are down big from their highs on the year even as homebuilder shares and other indicators point towards a housing recovery.

The divergence either means the recovery isn’t quite for real or that the comeback is being driven by speculative buying of empty foreclosed homes.

“I think the Street is so convinced of a housing bottom that shares of builders have gotten far ahead of many relevant suppliers,” said Steve Cortes of Veracruz Research, who pointed out this divergence in a note to clients.

The iShares Dow Jones Home Construction Fund , made up largely of homebuilders, is off only 5 percent from its high for the year and is up 30 percent for 2012. Meanwhile, shares of Ethan Allen are off 31 percent from their 2012 high and down 17 percent on the year.


Furniture makers got hit hard Wednesday after La-Z-Boy postedweaker than expected results for the quarter and said it was positioned to further “capitalize on any strengthening in the economy, particularly consumer confidence and the housing market.” Though the company failed to acknowledge that was underway.

Yet data from the Commerce Department Wednesday showed that permits for new constructionhit their highest level in four years. This was the latest in a series of government data pointing to a housing bottom.

So who to believe?

The Federal Reservedidn’t sound too optimistic about the housing sector in its statement on the economy today, saying “household spending appears to be rising at a somewhat slower pace than earlier in the year.”

This was a downgrade from their statement in April, which read “household spending and business fixed investment have continued to advance.”

Investors may get an answer to this riddle Thursday, when existing home sales figures are released. The numbers put out last month showed that distressed home sales still accounted for 28 percent of sales.

“We suspect homebuilding stocks will start falling again,” said Steve Cortes, who also runs ETFLadder.com. “The poor trade in lumber, copper and aluminum signal a tepid pace of building ahead.”

For the best market insight, catch 'Fast Money' each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:00 ET on CNBC. Follow @CNBCMelloy on Twitter.




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