Realty Check

Big Builder Stocks: Why They're Not Much Of A Buy

New home construction

I have to say I never really bought the so-called “recovery” in the homebuilder stocks that we saw at the beginning of the year. There was a lot of talk of a “bottom” in the stocks, despite the fact that nobody is ready to call a bottom in the housing market.

The stock surge from that began in January (S&P home builder index up 17% from 01-01) was largely based on all the Fed rate cuts as well as all the efforts underway to stem the tide of foreclosures.

The trouble is that the rate cuts aren’t really helping the mortgage market much, not moving the rate down on the 30-year fixed anyway, and not changing the fact that you have to put a whole lot more money down these days if you don’t have perfect credit.

And foreclosures are still rising because so many of the supposed “fixes” aren’t helping people who are currently upside down in their loans and unable to afford any “workouts” by their lenders.

I asked Raymond James analyst Paul Puryear, why the stocks have been up lately, and what he expects:

“I think the stocks are moving up now and most recently in sympathy with what's taking place in the broader market, and I think the broader market is just breathing a sigh of relief that the worst of the credit crisis may be over…without regard to what’s actually taking place in housing fundamentally. Unfortunately I think this earnings season is going to be a dose of reality for those investors who may be getting back in here – a dose of reality in that fundamentals for housing are still bad - potentially even getting worse – and in our view, they’re going to be bad for quite some time so again – we see no reason to be buying the stocks.”

So much for the sigh of relief.


Questions?  Comments?