The Housing Bottom? We're Close, But...

Pulte Homes' purchase of Centex certainly gave volume to the buzz that there is a housing recovery right 'round the corner.

After a bump up in existing and new home sales in February, and a bump up in mortgage applications for actual home purchases, not just refis, you can see where the sentiment could improve.

The merger certainly positions Pulte to be the leading survivor of the big home builders. Despite the fact that they are taking on Centex's somewhat less healthy balance sheet, it still leaves them with well over three billion dollars in cash.

Spring Real Estate Guide 2009 | A CNBC Special Report
Spring Real Estate Guide 2009 | A CNBC Special Report

But is it a clear sign from the builders at least that housing is at bottom?

The analysts I spoke to today say that while we are closer than ever to a bottom in housing, we're not there yet, and no big builder merger is going to change their minds on that one. "There are still 3 million too many empty housing units in the United States, not to mention about a million developed lots sitting out there," says Raymond James' Paul Puryear. "So we are quite a ways from getting back to a quote unquote healthy housing market."

Puryear notes hat we may be getting a little bump from the government programs and lower interest rates, but we are still at very low levels of sales. Even Richard Dugas, Pulte's CEO admitted to Erin Burnett, "We’re not here to necessarily call a bottom of the industry. We do think we’re close to that, and we think this combination provides an accelerated return to profitability which frankly is very important as public companies to return to profitability for our shareholders."

The continuing problem is prices. As new home builders compete with foreclosures and short sales, they must continue to offer deeper and deeper price incentives, which only hurt their bottom line. Price incentives continue to be the greatest driver of new home sales. Discounts on distressed properties are up to 30% off new home prices in many markets.

Today's merger does signal one thing: hope. Pulte is positioning itself for the inevitable upturn, which at the very least suggests there may be one in the not too distant future.

Questions? Comments?