Stocks and Sectors

Investment Directions submits:

On Monday, Bloomberg reported, “Homebuilding Stocks Seen Rising Too Far, Too Fast.” The reporter included a graph that shows homebuilders far outperforming the stock market year-to-date. Other publications, including The Wall Street Journal, picked up the theme, helping the stocks to sell off more sharply than the market on Tuesday.

The problem is that the information supporting the conclusion and that graph is wrong. Here’s what happened and why we need always to be alert and not accept articles at face value.

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Before yesterday’s terrible Consumer Confidence numbers were released, I thought that the potential impact of today’s New Home Sales numbers would be minimal. My thinking was that with homebuilders such as Lennar (LEN) and KB Homes (KBH) reporting better than expected earnings and outlooks of stabilization in new home sales, the markets have already priced in an improving number for today’s New Home Sales figure. Also, with expectations of around 350-355,000 as opposed to last month’s 342,000, the sales rise appeared quite manageable, thereby reducing down side risk of a sales miss (Yes, January and December numbers missed by big margins, but forecasts were much more aggressive). However, this thinking all changed yesterday.

What a Consumer Confidence number of 46.0 tells us (not that it’s much of a surprise), is that the gloom of high unemployment is withholding any chance of a confident outlook to exist. Pretty much everyone has either lost a job, is worried about losing their current one, or have friends and family that are jobless. Also, adding to the negative outlook are government budget deficits and an apparent feeling that the recovery time will last a lot longer than anyone will admit. Nonetheless, as important as Consumer Confidence is, it is just a survey of what household “plan to do”, and may not be indicative of what “actual” purchases take place.

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optionMONSTER submits:

By Chris McKhann

The SPDR S&P Homebuilders ETF is down 2.8 percent, trading at $15.70. The XHB is retreating again from levels just above $16, a price that shares have not been able to stay above since October 2008. The shares have been range-bound between $16.30 and $14 going since July 2009.

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Calafia Beach Pundit submits:

The Case Shiller index of home prices in 20 major metropolitan areas (seasonally adjusted) has risen seven months in a row. Given the lags built into the way the index is calculated, this means that the bottom in U.S. home prices likely occurred last February or March, almost one year ago. In real terms, as shown in this chart, home prices haven’t changed much at all since the end of 2008. Thus, stability has returned to a market that suffered from extraordinary volatility for many years. The popping of the housing bubble resulted in an almost catastrophic 35% decline in real home prices, which in turn caused trillions of dollars of mortgage- and asset-backed securities to evaporate, threatening the viability of the entire world’s banking system.

Fortunately, the dust is continuing to settle, markets are clearing, and life goes on. The stabilization of home prices has allowed the prices of securities such as shown in the chart below to rise for the better part of the past year. That’s because the panic which set in over a year ago caused such selling pressure that the prices of asset-backed securities fell to levels that implied a continuing decline in home prices that was way too pessimistic.

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theflyonthewall.com submits:

Toll Brothers (TOL) is expected to report Q1 earnings before the market open on Wednesday, February 24 with a conference call scheduled for 2:00 am ET.

Guidance

Analysts are looking for EPS of (35c) and revenue of $324.9M. The consensus range is (73c)-(4c) for EPS, and $249.2M -$411.51M for revenue, according to First Call. Recent sentiment in the stock has been decidedly negative, mostly due to macro economic factors. A potential withdrawal of the government’s massive support for mortgage rates could have dire effects for the housing market, and for Toll in particular.

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Tom Schumacher submits:

The homebuilders have seen an impressive rally since March ‘09 lows, with ITB and XHB outpacing the S&P 500 by about 40%. It shouldn’t be a huge suprise since homebuilders took a beating in 2008, falling much more than the broad market indices before and during the crisis. However, they have contiuned to outpace the S&P 500 so far this year, with ITB up 9.76%, XHB up 5.24% and the S&P (SPY) down 1.5% (returns as of Feb. 19th). One has to wonder have homebuilders come too far too fast?

[Click charts to enlarge.]

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Ockham Research submits:

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EconomicRot submits:

I’ve been arguing (correctly, I might add) with Nevada housing optimists for years, explaining that we would undergo the largest housing / economic bust in history, but the vast majority were reluctant to pull their heads out; they would blindly regurgitate ignorant (positive) data snippets overheard on the radio, news or by their local neighborhood realtor – completely oblivious to economic reality and bent on hearing / believing that a fairytail future was once again possible for Nevada (Las Vegas in particular).

Even with data to back it up, many still try to refute the obvious, but allow me to try once again…

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