Counter-Take: Should Housing Really Be Recovering Yet? (ITB, XHB, KBH, HOV, DRI, LEN, TOL)

This week is starting to look a bit different for housing and homebuilders and it is a serious matter in considering that the news of the world and the less recent housing data may be a bit too soon.  The Commerce Department showed this Tuesday morning that homebuilders started work on 14.6% more homes to 629,000 units in June (seasonally adjusted).

Before we start calling this runaway home building, a gain of more than 30% was seen in apartment and multi-family construction.  The single-family construction starts were up 9.4%, but that was still apparently the biggest boost in about two years.  This is 453,000 starts on an annualized basis.

iShares Dow Jones US Home Construction ETF (NYSE: ITB) is up 2.6% at $12.45 and the 52-week range is $10.50 to $14.29. Shares were above $13.00 as recently as July 7.

SPDR Series Trust S&P Homebuilders (NYSE: XHB) is up 2.4% at $17.73 and the 52-week range is $13.59 to $19.21.  Shares were above $18.60 as recently as July 7.

KB Home (NYSE: KBH) is up 3% at $9.51 and the 52-week range is $8.95 to $16.11; shares were above $10.00 as recently as July 12 and shares were above $12.00 as recently as late-June.

Hovnanian Enterprises, Inc. (NYSE: HOV) is up 3% at $2.27 and the 52-week range is $1.84 to $5.00.

D.R. Horton, Inc. (NYSE: DRI) is up 4.7% at $11.82 and the 52-week range is $9.72 to $13.50.  Its shares were above $12.00 on July 7.

Lennar Corp. (NYSE: LEN) is up over 5% at $18.34 and the 52-week range is $11.93 to $21.54.  Toll Brothers Inc. (NYSE: TOL) is up 2.8% at $21.18 and the 52-week range is $15.57 to $22.42.  Both of these are much closer to highs than lows compared to many peers.

So, here is why we ask if this is too soon to count a real housing recovery…  Building permits were up 2.5% while builders and real estate agents are effectively still competing with lower-priced existing homes, foreclosed and short-sale properties, plus that huge shadow inventory that banks have still held back.  May’s new home sales were only 319,000 on an annualized basis, about half of what a normal market might be.  Monday’s homebuilder sentiment came in above expectations at 15 for June, but 50 is the benchmark for a positive reading on that front.

Investors will often look to anything they can for a silver lining or a buying opportunity.  The reality is that celebrating these figures right now is still a bit like taking your child to the store and saying he can have the pick of any gift at the store.  It sounds great until that kid is old enough to realize that this is the dollar store.

The issues to consider in homebuilders are numerous.  The important thing to consider is that these stocks are generally considered to be proxies for the actual market about one or even two quarters out.  Investors buying today are not buying for news reports due in August, but they are buying for news coming out this fall and even in winter.  If the stock market stabilizes, these can still run even in a cautious minefield of international economics.  If the stock market tanks all over again or if the data still resembles a double-dip recession’s increased chances, then these will remain in the basement.

JON C. OGG