This seems like madness. After all, the housing market is in the tank. Applications for mortgages fell 23% on a seasonally adjusted basis for the week ended September 26, according to data from the Mortgage Bankers Association cited by Reuters. U.S. single-family home prices fell a record 16.3 percent in July from a year earlier, according to the Standard & Poor's/Case-Shiller Home Price Indexes.
Consumer confidence is shaky -- heck, I am not feeling so confident even though I bought a car. Foreclosures are at record levels -- still. Banks are tightening their credit standards, making it difficult for borrowers without sterling credit to get loans or refinance their existing ones. That's what makes the rise in the home builder stocks even more baffling.
Shares of Hovnanian Enterprises Inc. (NYSE: HOV), Toll Brothers Inc. (NYSE: TOL) and Lennar Corp. (NYSE:LEN) all gained double-digit percentages in the third quarter. The reason? Investors are chomping at the bit to call a bottom in the housing market. But I sat that's premature. S&P points out that many metropolitan areas are showing double-digit declines in home values. "There are signs of a slowdown in the rate of decline across the metro areas but no evidence of a bottom," David Blitzer, chairman of S&P's index committee, said in a statement.
Last week, KB Home (NYSE:KB) reported a worse-than-expected quarterly loss and offered a bleak assesment of market conditons. I don't see any hope for improvement either. Many housing developments in my area are going to be sitting idle for quite a while. One near me has already dropped its prices. Others will no doubt follow. Demand and supply will be out of whack for a while. People considering home builder stocks might want to remember that.