Homebuilder Stocks Continue to Struggle
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October building starts were markedly down, and homebuilders have been missing earnings marks. The fact that existing home sales surged in October was not much comfort to a housing market that is looking for improvement across a number of areas, especially home building. Even though the broader stock market is up today on economic news and a great deal of optimism, homebuilder stocks are expected to continue to struggle. The Street reports on what is likely ahead for homebuilders:
Optimism about a stable footing in the real-estate market dimmed last week after the Commerce Department said housing starts fell 11% last month and D.R. Horton missed earnings estimates. And to think that the new-home tax credit is still in effect. …
Analysts are predicting homebuilder losses will stretch into next year. They could very well extend beyond that, given the unpredictability of the rebound. As it stands now, expecting runaway profitability before 2012 is a pipe dream. Homebuilders enjoy the greatest success when they’re able to sell into overheating markets at prices that dwarf costs. Since current real-estate markets resemble a frozen tundra more than a frying pan, patience is required if investors are looking for big gains.
Existing homes are so attractive because they can be had for great deals. Many existing home sales are made because the homes are distressed or even in foreclosure. This makes them a great deal. Combine that with the home buyer tax credit that is in effect until the end of April 2010, and you will see people gravitating toward the lower prices — especially since many people are still wary of the current economic climate. With jobs continuing to be scarce, and worries about layoffs still very much in evidence, it is little surprise that people are reluctant to spend more money. Those who do make home purchases are likely to gravitate toward lower priced homes and look for good deals on distressed homes.
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