The Homebuilder Sentiment for August was a repeat of 15 for the month, a reading which is still just dismal.  The most obvious issue to take over the last three weeks is that almost no sentiment readings are going to be very positive this month (and likely more).  How on earth could there be positive sentiment readings by anyone right now as the economy is slowing enough on macro-data that the “double-dip recession” is one of the top searched terms now?

The results from Lowe’s were lightly ahead on the bottom-line and slightly soft on the top-line: $0.68 EPS vs. $0.66 estimates; and $14.5 billion in sales vs. $14.75 billion expected.  The company has now put its 2011 guidance in a range of $1.48 to $1.54 EPS from a prior range of $1.56 to $1.64 EPS.  Lowe’s is down 1.4% at $19.24 against a 52-week range of $18.07 to $27.45.  The long and short is that no one could have expected a surprise win here.  How could anyone have expected positive figures if they have been reading the financial and housing news of late?

Home Depot Inc. (NYSE: HD) reports on Tuesday morning and Thomson Reuters has estimates of $0.83 EPS and $19.96 billion in revenues; next quarter estimates are $0.58 EPS and $17.17 billion in revenues.  Shares are trading around $30.90 with a 1.3% gain so far this morning and the 52-week trading range is $27.10 to $39.38.  The belief is that Home Depot is taking away from Lowe’s in the current market.

What is interesting is that despite the negative sentiment and a continued negative homebuilder climate expected for months more, SPDR S&P Homebuilders (NYSE: XHB) is higher by 1% at $14.40 and the iShares Dow Jones US Home Construction (NYSE: ITB) is up 1.5% at $9.65.

DR Horton Inc. (NYSE: DHI), one of the few building stocks with a dividend, is up 1.8% at $9.69 in late-morning trading.

PulteGroup, Inc. (NYSE: PHM) is up the second highest today as shares are up 3.5% at $4.68 on the most active trading volume of more than 5 million shares.

The most interesting move today is in the down-and-out PMI Group Inc. (NYSE: PMI).  This company is hated by borrowers who have to get home mortgage insurance, but the stock is up 25% at $0.40.  It is a penny stock and a cult stock but investors will take what they can get right now.

The woes of the building sector are going to likely be here for some time.  Many do not expect a recovery to surface before next year, while others are worried that the persistent jaw-boning in the elections in 2012 may just put the whole housing recovery off until 2013.  Regardless of the move, many underwater homes and mortgages are going be no different than Atlantis… underwater for the long-haul.  The trick to remember is that these stocks may turn even as the news just continues to look “only as bad” or just a bit “less bad” than before.  If investors are waiting for the news to show real gains, the stocks will have moved much higher by then.

JON C. OGG

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

The iShares Dow Jones US Home Construction ETF (NYSE: ITB) holds a stake in 28 companies and claims net assets totaling about $479 million. Just over 60% of the fund’s assets comprise the top 10 holdings. Among the other 40% are several industrials, a furniture company, and a roofing supply company. Every one of the non-homebuilders has shown a share price gain over the past twelve months, with furniture maker Ethan Allen up by around 50%. Of the top 10 holdings, Home Depot is one of the top 3 performers and Lowe’s is one of the top six.

The SPDR Series Trust S&P Homebuilders (NYSE: XHB) claims total assets of about $794 million in a portfolio of 39 stocks. Unlike ITB, only about 30% of the fund’s holdings are in homebuilders; the rest of the holdings include industrials like USG Group and Whirlpool; retailers like Bed, Bath, and Beyond, Home Depot, and Lowe’s; and the top holding, bed-maker Tempur Pedic. More than 50% of holdings are in home furnishings, retailers, and building products.

The PowerShares Dynamic Building & Construction ETF (NYSE: PKB) has a market value of $32.4 million spread among a portfolio of 30 stocks. Industrials comprise nearly 48% of the portfolio and only homebuilder NVR Inc. is included among the top ten holdings. Unlike the ITB and the XHB, building and construction here refers to commercial and industrial projects. KBR Corp. and Fluor Corp. are among the fund’s top holdings.

Housing prices continue to fall, and could drop as much as another 10% this year.  Foreclosed properties are dragging prices for new homes down, and new orders are weak too.

The only reasonable explanation for the run-up in homebuilding ETFs is that some investors are trying to get ahead of a hoped-for recovery in the housing market. They could have a long wait.

OptionMonster reports this morning that in one trade yesterday, 30,000 September 18 put options were bought.  As OptionMonster noted, this could be a hedge against an outstanding long position or it could be revealing a bearish outlook for the homebuilding ETFs and the homebuilders in general.

It should be the latter.

Paul Ausick

We have seen two S-3 filings from Beazer Homes USA, Inc. (NYSE: BZH) and Hovnanian Enterprises, Inc. (NYSE: HOV) for their subsidiaries to raise capital.

Beazer Homes has filed with the SEC to raise up to $750,000,000.00 in securities sales.  It lists the following securities in any combination: Senior Debt Securities, Subordinated Debt Securities, Common Stock, Preferred Stock, Depositary Shares, Warrants, Rights, Stock Purchase Contracts, Stock Purchase Units, Units, and/or Guarantees of Debt Securities.

Beazer’s use of funds is “for general corporate purposes ” which may include the retirement or refinancing of debt.  It also may temporarily invest those funds until used.

Hovnanian Enterprises filed for itself, its K. Hovnanian Enterprises unit, and subsidiaries.  They filed to sell up to $200,000,000.00 in any combination of securities sales of the following: Preferred Stock, Class A Common Stock, Depositary Shares, Warrants to Purchase Preferred Stock, Warrants to Purchase Class A Common Stock, Warrants to Purchase Depositary Shares, Debt Securities, Warrants to Purchase Debt Securities, Stock Purchase Contracts, Stock Purchase Units, and/or units.  For the K. Hovnanian Enterprises, Inc., unit, its grouping of securities can include any combination of Debt Securities, Warrants to Purchase Debt Securities, and/or Units.

Hovnanian’s use of funds are also “for general corporate purposes” including working capital needs, the refinancing or repayment of debt, capital expenditures, expansion of the business and acquisitions.

Again, these are not IPOs but are often considered the dark side of investment banking.  As you have not seen anything company come public tied to the housing sector in years, there is a chance that some of these securities sales could get as much attention as IPOs get.

Stay tuned.

Beazer is actually up 0.4% at $4.54 versus a 52-week range of $3.10 to $7.08.  Hovnanian is up 0.6% at $3.29 and its 52-week range is $3.26 to $8.05.  Maybe this dark-side of investment banking is really the good-side.

Even the iShares Dow Jones US Home Construction (NYSE: ITB) TF is trading up 0.3% at $13.44 against a 52-week range of $10.50 to $15.77.

SPDR S&P Homebuilders (NYSE: XHB) is down marginally today at $18.23 and the 52-week range is $13.59 to $20.00.  The iShares Dow Jones US Home Construction (NYSE: ITB) is up 0.4% at $13.56 on Monday with a 52-week trading range of $10.50 to $15.77.  If you saw last week’s housing numbers and knew nothing about the broader stock market trend of the time, you’d likely have guessed that these were all hitting 52-week lows or were at least close to those lows.

PulteGroup, Inc. (NYSE: PHM) is up another 1% today at $7.65 and its 52-week range is $6.13 to $13.91.  The Goldman Sachs defense of Pulte last week might have offered more support than anything else.  This was actually one of the top analyst calls of the week.

The chart shows how these three have performed in the last 3-months.  Frankly, it is almost surprising that these are not all lower if you merely looked at the housing data that comes out each week.

We would likely offer more analysis and data behind this housing effort but the numbers just haven’t justified it.  The incentives to buy a home have passed.  The affordability keeps getting more and more affordable.  Many housing markets are back to prices from 2004 and even before.  Finding anyone who believes that inflation will come to home prices is no easy task.

JON C. OGG

The builder said that it recorded fewer impairment charges and said its land-cost writedowns were lower.  Here is the most important notion of all and it may set a new hurdle for other homebuilders to keep up their share price performance: Pulte believes that it is in the position to be profitable this year.  Thomson Reuters expects a loss at -$0.43 EPS, and the profit expectation for 2011 is $0.33 EPS.

At a $13.10 close on Tuesday, its 52-week range is $7.84 to $13.91…. At 8:15 AM EST we have shares trading up around $13.20 rather than through the roof.  Much of the news may have already been in the stock.

SPDR S&P Homebuilders (NYSE: XHB) closed at $18.86 yesterday and will be one to watch. More importantly and more directly is the iShares Dow Jones US Home Construction (NYSE: ITB) ETF, where Pulte is over 10% of the weighting.

JON C. OGG

The drop was expected because of the channel of house closings being so high in October and November ahead of what many buyers feared would be the end of the first time home buyer tax credits.  That has been extended through April.

After the news, SPDR S&P Homebuilders (NYSE: XHB) is down 0.7% at $14.99 and iShares Dow Jones US Home Construction (NYSE: ITB) is down 1.2% at $12.05.

JON C. OGG

Lennar is trading up 10% at $15.08.  Beazer Homes is perhaps as good of a secondary offering as one could hope for because shares are up 8.6% at $5.18 and trading volume is already 7-times a full day’s volume.  The Jan 6: 15.51  0.00 (0.00%)  SPDR S&P Homebuilders (XHB) and the iShares Dow Jones US Home Construction (ITB) is flat at $12.26 were both up almost 4%, but those may be higher as we have seen trade errors in reporting this morning right after the open.

Beazer secondary buyers should be sending Lennar a thank you note this morning. KB Home (NYSE: KBH) shares are trading higher by 6% at $15.25 this morning and they have earnings (with an expected loss) on deck next week on January 12.  The bar has now gone from a low bar to a very high bar for KB Home’s earnings next week.

JON C. OGG

The SPDR S&P Homebuilders (NYSE: XHB) is down only about 0.25% at $14.83 on the day versus a 52-week trading range of $8.00 to $16.75.  The iShares Dow Jones US Home Construction (NYSE: ITB) is down about 0.8% at $11.63 verss a 52-week trading range of $6.33 to $13.93.  Both ETFs have recovered from their lows.  Hovnanian Enterprises Inc. (NYSE: HOV) had a huge day yesterday on the heels of the housing starts data, but the after-hours and pre-market reaction to its earnings, ergo losses, was a selling of the stock.  The homebuilder posted a wider-than-expected loss and it noted a 24% cancellation rate during the quarter.  The stock was down over 10% after earnings in the after-hours session, but came up substantially off of its lows to being down 6% and we had shares trading at the similar level this morning in pre-market.  At 10:35 AM we have shares down only about 4% at $4.06 (versus 52-week trading range of $0.52 to $5.75), and part of this recovery may be due to the Moody’s report.

Moody’s synopsis is that the stable outlook expresses a view that fundamental credit conditions in the industry will neither erode nor improve materially over the next 12 to 18 months.

Moody’s has cited that housing starts, new home sales, and existing home sales have all shown positive trends, and housing affordability is at the strongest point seen in many years.  This is on the heels of a November figure showing a 8.9% rise in housing starts.

While specifics from homebuilders may be sketchy when you review the latest earnings from homebuilder stocks, Moody’s did note that operating profits of the rated homebuilders are also expected to show modest improvements in 2010.  Of course, US government support remains a critical piece of the puzzle, and any backing away from that would put the rating outlook at risk of going back to negative.

The issue to consider is here is the availability of mortgages and whether foreclosures can abate substantially in 2010.  Foreclosures are competing against new home sales and existing home sales.  If the shadow supply from the banks and lenders that was foreclosed or has been given a permanent reprieve from foreclosure come on the market, the worst case scenario for homebuilders can come back: houses will start selling for cheaper than they can be built.  That seems to be the case in Michigan now, and it was certainly the case during the Texas bust of the 1980′s.

JON C. OGG

DR Horton Inc. (NYSE: DHI) is down some 4.75% at $11.25 and Lennar Corp. (NYSE: LEN) is down 6.8% at $12.71 after the news.  The SPDR S&P Homebuilders (NYSE: XHB) is down 3% at $14.16 and the iShares Dow Jones US Home Construction (NYSE: ITB) ETF is down 2.8% at $11.45.

JON C. OGG