A slow home building recovery seems to be underway–but remember that these stocks have already run and that in most years they show a seasonal peak in April or May

Two reads today on the U.S. housing market that both say the same thing: The market is bottoming; the recovery is underway; and the process isn’t going to be fast or smooth.

First, the big picture from the S&P/Case-Shiller index of property values in 20 U.S. cities. The index dropped 3.8% in January 2012 from January 2011. How is that a sign of improvement? Well, in December the year-to-year decline was 4.1%. One of these days, we’ll see a 0% year-to-year change and then after that, be still my heart, an actual increase in housing prices. The 3.8% year-to-year decline in January matched the forecast by 32 economists surveyed by Bloomberg.

Second, a somewhat smaller scale picture from homebuilder Lennar (LEN) but one that’s certainly more up-to-date than the lagging Case-Shiller index. Before the open in New York today the company reported first quarter 2012 earnings of 8 cents a share. (The builder’s first quarter ended on February 29, 2012.) That was 3 cents a share above Wall Street projections. Revenue climbed 30% year-to-year to $725 million versus the Wall Street consensus estimate of $721 million. Deliveries climbed 29% and new orders were up 33%.

In its conference call Lennar characterized the housing market as stabilizing. The recovery isn’t broad-based but Lennar has seen some strength in all its geographies. (West is best for prices and South is worst.) The company is seeing more traffic, and believes that the increase is a response to improvement in the job market and in consumer confidence. Lennar is starting to see buyers who are afraid of missing out on low prices and low interest rates. Unfortunately, while mortgage rates are low, bank lending remains tight with many homebuyers unable to meet current tight underwriting standards. (Can’t quite remember but isn’t there a saying about barn doors and missing horses or something.)

February, Lennar said, was the strongest month of the quarter (which began in December) and so far March growth is consistent with February’s strength.

Investors should remember the strong seasonal pattern to homebuilder stocks before deciding to jump into the sector. Read more

Existing home sales bring (some) good news for the U.S. economy

Is today’s good news on home prices only a false dawn?

So how stable is this stability in home prices?

That’s the question raised by the good news on home prices from today’s (February 23) release of the most recent S&P/Case-Shiller index of home prices. On a seasonally adjusted basis the index climbed 0.3% in December from November. For the fourth quarter the index climbed a seasonally adjusted 0.3% from the third quarter.

On a year to year basis the index was down 3.1% from December 2008. But that’s still good news: It’s the smallest year to year drop since May 2007.

Enjoy the good news while it lasts because most housing experts expect to see home prices fall again in 2010. And home builders, which have recently shown signs of recovery, are warning of tougher times ahead. D.R.Horton (DHI), which reported its first quarterly profit since 2007 in the fourth quarter of 2009, told investors in a February 2 conference call that it sees the September quarter ahead as its most challenging because the government tax credit for buying new homes that juiced sales in 2009 is now set to expire in April.

An even bigger problem than the expiration of tax credits is a wave of foreclosures expected in 2010. Read more

Was Lowe’s earnings report good or bad news for the economy?

So when does beating low expectations stop counting as good news?

It’s an important question for the stock market and for the economy as a whole. After easy to beat earnings comparisons in the first and second quarters, stocks face a bigger challenge in the third and fourth quarters of 2010 as they pass the absolute bottom for the economy. For more on how earnings comparisons get tougher as 2010 goes along see my post http://jubakpicks.com/2010/01/22/2010-well-the-first-half-anyway-looks-good-for-stocks-despite-the-current-correction/ )

Today, February 22, before the stock market opened Lowe’s (LOW) reported fourth quarter 2009 earnings of 14 cents a share and revenue of $10.17 billion. The results were above Wall Street expectations of 12 cents a share in earnings and $10 billion in revenue, but below the company’s own guidance for 15 cents a share and $10.3 billion in revenue.

Confusing picture, no?

Well, it doesn’t get any better if you dig a little deeper. Comparable store sales fell 1.6%, but Wall Street had expected that comparable sales would fall by 2%. This is the smallest drop in comparable sales since the second quarter of 2006.

Lowe’s CEO Robert Niblock told investors that the worst is behind the company.

Which isn’t, apparently, the same as saying that things are actually going to be good. Read more

Could it be? Housing stocks actually leading the market?

Bounce or trend? That’s the question.

The dollar took a break yesterday as it met some resistance after moving up so strongly in January.

Commodities hit support that then rallied.

At least that’s one way to look at it. From a purely technical point of view all we’ve seen this week is a bounce in commodity prices on a dip in the dollar. The United States Oil Fund (USO), for example, bounced off the bottom o its four-month trading range and its 200-day moving average.

But looking at the sectors and stocks that are moving together, you could also argue that the upwards move of the last two days is a reaction to news indicating that U.S. economic activity is picking up—fourth quarter U.S. GDP (announced last week) showed 5.7% growth—and that we might finally be seeing the bottom for home builders. Read more