Don't Get Too Excited About Housing

 | Dec 29, 2011 | 10:44 AM EST
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You want confusion? Check out pending home sales, highest in 18 months. This is a figure that jibes with nothing. Not mortgage applications. Not foreclosures. Not new housing starts. It is just out there as this lone positive in housing, and each time, it causes a surge in the homebuilders, with the usual suspects, D.R. Horton (DHI), Lennar (LEN), Toll Brothers (TOL) and PulteGroup (PHM) being taken up. This, despite the fact that these companies have no earnings momentum, and KB Home (KBH) just reported a miserable number.

Further, they then bring a raft of buying into the home-buying ancillaries, like Lowe's (LOW), which has become a hot stock, Whirlpool (WHR), which is a pathetic company that has never seemed to do as well as it should -- crushed by Sears Holdings (SHLD) the other day -- and Masco (MAS). Yes, Masco! Unstoppable on these days and just totally stoppable on all others.

Lately, we've even seen some regional banks rally on these numbers, as if it is just a matter of time before the mortgage business gets good again. There I am seeing it in U.S. Bancorp (USB), which actually is a double-digit grower (and an Action Alerts PLUS name), and BB&T (BBT), which is just a well-run share-taker from Bank of America (BAC). I can get behind these two, because not only are they not hostage to Europe, they are feasting off the chaos, the ongoing chaos, that is Bank of America. The latter, by the way, should be judged by the subordinated debt, which continues to trade down, and not the common stock, which hangs in there like a punch-drunk champ.

I think if the housing stocks and their collateral plays were for real, this market would be much higher, because it would mean that employment could be getting stronger from residential housing. That has just not been the case, though, as permits and new housing have been horrible.

What is good, however, is non-residential, where a lot of jobs are being created, and apartment building construction. You need all three to get this economy moving, but anyone who thinks that single-family home construction is coming back now remains delusionary. Without a comprehensive foreclosure plan nationally, like Wells Fargo (WFC) has for its percent of the market, that part of the economy will be a drag for years to come.

The good news today is that this number can, momentarily, counteract the bad news from Europe, bad news as measured by the fact that we cheer interest rate declines out of Italy that you need a microscope to see. Never forget that it is all about Italy, because Italy is huge, and without a direct tackling and crunching of all bank debt at the major bank level, and a turning into equity, we won't be able to mount a sustained assault just on the strength of pending home sales.

Not a bear, not a bull. A realist.

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