Housing: You Call This a Bottom?!

Includes: ICF, ITB, IYR, LEN, XHB
by: Barry Ritholtz

The WSJ reports that the U.S. Economy is poised to shake off the housing slump and regain momentum by year's end. That's the  positive economic consensus that has formed as we begin the New Year. (see WSJ: Economy Poised For '07 Rebound, Forecasters Say; and NYT: Economists Cautiously Optimistic About 2007)

Hardly any of the dismal scientists expect Housing to be an appreciable drag on economic growth. Indeed, quite a few observers believe that the Housing sector has bottomed: Last week, the WSJ had two separate very optimistic columns on the subject:  End of Housing Slump Seems to Be Drawing Near (free) and Home Sales Bode Well for Big Picture (no pun intended).

The fascinating thing about these articles is that included charts that seem to belie the content of the column: I read these charts and simply do not reach the same conclusion as the author. As we discussed earlier, sales remain in a downtrend, with inventory still near record levels:

housing inventory

Charts courtesy of WSJ


Speaking of stabilizing Housing, since the Bottom is already in, I wonder what to make of this pre-announcement by Lennar, the  $8.3B homebuilder. This morning, they released preliminary numbers for the quarter ending Nov. 30 -- and they are a doozy:

"Lennar Corp., the fourth-largest U.S. homebuilder by revenue, will post a fiscal fourth-quarter loss after taking a pretax charge of up to $500 million to write down land it no longer intends to buy.

The loss in the three months ended Nov. 30 will be 88 cents to $1.28 a share, the Miami-based company said today in a statement.

When the
company released its third-quarter results in September, Lennar warned
it expected below-forecast earnings of $1 to $1.30 a share. Wall Street consensus was for lowered to $1.07, Not counting the $1/2B writedown, the projected fiscal
Q4 earnings are 70 cents to 75 cents a share.

"Market conditions continued to weaken throughout the fourth quarter and we have not yet seen tangible evidence of a market recovery,'' Lennar Chief Executive Officer Stuart Miller said in the statement.

I am once again forced to ask the question: You call this a bottom?


On a related note, here's a multiple choice question: Who is sleazier, Lennar releasing the news this morning, or the SEC, waiting until the day before the Christmas vacation to back away from their previously announced executive compensation disclosure plan?

Home Sales Bode Well for Big Picture
Second Consecutive Rise Points to Limited Fallout From Market Slump in 2007
December 29, 2006; Page A2

Lennar to Post Loss on Charge of Up to $500 Million
Peter Woodifield
Bloomberg, Jan. 2  2007

End of Housing Slump Seems to Be Drawing Near (free)
Signs of Stability Emerge In Mortgages, Home Sales, Buoying Economic Prospects
December 28, 2006; Page A3