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A new report states:

The number of Americans who signed contracts to buy homes fell in July, further evidence that the depressed housing market remains a drag on the economy. Michael Gapen, director of U.S. economic research at Barclays Capital Research, said the high number of cancellations suggest "heightened uncertainty on the part of purchasers and tighter credit standards in mortgage finance."

If you read the last part of the article, the worst news is left for last because it explains that home prices are likely to see accelerated declines in the coming months when the mortgage probe ends. The article states:

Another reason prices are stabilizing is because millions of foreclosures are in limbo. Many have been delayed until the government completes an investigation into improper practices by mortgage lenders. Once that probe is finished, banks will start seizing homes again and prices will likely fall again. Analysts say the weakening job market and the uncertainty over foreclosures could lead to deeper price declines in the second half of the year. They estimate prices will fall another 5 to 10 percent by year's end.

Adding to this concern is the fact that consumer confidence numbers were just reported and came in very weak. Consumer confidence dropped about 15 points in August, which brings this index down to the lowest point in about two years. A lack of confidence and highly negative headlines for the economy and housing is likely to keep housing stocks under pressure for the foreseeable future. That's why it makes sense to sell into any strength on these stocks (any moves upward are most likely nothing more than temporary short covering rallies).
Toll Brothers, Inc. (NYSE:TOL) shares are trading at $17.04. The 50-day moving average is $19 and the 200-day moving average is $19.85. The shares are trading above stated book value of $15.27 per share. Earnings estimates indicate a profit of about 13 cents per share for 2011 and 37 cents for 2012. Results have been weak and by looking at earnings estimates for the next couple of years, they are likely to be posting minimal profits for a stock trading around $17. There are too many cheap stocks trading at this level that are earning far more than TOL will over the next two years.
KB Home (NYSE:KBH) shares are trading at $6.56. The 50-day moving average is $8.42 and the 200-day moving average is $11.54. The shares are trading above stated book value of $5.76 per share. Earnings estimates indicate a loss of about $2.60 per share for 2011 and smaller loss of about 6 cents for 2012. KB Home has been losing money recently and by looking at earnings estimates for the next couple of years, this looks like a good stock to sell on any rallies.
PulteGroup, Inc. (NYSE:PHM) shares are trading at $4.90. The 50-day moving average is $6.22 and the 200-day moving average is $7.15. The shares are trading close to the stated book value of $5.49 per share. Earnings estimates indicate a loss for 2011 and small profit of about 19 cents for 2012.
Beazer Homes (NYSE:BZH) shares are trading at $2.19. The 50-day moving average is $2.68 and the 200-day moving average is $4.15. The shares are trading below stated book value of $4 per share. Earnings estimates indicate a loss of $2.45 for 2011 and a loss of $1.12 for 2012. With company posting major losses, it makes no sense to be involved.
DR Horton (NYSE:DHI) shares are trading at $10.60. The 50-day moving average is $10.87 and the 200-day moving average is $11.48. The shares are trading above stated book value of $8.20 per share. Earnings estimates indicate a profit of about 22 cents for 2011 and 55 cents for 2012. This is one of the better names in a tough sector but I still would not buy now.
Hovnanian Enterprises Inc. (NYSE:HOV) shares are trading for $1.75. The 50-day moving average is $1.94 and the 200-day moving average is $3.21. The shares are trading well above stated book value. Earnings estimates indicate a loss of $2.37 per share for 2011 and a loss of $1.23 for 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Source: Housing Stocks That Shorts Are Likely To Profit From