Housing Falls Further

November New Home Sales fell off of a cliff, reported Friday morning down 9%. Mind you, there was not too far to fall, after having bounced off a few other ledges already this year on our way down. Sales were running at an annual pace of 647K in November, versus expectations for a 720K run rate. Even with prices still tanking, buyers are unwilling now to enter into a situation where their home equity might immediately lose value after purchase. It's just an unnecessary risk to take, and the market should not improve now until prices stabilize. This will not happen until inventory drops, and with foreclosures still running hot and buyer concern mounting, this should still take a while to begin.

The already well-beaten housing sector just can't bleed much more before dying, and stock movement Friday reflected that. Beazer Homes (NYSE: BZH) immediately moved 2% lower; D.R. Horton (NYSE: DHI) fell 1%; Toll Brothers (NYSE: TOL) eased 0.4%; Hovnanian (NYSE: HOV) was off fractionally. It's a sign that these babies are just about sold out. Investors holding these shares look to keep holding from here, and buy support should come along soon. However, some may go bankrupt anyway, so be careful. I was early to call the move lower, and I'm happy to be first to call a mini-rally in these stocks in January. No portfolio managers wanted to have these shares on their Statement of Holdings going out to fund holders this year-end, but now, there seems value to be had. I would avoid BZH and HOV, but look to add TOL, the best in class in my opinion.