This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Homebuilder Upgrades Fortify Potential Sinkholes

NEW YORK ( TheStreet) -- The housing market has been a bright spot for a slowly growing economy but in my judgment this spotlight has dimmed. My benchmark for the homebuilding industry is the PHLX Housing Sector Index (HGX) (179.51) set a multi-year high at 198.06 on March 20 the day after I wrote, Sell Downgrades Weaken Homebuilder Foundations. HGX is down 9.4% since setting the multi-year high.

In the March 19 post I showed that seven of the eight homebuilder stocks I follow had been downgraded to sell with the eighth rated hold. Given the proliferation of sell ratings in this industry my suggestion was to book profits in these names as a "source of funds."

Today the seven homebuilders that were rated sell, have been upgraded; two to buy and five to hold. These upgrades fortify the sinkholes that weakened the homebuilder foundations at the March highs.

On Tuesday we learned that housing starts surged 7.0% in March to an annual rate above a million units for the first time since 2008, but this was on the strength of soaring production of multifamily properties. For the homebuilders the more important measure is single-family housing starts, which came in at an annual rate of 618,000 units, just above the 600,000 threshold deemed necessary to sustain the upward momentum for the market for new homes. As a warning, building permits fell 3.9% to an annual rate of 902,000 units.

A more important indicator was released on Monday, as the National Association of Home Builders (NAHB) reported that their Housing Market Index slipped to 42 from 44 in April as the spotlight dims below the neutral reading of 50.

Note that on the chart above shows that single family starts continue to lag the HMI. Homebuilders are getting frustrated by the rising cost of building materials and the difficultly in finding ideal land for development. These new concerns piggy-back on prior concerns of the lack of credit for construction and development loans, the difficulties in the mortgage market for qualified home buyers and lower than market appraisals for depressed properties.

1 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DHI $27.38 2.60%
KBH $15.36 1.70%
HOV $3.56 0.56%
LEN $50.20 1.60%
PHM $22.15 2.90%


DOW 17,693.38 +15.15 0.09%
S&P 500 2,058.59 +2.44 0.12%
NASDAQ 4,877.2240 +13.8620 0.28%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs