The following commentary comes from an independent investor or market observer as part of TheStreet's expert contributor program, which is separate from the company's news coverage.
I follow the housing market via the PHLX Housing Sector Index, which is up a solid 19.1% year to date, and is up 79.7% since the Oct.4 lows. You would think that the market for new homes would be in a lot better shape considering this performance, but that's not the case given recent data on the housing market, particularly the market for new homes. Even the Federal Reserve still describes the housing market as depressed.
Here's an overview of the current housing data followed by my recommendations for how to play home builder stocks in this environment.
Home Builder Confidence Fell 3 Points in April
The National Association of Home Builders recently reported that their Builder Confidence Index for newly built, single-family homes fell to 25 from 28 in April. This slide in confidence was the first in seven months.Builders have noticed increased interest among potential new home buyers, but consumers are reluctant to proceed with a purchase. Potential buyers are being held back by tight credit conditions. Builders continue to have difficulty in rebuilding inventory off record low levels also due to tight credit conditions for construction and development loans. Builders also remained concerned about competition from foreclosures and appraised values for existing homes.