Low mortgage rates continued to prop up housing sales last month, but the strong numbers did little for stocks in the homebuilding sector Monday.

The Commerce Department reported that sales of new single-family homes surged by 6.7% to a record annualized rate of 1.02 million in July. Meanwhile existing-home sales rose 4.5% to an annual rate of 5.3 million in July, up from a revised 5.1 million-unit rate in June and in line with the 5.3 million units analysts were forecasting.

While impressed by Monday's print, at least one analyst was skeptical the pace would last.

"We're not creating enough households to sustain that rate," said Carl Reichardt, a homebuilding equities analyst for Banc of America Securities. Reichardt believes that by the end of 2002, the annualized rate will end up being between 900,000 to 950,000 new homes.

In midmorning action, four of the six largest homebuilders were trading lower, dragged down in part by overall market weakness and by concerns similar to those voiced by Reichardt.

Reichardt also says that homebuilding stocks don't always react to the national housing numbers that come out every month.

"No one builder has a huge national share of the marketplace and how the national market moves doesn't necessarily determine the share price," Reichardt said.

Centex ( CTX), KB Home ( KBH), MDC Holdings ( MDC) and Pulte ( PHM) were falling while Lennar ( LEN) and Ryland ( RYL) were managing only slight gains.

Still, Reichardt says that on average, these companies are expected to see 15% earnings growth in 2002 and 2003 even though, contrary to popular opinion, sales of new homes have basically been flat since 1998.

"This is an underappreciated and undervalued group," Reichardt said. (His firm, Banc of America Securities, does underwriting work for homebuilding companies.)

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