Home Prices Will Fall Another 15%: Analyst

NEW YORK (TheStreet) -- The already-struggling housing market has another 15% decline in home prices already priced in, according to Stifel Nicolaus analyst Michael Widner.

Toll Brothers

Widner believes the sentiment is "overly pessimistic," but "it is unclear to us what near-term catalyst might improve visibility." He added that "unusually unclear visibility and lack of willingness to own the group given that lack of clarity" has kept valuations among homebuilders cheap across the sector.

The analyst explained that most homebuilders, including Toll Brothers ( TOL), which posted a 54% quarterly profit rise though revenue missed expectations, are trading at unusually low multiples because of market expectations for "a further 15% decline in national home prices by our estimates."

Widner had a hold rating and $15.35 price target on Toll Brothers shares following its earnings report Wednesday morning,

Homebuilders are clearly in a rut and signs for near-term improvement are few. Data released Tuesday showed that sales of newly built homes dipped 0.7% in July -- the third consecutive month of declines -- to a five-month low.

"Unfortunately, none of the data we see suggest that there will be a significant turnaround anytime soon," Mike Schenk, vice president of economics and statistics with CUNA, told TheStreet recently. "While mortgage interest rates are near all-time lows and housing affordability is near all-time highs, consumers remain cautious, builders remain dejected ... and permit activity suggest very little new construction on the horizon."

Data released earlier this month showed that homebuilders began construction on 1.5% fewer homes in July while applications for building permits fell 3.2%. The National Association of Home Builders (NAHB) reported that homebuilder sentiment held steady at a low reading of 15 in August as the usual suspects -- an oversupply of homes, inaccurate appraisal values and tight lending -- kept home purchasers at bay.

Last Thursday, the National Association of Realtors reported that sales of previously occupied homes unexpectedly fell 3.5% in July as potential homebuyers cancelled more contracts.

"Affordability conditions this year have been the most favorable on record dating back to 1970, but many buyers are being held back because banks are offering financing to only the most highly qualified borrowers, ignoring a large share of otherwise creditworthy buyers," said NAR chief economist Lawrence Yun. "Those potential buyers represent the difference between an uneven recovery and a much more robust housing market that could stimulate additional economic activity and create jobs."

Stocks in the homebuilder sector were mixed Wednesday, including the SPDR S&P Homebuilders ( XHB) and iShares Dow Jones US Home Construction ( ITB) exchange-traded funds that tracks the sector. The ETFs remain around 70% and 80%, respectively, off their early 2006 peaks.

Among individual builders, PulteGroup ( PHM) lost 0.3%, Lennar ( LEN), largely considered a leader among the homebuilders, shed 1.1% and small-cap builder KB Home ( KBH) fell 1.5%. Toll Brothers ( TOL) gained 2.5%, D.R. Horton ( DHI) rose 2.2% and Hovnanian Enterprises ( HOV) added 2.2%.

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here: Miriam Reimer.

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