Home Builders are Signaling A Market Bottom

Home Builder Bankruptcy ( PLURAL)
May Mark The Bottom of the Cycle -
But Not the END of Troubles

More will go down - and that means a lot more houses and land sold at bargain rates . The large oversupply makes it impossible to sell at a profit - until these builders are closed down AND until the oversupply of new , older and foreclosed homes is down.
The Fed rate cuts will help finance purchases and get some of the supply sold - but it will be a long march until the large builders we track are on solid ground.
Early investors will have to wait - I'd prefer to see the actual return of profits - not a continual search for the light at the end of the tunnel.

Here is Today's Piece of Bad News for Homebuilders :

Tousa Inc., the Florida homebuilder that lost 98 percent of its market value in the past year, sought bankruptcy protection from creditors and proposed a plan for exchanging bond and unsecured debt for new stock. The company, based in Hollywood, Florida, listed assets of $2.3 billion and debt of $1.8 billion in a Chapter 11 petition filed today in U.S. Bankruptcy Court in Fort Lauderdale, Florida. Three affiliates also filed today.
The Standard & Poor's Supercomposite Homebuilding Index has declined 48 percent during the past 12 months and sales of new homes fell to a 12-year low in November. Home prices fell on an annual basis in 2007 for the first time in at least 40 years, according to data released yesterday by the U.S. Commerce Department. Sales of new homes decreased 4.7 percent to an annual pace of 604,000.
U.S. home foreclosures rose 96.8 percent in December from a year earlier, according to RealtyTrac Foreclosure report. An estimated 1.03 percent of homes were in some stage of foreclosure in 2007, up from 0.58 percent in 2006.
Florida had the second-highest number of foreclosure filings and properties in some stage of foreclosure in 2007 behind California. A total of 279,325 foreclosure filings on 165,291 properties were reported in Florida last year.
With more than 2 percent of its households entering some stage of foreclosure, Florida documented the second-highest state foreclosure rate for 2007, more than twice the previous year. Nevada posted the highest foreclosure rate for 2007 of 3.4 percent.

Overview - like viewing a train wreck in progress

Builders cutting New Home Prices

U.S. builders slashed prices by more than 10% in December but they still experienced a 4.7% drop in new-home sales, reported the Commerce Department. This was much steeper than most anticipated (prediction: December’s S&P/Case-Shiller Home Price Index will shock folks when it is released in a month. November data is out this week and it will certainly be uglier than the 6.7% drop in October).

Sales are Weak

Sales are at their lowest in about 13 years. New home sales dropped 26% in 2007, the steepest decline since 1963. Median prices for new homes in the US fell to $219,000 in January, a 10.5% sequentially (i.e. from December 2007). The top economist at Insight Economics put it rather succinctly: “There is no indication that home sales have reached a bottom. Inventories of unsold homes remain very high despite slipping for the ninth consecutive month.
Prices are falling a t near record rates, more sharply in some regions than in others.” Nevertheless, homebuilder stocks ignored all the bearish news, focusing on the expected Fed cut tomorrow.
The S&P Homebuilders Index was up 6.1% yesterday.

Jack A. Bass is the editor of the market letter The Apprentice Millionaire Program available at www.amprogram.com His latest book is " Building your AMP Portfolio "