Equity Research and Investment Analysis

Even though pending home sales have improved consistently over the past few months, as of yet existing home sales (recorded when the sale closes) have been much more volatile. Existing home sales were lower in February, increased in March and only slightly increased in April by about 2.5 percent. The disparity between the pending home sales and existing home sales suggests that mortgages are tougher to come buy as banks have tightened their lending standards. This seems to correlate with recent data suggesting that lenders have not yet resumed lending at a historically normal pace.

Even though there has been a stabilization in the real estate market and the broader economy, the recent performance seems a little bit too much, too fast. The extremely tough market for new homes has forced this company into a tight spot, and we cannot recommend any stock that has this sort of trend of shrinking revenue and negative earnings.

We are generally fairly bullish on equities right now, but home builders is one segment of the market that we simply cannot get behind. We look at Toll Brothers abysmal quarterly results and wonder, why have these homebuilder stocks not getting pounded? We don't have a good answer.