Equity Research and Investment Analysis

The day of the Citi upgrade all homebuilder stocks got a boost despite much worse than expected housing starts data. However, Pulte has already given all of those short lived gains back and then some in just two trading days. Clearly, this is one stock that both Ockham and Cramer agree cannot be bought at this time, and the upgrade from Citi is odd and lacks any bite.

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.

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.