Housing's Head Fake

16 May 10:06am
Posted by ToddSullivan
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Those who ever played football can remember that when tackling, never watch the runners head, watch his waist. For those thinking about about investing based on today's housing numbers, don't watch the headline, look at the meat of the numbers.

Housing starts increased 8.2% to a seasonally adjusted 1.032 million annual rate, besting economists expectations of April starts to drop by 1.4% to a 934,000-unit annual rate (yet another reason to doubt economists). The 8.2% increase was the largest monthly climb since a 14.0% jump in January 2006.

But, the increase was driven by multi-family units (apartments). Simply put, folks are not buying houses and the sudden surge in foreclosures mean more folks are looking for apartments to rent.

A much closer look shows April single-family housing starts decreased 1.7% to 692,000. Construction of housing with two or more units soared 36.0% to 340,000; within that category, homes with five or more units (multi-family) were 40.5% higher.

Now it is good news for a simple reason that any economic activity is good as it provides jobs and does mean folks are not homeless. But, if we are hoping for a housing rebound, not yet.

It is good news for companies like Sherwin Williams (SHE), USG (USG) and Owens Corning (OC) because whether the dwelling houses 1 or 5 families, all of the above company's materials will be used to build it.

Toll Brothers (TOL) released preliminary Q2 results and reported a 30% drop in home-building revenue earlier this week. CEO Robert I. Toll, said current customer traffic is "the worst we've ever seen" and said would-be buyers are "scared."

Not so sure they are scared but "opportunistic". They know they have the sellers by the cahones and are taking Watergate 's H.R. "Bob" Halderman's advice, "When you have got your competition by the balls...squeeze".

Acting nervous is just a ploy to soak builders or sellers out of more concessions. I know some people looking now and all comment how sellers are willing to do just about anything "including coming to our house and packing for us".

At the end of the day the news is good, but, not the potentially "end of the pain" news the headline might suggest.

Disclosure ("none" means no position):Long SHW, OC, None

Todd Sullivan's- ValuePlays

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About

ToddSullivan

A Massachusetts based value investor, I look for companies whose current valuation is at a discount to their true value. When I purchase a stock, my typical holding period is several years. I consider buying a stock purchasing a piece of a business. I am confident once I make a decision to buy that eventually the market as a whole will recognize the true value of the business and value it accordingly. It may take 1 month, 6 months or a year, but if I buy it at enough of a discount to its true value my results will be (and have been) superior to the market as a whole. Of all the disparate investing disciplines, value investing has stood the test of time. The great investors of have all been value investors. Warren Buffett, Ben Graham, Bill Ruane (Sequoia Fund), Bill Miller and Wally Weitz, all have consistently outperformed the market for decades by using various forms of value investing. Currently I am a contributing writer to Seeking Alpha, Vinvesting.com, The Stock Masters and Value Investing News. Posts have been reprinted in The Wall St. Journal, Yahoo Finance, Google Alerts, Google Finance, TheStreet.com. 24/7 Wall St. and Topix.net.

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