Home and Reno Stocks on Shaky Ground

Foreclosures are ramping higher. Homes are sitting on the market much longer with buyers having all the power, which is in sharp contrast to days gone by when it was a crazed sellers’ market. That was then. This is now, when homeowners wait nervously as their home values decline. The impact of this on the psyche cannot be good, which has been evident via lower consumer confidence and the decline in consumer spending, which translates into lower economic growth.

The monthly housing starts have not been above two billion since February 2006. The picture for building permits looks even worse.On Tuesday, the July housing starts released of 965,000 were just above the estimate of 960,000, but way down from the revised1.066 million in June. The July reading was the lowest level in well over a decade. In addition, the July building permits of 937,000 was below the estimate of 959,000 and well down from a revised 1.091 million recorded in June. The August building permits reading was the lowest in over 10 years. The trend for the housing market continues to be down and we do not see a bottom as of yet for housing prices.

And what makes me believe the downward trend could continue is the fragile state of the subprime market and increased credit concerns in the banking system.

My view continues to be somewhat negative towards the building sector and the July data helps to support this. Even the home renovation market continues to sink as homeowners reduce renovation projects. The key players such as The Home Depot, Inc. (NYSE/HD) and Lowe’s Companies, Inc. (NYSE/LOW) are struggling after reporting poor results and guidance.

My view is to stay on the sidelines and wait for solid evidence of a bottom and potential reversal before jumping in and even considering accumulating home and renovation stocks.