Housing market bottom hoped for, not expected

By Ilaina Jonas - Analysis

NEW YORK (Reuters) - Investors hope the next round of results from U.S. home builders, starting on Thursday, will show that the slump in the housing market is abating, but realistically they expect no sign of a bottom yet.

In fact, many investors and analysts expect the market downturn -- caused by a glut of homes for sale, tighter lending standards and weak demand -- to worsen until at least the second half of this year.

"I think it's a pretty severe downturn," said Robert Curran, Fitch lead home building analyst. "Could it be more severe still? Obviously."

JMP Securities analyst Jim Wilson said he does not expect to see any sign the market for new homes has reached bottom.

"The builders are the last ones to see that, because the resale market drives the new home market," he said.

The resale market is comprised of foreclosed houses; homes of subprime borrowers, which have poor credit histories, nearing foreclosure; and "regular people who need to move," Wilson said. These homes comprise about 85 percent of the U.S. housing market.

"You have to start seeing (that) the resale market is seeing less inventory, and so far it's not. It's seeing more," he said.

The supply of homes on the resale market rose in February, the most recent month for which information has been compiled, to 6.7 months worth of sales from 6.6 in January, according to the National Association of Realtors.

"There's way too much resale inventory sitting out there that hasn't been and needs to be marked down in price and needs to clear before you have any need of new homes," Wilson said.

WHAT TO WATCH FOR

Results of the largest U.S. home builders kick off on Thursday with D.R. Horton Inc.(DHI.N), the largest builder.

Some investors and analysts say they are not likely to focus on the bottom line. Instead they expect to wade through other data that could reflect changes in the housing market.

"They're looking for the components that make up earnings," Wilson said.

Those figures are likely to include house prices, gross margins and impairment charges on land and houses that have lost value. Analysts and investors will also be looking at new orders, which do not become part of earnings calculations until sales are closed.

Investors will hunt for signs of two types of bottoming -- price and demand, said Larry Clark, senior vice president and home-building analyst for TCW, which has about $150 billion of assets under management.