Housing: Recovering or Not?

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Still, industry players continue to post quarterly losses.

Investors had a mixed reaction to the April housing starts data. Though the record decline was cited by some market observers as a troubling sign for the overall economy, shares of the largest homebuilders were mixed.

On May 19, Pulte Homes (PHM) dropped 2.6%, to 10.03, but Toll Brothers (TOL) slipped just 0.7%, to 19.51, and D.R. Horton (DHI) gained 1.8%, to 9.96.

Homebuilders: Not out of the woods

After two very difficult years, homebuilders are trading solidly higher so far this year. The S&P Homebuilding index rose almost 19% in the first four months of 2009.

S&P's Leon doesn't expect "a full sustained recovery" for the housing sector until the end of 2010. And several factors could derail or delay the housing market's recovery, experts say.

Fresh foreclosures could flood the market with supply, even as homebuilders cancel new projects. Credit troubles could make it hard for buyers to get mortgages. Right now, "affordability is very attractive—if you can qualify and get a mortgage," Leon says.

Even if activity returns to the housing sector, home prices could continue to fall for some time.

"While we are well into the housing bottoming process, we are a long way from recovery," Stifel Nicolaus (SF) analyst Michael R. Widner wrote May 19. "Our math suggests we have a couple years to go before excess inventory clears and paves the way for significant housing sector improvement," he added.

Watch "the broader financial crisis"

Englund of Action Economics warns that there may be too much focus on foreclosures, government incentives, or individual data points.

Those aren't the key drivers of a revival for housing, he says. As demonstrated by the "roller coaster of the last 2 1/2 years," he says: "It's the broader financial crisis that [is] really driving this process."

While worries linger about the next potential financial disaster or an unforeseen economic meltdown, many home buyers are reluctant to take a risk on a major home purchase. "No one wants to jump headlong into this environment," Englund says.

In other words, no matter what the data say from month to month, it's hard to imagine the housing sector bouncing back until the big picture significantly improves.

Steverman is a reporter for BusinessWeek's Investing channel.

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