Homebuilder Toll Brothers' (NYSE:TOL) fiscal fourth quarter was more or less of the same issues that continue to plague the homebuilding industry. The company's loss of 68 cents a share was a result of continued asset write-downs, namely land holdings. Sales for the quarter were down 30% from $691 million to $486 million. Analysts had expected write-downs to lead to a loss of 46 cents a share based on revenue projections of $450 million.

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Praying for a Recovery
The positive out of the quarter, and what Toll hopes investors will pay attention to, is the 42 percent jump in new sales. But as everyone knows, the housing industry was thrown a lifeline by the federal government in terms of an $8,000 credit for first-time home buyers. That credit was set to expire in November but was extended and now includes a $6,500 credit for existing homeowners. Clearly this lifeline was crucial to the health of all the homebuilders. And now with the federal credit extension, along with the new opportunity for existing home buyers to receive a credit, the next quarter or two many continue to show signs of improvement.

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While no housing executive wants to publicly state the lifeline that the housing credit is bringing to the industry, they are all very supportive of any aid that comes their way. (Real estate can provide diversification and a hedge against inflation. Find out why it works by reading Can Real Estate Stabilize Your Portfolio?)

In the Meantime
The stronger players, including Toll, will benefit. According to CEO Robert Toll, the industry should experience continued consolidation as stronger players take over the weak. Such consolidation has already begun with Pulte Homes (NYSE:PHM) completing its merger with Centex back in August. Other targets ripe for the picking may be Hovnanian Enterprises (NYSE:HOV), a $300 million company saddled with over $1 billion in debt. Those homebuilders in a position of strength include Toll, and my favorite pick, NVR (NYSE:NVR). Throughout this crisis, NVR has weathered the storm better than any other homebuilder due to its conservative management. A rarity in the homebuilding business, NVR has a net cash position of over $1 billion. The only other homebuilder with such a pristine balance sheet is MDC Holdings (NYSE:MDC).

Not Over Yet
Five years of excessive real estate speculation aren't corrected in a year or two. The homebuyer credit is a very useful bandage, but it won't fix the problem in a few months. It is helping reduce inventory - a big step in the right direction. (For related reading, check out Major Blunders In Portfolio Construction.)


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