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Tickers in this Article: KBH, LEN, HOV, TOL
Real estate and the stock market are finally showing some signs of a heartbeat. As a result, it seems that many people are becoming more confident than they were back in the cold, dark days of winter. But does this mean that average people out there are raring to plunk down their cash to buy things like houses? Unfortunately for homebuilding stocks, the answer is "no".

IN PICTURES:
7 Tips On Buying A Home In A Down Market

On the Homefront
In the long term, I think that homebuilders will do really well. In fact, as the U.S. population rises, the demand for new housing could be quite strong. But near-term, I remain a pessimist about the outlook for this group. (For more insight, see Investing In Real Estate.)

Let's look at a couple of the bigger names and their most recently reported results.

Lennar's Q2: Dripping Red Ink
On Thursday the 25th, Miami-based Lennar (NYSE:LEN) disseminated its second-quarter earnings. The good news was that its backlog figure rose 25% sequentially from Q1. However, this bed of roses also had some thorns.

First and foremost, the company recorded a loss in the period. This is a big detractor for this stock, and this would have to turn around in order for my interest in the stock to perk up. Unfortunately, however, analysts aren't expecting the company to generate meaningful profits anytime soon. In fact, it's expected to lose $1.04 in 2010.

And it's not just Lennar: other big names in housing are also expected to drip red ink. For example, Hovnanian (NYSE:HOV) is apparently expected to lose money this year and next. It has what I'd call another big negative and that's that it trades under $5 a share; some brokers will shy away from stocks under $5. Meanwhile, high-end Toll Brothers (NYSE:TOL) is expected to lose money in '09 and '10 as well.

Getting back to Lennar in addition to profits, I'd like to see several quarters of improving backlog before I start to warm to the story.

KB Home: Orders Up but Profits Down
On Friday the 26th, California-based KB Home (NYSE:KBH) came out with its second-quarter earnings report. It reported a loss. It wasn't a surprise, but it is a major put off. I think investors will need to have an inkling that consistent profits are on the horizon before plunging headlong into this stock (which trades just south of $13.) Note that the company is expected to show a loss of 21 cents per share in 2010.

With all that in mind, I should mention that the company did manage to show a 59% jump in orders from Q1. That is a big number. But I'd like to see that happen for another few quarters.

The fact is that I'm concerned that some consumers could get scared and be very reluctant to lay out cash on homes if the stock market were to pull back or interest rates were to start to rise. For that reason, I'm reluctant to step up to the plate and get into the stock.

Bottom Line
When it comes to the homebuilders I think they have excellent potential, but only over the long run. In the near-term, I think that the risks outweighs the potential reward. (To learn more, read Why Housing Market Bubbles Pop.)

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