It's official - the economy is moving towards a healthy (relatively) recovery, but it's not bringing the real estate market along for the ride. That's great news for some stocks in the house and home sector (if you use the term loosely), yet bad news for others.

The company-specific picks and pans are below. First though, let me tell you where I'm coming from on the economic side of the equation.

IN PICTURES: Digging Out Of Debt In 8 Steps

Just the Facts
You can expect the occasional economic oddity every now and then, but when the oddity persists across the board for two more months, it's no longer an oddity - it's a trend.

Of course, nobody said one trend had to be consistent with another.

Take consumer spending, for instance. It's been up five months (month over month), while personal savings rates have fallen for the last two - evidence that the spending mentality has already started to replace the short-lived saving mentality. Of course, none of this should come as a major surprise, as the credit spigots were finally turned on in January with the first increase in credit available in more than a year.

Funny thing though - ridiculously low interest rates and more credit availability has yet to help the one arena that they were designed to help the most - real estate.

On the Other Hand...
Existing home sales were down in February. So were new homes sales. Both have been trending lower - again - for months, despite the first-time buyer tax break. New home sales hit multi-year lows in February, too.

To make matters worse, housing inventory is on the rise again - perhaps what the so-called phantom inventory pundits were worried about.

The really interesting piece of data, however, is the median sale price for the fewer homes that were sold in February. At $165,100, we're just off of January's multi-year low, and a hair under last March's median home price of $170,000, which was at a point in time when an economic recovery was the farthest thing from anybody's mind. Now, after real signs of economic life and the revival of credit, we can't get real estate going again?

I think it's time we start accepting the idea that the real estate market just isn't going to recover anywhere near as firmly as the rest of the economy seems to be.

Winners...
Consumers are spending on houses again; they're just spending more on what goes in their houses, and less on the property and structures (a much more feasible way to upgrade without a bigger mortgage bill).

This trend has been a boon for the likes of Williams-Sonoma (NYSE:WSM), and Kirkland's (Nasdaq:KIRK). Williams-Sonoma saw last quarter's revenue improve by 8%, while earnings (thanks to a low comparable) were higher by more than 600%. Kirkland's saw nearly a 50% increase in last quarter's profit, on a 7% improvement in sales. (Read Analyzing Retail Stocks to learn about the most important metrics to look at when analyzing retail stocks).

It's not just home-décor stores on a roll now, however. Any retailer that can help make a home better/nicer on the cheap has a shot at posting positive surprises.

Fabric retailer Jo-Ann Stores (NYSE:JAS), for instance, posted a 4.4% bigger top line last quarter than the same quarter a year ago, with a commensurate increase in earnings. Though the numbers haven't hit a reported bottom line yet, Ethan Allen Interiors' (NYSE:ETH) CEO Farooq Kathwari says January's and February's written sales are higher by 25%, compared to the same period last year. The company won't be able to count that revenue until delivery though, so the positive bump won't show up until the quarter ending in June.

...And Losers
Every dollar spent on improving an existing home is one less reason for its owner to buy another home (new or existing). And, the numbers cited above suggest this is precisely what's happening - a trend that won't likely stop and turn on a dime.

While this translates into a fairly miserable experience for real estate agents, it's downright devastating for homebuilders.

The Bottom Line
Think about this for a second: There were more new homes sold in October, 2008 - at the pinnacle of the real estate crisis - than there were in February of this year (32 thousand versus 24 thousand), when the economy is clearly firing on at least a few more cylinders. If that trend's not bad news for Homebuilders SPDR (NYSE:XHB), the Dow Jones U.S. Home Construction Index Fund (NYSE:ITB), and all their constituents, then I don't know what is.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  3. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  4. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  5. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  6. Investing

    3 Things About International Investing and Currency

    As world monetary policy continues to diverge rocking bottom on interest rates while the Fed raises them, expect currencies to continue their bumpy ride.
  7. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  8. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  9. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  10. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
RELATED FAQS
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center