TAKING THE PULSE: U.S. home builders' hopes for a strong spring selling season were dashed again in the second quarter, as the multiyear housing slump continued depressing sales.

Home buyer traffic remains at anemic levels, with buyers still stuck on the sidelines. Bargain-priced foreclosures remain stiff competition for builders, while would-be buyers are getting stung by strict lending standards.

In recent months, builders have also faced tough year-over-year comparisons because of last year's federal home-buyer tax credit. The offer of up to $8,000 pulled many sales forward, severely depressing this year's counts.

Indeed, Los Angeles-based KB Home (KBH) last month reported that its second-quarter revenues and the number of homes delivered both fell by nearly 30%.

The tax offer expired last summer, so comparisons should return to more normal levels in coming months.

There's also nascent optimism that, as the inventory of foreclosed homes dips, more new homes will sell. Plus, the group has dramatically curbed construction in recent years, resulting in a low inventory that some industry watchers warn could lead to a shortage should consumer interest heat up.

"Housing should continue to stabilize and slowly recover over at least the next 24 months, and the builders are well positioned to take advantage of an upturn," wrote Michael Rehaut, a J.P. Morgan home builder analyst who is quite bullish on the sector, in a recent client note.

Monday, the National Association of Home Builders trade group said its closely-watched housing market index climbed two points to 15 in July, one point more than expected. For now, at least, "the market continues to bounce along the bottom," David Crowe, NAHB's chief economist, said in the index release.

For how long, of course, remains to be seen.

 
   COMPANIES TO WATCH 
 
   NVR Inc. (NVR) - Expected to report Thursday

Wall Street Expectations: Analysts polled by Thomson Reuters expect earnings of $6.22 a share on revenue of $683 million. A year ago, NVR reported net income of $11.13 a share and revenue of $947 million.

Key Issues: That's right, NVR could earn money. But NVR, the largest builder by market capitalization, isn't your traditional operator. It has a risk-averse culture that avoids land ownership and the industry's fastest home-construction turnaround time. It has also generally shied from the boom-to-bust markets of southern California, Nevada and Arizona, making it a standout in the troubled sector. Still, the projected year-over-year revenue decline shows the builder has not escaped the turmoil unscathed.

 
   D.R. Horton Inc. (DHI) - Reports July 28

Wall Street Expectations: Analysts project a fiscal third-quarter gain of $0.06 cents a share and revenue of $987 million. A year earlier, DR Horton made $0.16 a share on revenue of $1.4 billion.

Key Issues: D.R. Horton, one of the sector's largest builders, sells to many first-time buyers, a crowd that was largely tapped by the tax credit. That could weigh on results. On a bright note, Horton is experimenting with "micro homes"--two-bedrooms that measure just 687 square feet--where buyers can live a car-free lifestyle. With gas prices around $4 a gallon, these homes priced from in the $100,000s will undoubtedly attract consumers looking for something different.

 
   Meritage (MTH) - Reports July 29

Wall Street Expectations: Analysts anticipate a loss of $0.04 a share on revenue of $204 million. That's down from last year's profit of $0.13 on revenue of $291 million.

Key Issues: Meritage is betting big on green: Its homes are among the sector's most ecologically friendly. The company is betting that penny-pinching buyers will be enticed by electric bills cut by features including solar power, tighter insulation and energy-efficient windows. Studies have shown that the green homes generally outsell competitors two-to-one. "It gives us an advantage over homes that don't have those features," says Brent Anderson, vice president of investor relations.

(The Thomson Reuters estimate and year-ago net may not be comparable due to one-time items and other adjustments.)

-By Dawn Wotapka, Dow Jones Newswires; 212-416-2193; dawn.wotapka@dowjones.com

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