Too much pessimism can be a good thing

Today, the National Association of Realtors released some rather dismal pending home sales data for February. The index dropped 8.5 percent compared to the same time last year.

However, the NAR blamed the weather for the poor data. David Lereah, NAR's chief economist, said in a statement that "unusually bad weather in February" might have caused the index to slip.

Does anyone remember the NAR talking about the weather when house prices were powering ahead at double-digit growth rates? Personally, I do not have the energy to go back and check on all the daft things the NAR said back in 2005, but I do not remember them saying anything like “unusually good weather in February” might have caused the index to rise.

Meanwhile, this massive fall in pending sales sent housing stocks northwards; Pulte Homes rose 2.9 percent; KB Home rose $ 2.9 percent, while Toll Brothers Inc.increased 2.5 percent. Therefore, while housing industry sales are tanking, investors think that that new homebuilders are a good investment.

One needs some twisted logic to reconcile higher stock prices with lower sales. It seems that Wall Street expected pending home sales to fall by more than 8.5 percent. Since it was only 8.5 percent and not 9.5 percent, Wall Street investors are buying KBH and Toll. The lesson here is obvious, too much pessimism can be a good thing for a company’s stock price.

Who ever is buying this stock, let us hope that they know what they are doing. I am just glad that these "investors" aren't using my money.