New Home Sales in March came in higher than expected, even as prices fell from this month last year. According to Bloomberg, the Commerce Department reported that builders tallied sales last month at an annual pace of 356,000, down just slightly from February.

Inventories dropped to the lowest level in 7 years, while prices dipped to levels not seen since December 2003.

Without a doubt, lower inventories and sales activity that is becoming somewhat less abysmal than before is a good sign for homebuilders, who saw their stock prices jump today. Lennar (LEN) popped 14.99%, Hovnanian (HOV) rose 10.75% and Pulte Home (PHM), who recently announced plans to buy Centex (CTX), finished higher by 7.34%.

At the risk of being labeled perma-bears, while the news was cheered by most industry experts, that doesn’t mean builders will begin breaking ground any time soon on new developments. And since homebuilders make money by, well, building homes, the group still isn’t out of the woods. As prices keep falling in line with broader measures of home prices, building houses will remain a non-economic enterprise for the foreseeable future.

When will that trend reverse? While it’s anyone’s guess, a good sign would be when builders start buying finished lots that currently can barely be given away for free.

By ANDREW JEFFERY

This post first appeared on Minyanville.

Simply put: There are too many homes in America.

Travel to the outskirts of Phoenix, California’s inland empire — or even suburban Washington, DC — and you’ll find scores of vacant homes, for-sale signs, and soon-to-be ghost towns. Sprawling Lennar (LEN) cookie-cutter developments, Pulte Home (PHM) condos jammed against freeway sound barriers, mostly vacant strip malls - these are not the relics of dynamic social progress.

There are many who believe that superfluous developments in the so-called exurbs must be razed for housing supply to return to anything like sustainable levels.

But few expect the bulldozers to reach the urban downtown. Just as the “subprime” mortgage problem began in areas where economic fundamentals fell hopelessly out of sync with home prices, so too will urban renewal rise from the ashes of these communities.

Take Flint, Michigan, a city looking to shrink itself just to stay alive.

This once-proud industrial town 65 miles north of Detroit is embracing a trend which may eventually spread to cities throughout the United States: In response to seemingly endless economic woes, government officials in Flint are considering hastening the town’s decline in order to rebuild anew.

The New York Times reports that city leaders have floated a plan whereby certain dilapidated neighborhoods would be razed to the ground, consolidating residents and businesses closer to downtown. The aim is to reorganize the population around fewer, more sustainable communities, thereby pushing run-down homes and empty lots to the outskirts of town.

While uprooting citizens is a prickly political topic, the county Treasurer and advocate of the shrinking of Flint grimly noted that “Not everyone’s going to win. But now, everyone’s losing.”

Foreclosures, the latest in a series of economic epidemics to sweep Flint, are causing formerly vibrant communities to turn to dust. Genesee County, of which Flint is the largest town, in addition to Indianapolis and Little Rock, Arkansas, are tackling the foreclosure issue with county land banks. These publicly-funded institutions buy unwanted properties and rehabilitate them before squatters and vandals can take over.

Contrast this government-led form of community development with the policies now operative at Wells Fargo (WFC), Citigroup (C) and Bank of America (BAC) to leave bank owned homes vacant and ripe for vandalism, and you have an example of government policy that can speed up the recovery of a local real estate market.

And while Flint’s situation may be unique in that it faces the twin headwinds of the auto industry’s demise and the ongoing housing market collapse, it’s root troubles are emblematic of towns across the country: Cities, expectant of growth that never came, supported development that proved unsustainable.

Myriad solutions have been proposed to solve this country’s housing nightmare, but the simplest, and indeed the most effective may be to simply reduce supply the old-fashioned way, with bulldozers.

This post first appeared on Minyanville.

Finally, housing is starting to act like a market searching for a bottom.

Well, sort of.

In former boom states like California, Arizona and Florida, distressed sales are driving the local real-estate markets. After a near-complete evaporation of buying activity last year, buyers have been brought off the sidelines by continued price declines, a glut of homes for sale, and low interest rates. Comparisons with last year are easy: Some areas are seeing activity up more than 300% year-over-year.

Many contend this is a healthy development, as prices return to more affordable levels and latent demand sops up overhanging supply. The bottom, they argue, is nigh.

However, even in areas seeing strong buying activity, median home prices continue to tumble. Banks and private sellers alike are finding the only way to guarantee a sale is to list the house below the market. This constant undercutting is pushing prices down, sometimes well below affordability levels derived from median income data.

This trend is not indicative of the capitulation most market watchers believe must happen before prices can truly bottom.

Capitulation is a concept more often reserved for equity-market analysis than for housing. Since real estate is vastly more fragmented and localized than stocks, housing trends take months, even years to develop, while equities can reverse course in a manner of days, if not hours.

Still, drilling down into individual transactions, evidence of capitulation in certain markets is becoming evident. Sellers, after 4 years of price declines, are finally throwing in the towel.

Homebuilders are becoming desperate: Toll Brothers (TOL) is trying to lure in buyers with 3.99% interest rates through a partnership with Wells Fargo (WFC). Centex (CTX) did them one better by offering rates as low as 3.25% (that rise to 4.50% after 2 years) and Pulte Homes (PHM) also offers a 3.99% fixed rate option for qualified buyers.

Banks like JPMorgan (JPM), Bank of America (BAC) and Citigroup (C), desperate to shed their growing inventory of foreclosed homes, are beginning to accept bids 10, 15 or even 20% below their asking prices.

And its not just banks. Just in the past few weeks, private sellers have started to jump at low-ball offers. Better to take less cash now than be constantly priced out of the market, chasing it all the way down.

Although this type of sale is still very much the exception rather than the rule, it’s an indication that sellers are becoming despondent, willing to accept any reasonable price to rid themselves of what could be months of headaches, upkeep expenses and deteriorating market conditions.

To be clear: This analysis is by no means a call that housing has bottomed, or is even remotely close to a bottom. It’s merely evidence that certain areas are closer to stabilization that others, and these signs — which may look like capitulation — should be viewed as a positive development in a market deeply in need of hope.

By ANDREW JEFFERY

For as bad as things are in the housing market, it’s remarkable that none of the country’s big homebuilders have gone bust. The industry’s resilience is a testament to how much money the firms raked in during the boom.

Just ask guys in charge.

The Wall Street Journal reports many homebuilder CEOs socked away such obscene amounts of cash over the past 5 years that they out-earned their Wall Street counterparts. As profits soared, Toll Brothers (TOL) CEO Robert Toll and his brother Bruce together took home $773 million, while Dwight Schar, chairman of Virginia-based NVR (NVR) earned more than $625 million from stock sales.

By contrast, vilified Countrywide CEO Angelo Mozilo earned a mere $471 million during the same period.

Sitting on huge — but dwindling — stockpiles of cash, big builders like DR Horton (DHI), Lennar (LEN) and Ryland Homes (RYL) have thus far ridden out the bloodletting. According to JPMorgan analyst Michael Rehaut, these 3 may yet see positive cash flow in 2009.

Their smaller rivals, however, may not be so lucky.

Rehaut predicts that Pulte Home (PHM) and KB Home (KBH) could see negative cash flow next year - and some analysts believe 2009 could finally be the year that weaker hands start to fold. Credit protection for Hovnanian (HOV), Standard Pacific (SPF) and Beazer Home (BZH) is trading like the companies’ failure is a foregone conclusion.

Meanwhile, one key characteristic of market bottoms is notably absent: Consolidation.

Just as strong American banks have swallowed up the weak, no meaningful housing market bottom will be found until homebuilders begin to feast on one another.

Let’s face it: We don’t need 10 different multi-billion dollar companies churning out indistinguishable cookie-cutter ”mansions” on tiny lots in cramped subdivisions miles from the nearest grocery store. We’ve got our hands full already, thank you very much.

Yesterday, the Commerce Department said October housing starts registered the lowest reading since 1959. Since just 4 of the 10 builders mentioned in this article existed 50 years ago, it looks like 6 are pretty much dispensable.

This post first appeared on Minyanville.

Some say the definition of insanity is trying the same thing over and over again, expecting a different result. By that measure, voters should load up on straitjackets this November and drag everyone in Washington off to the nuthouse.

Despite overwhelming evidence that we’re in the middle of a debt crisis, regulators insist they’re wrestling a liquidity crunch. And all the while, a cancer continues to eat away at the guts of the economy: The housing market. Only when it stabilizes will the financial system and, by extension, the economy - recover.

And yet, despite this widely recognized fact, the recent $700 bailout package contains little support for struggling homeowners. Even the $250 billion being dumped into banks will have only a minor effect on property values.

Smothered under the weight of falling home prices and tight credit conditions, consumers are reining in spending, as evidenced by yesterday’s bleak retail sales data. The economy is following the housing market into the abyss.

Since last summer, Washington’s tactic has been to encourage loan modifications through HOPE NOW and Project Lifeline and to widen the scope of government-backed loan programs via the Federal Housing Administration, Fannie Mae (FNM) and Freddie Mac (FRE).

As noted in the Wall Street Journal and discussed ad nauseum here at Cirios, these measures are woefully inadequate to stem the continued decline in housing prices.

As property values fall, over-leveraged borrowers find themselves underwater, or owing more on a house than it’s worth. In order to sell, the homeowner must come up with the difference between the sales price and the balance of their mortgage. For most, this is cash that simply doesn’t exist.

As a result, homes sit on the market for months, further pressuring home values. Despite the insistence by some real-estate agents that this is a buyer’s market, it most certainly is not. Until bloated inventories fall, home prices will continue to slide, making buying a home a dangerous proposition in the vast majority of the country.

Meanwhile, politicians continue to bang their heads against the proverbial wall, backing programs simply that do not work with the scope and efficiency that’s needed. Loan modifications, opening up mortgage guidelines and providing tax breaks so homebuilders like Centex (CTX), Pulte Homes (PHM) and KB Homes (KBH) can sell more overpriced houses may help a select few, but they do little to address the root of the problem.

Until taxpayer funds are appropriated to absorb negative equity, price discovery in the housing market will be a long, agonizing process.