Some reports that Wall Street got it wrong yesterday. "Better-than-expected housing start numbers and a tickdown in interest rates appeared to drive homebuilding stocks Thursday. However, some market experts believe investors may be misreading the housing start numbers and caution them on the sector's outlook."

"U.S. housing starts fell 7.9% in February from January to a seasonally adjusted rate of 2.12 million starts, which was slightly higher that the 2.04 million starts that economists had been projecting. Although the numbers are higher than economists' had expected, Barron cautioned investors not to assume the data automatically means housing demand is robust."

"'They (housing start and permit numbers) represent supply, not demand,' said Alex Barron. 'The data means builders are still building houses, but it doesn't tell us anything really about demand.'"

"Indeed, he said he's noticed an increase in speculative building among homebuilders in the last 12 to 18 months. Barron said feverishly-high demand for housing from both homebuyers and speculative buyers (or flippers) over the past few years led to labor shortages, which created long waiting periods for a home to be delivered, in some cases stretching out more 12 months. To combat this, some builders applied for permits and began construction on homes before sales were made."

"'The high level of construction may worsen the supply-demand balance,' concurred Banc of America analyst Daniel Oppenheim. Oppenheim said recent trends show that traffic and pricing are weakening, cancellations are increasing, and the length of time needed to sell a home is increasing. He said inventories of both new and existing single-family homes for sale reached a record 3.03 million units in January."

"While the slowdown seems sharp, the pace of groundbreaking was well above Wall Street forecasts for a 2.03 million unit pace, and January construction was revised up to show the fastest rate of housing starts in 33 years. Single-family starts were down just 2.3 percent after a 14.3 percent gain in January."

"'Doubtless these numbers will be followed by a rash of commentary to the effect that rumors of the death of the housing market are greatly exaggerated. This would be the wrong conclusion to draw,' said (economist) Ian Shepherdson. 'It is not possible for sales to trend down and starts to trend up.'"

"'Housing starts "have been so affected by unusual weather conditions as to make them almost useless as a measure of what is truly happening to housing demand,' said David Seiders, chief economist at the National Association of Home Builders. 'It's likely that in coming months we'll see a pretty decisive downshift,' he said. 'When you see how sales have been going, these are not starts levels that we could sustain.'"

And a mortgage REIT had an announcement last night. "Home loan provider Aames Investment Corp. on Thursday said it will shed its structure as a real estate investment trust to give it more flexibility and bolster its ability to generate more capital."

"Aames, which doles out family and residential mortgage loans, said it will delay filing its 2005 annual report with the Securities and Exchange Commission due to the pending completion of a corporate cost reduction initiative. The company's board signed off on a restructuring plan aimed at consolidating wholesale operations in response to 'current challenging market conditions.'"

"Aames will also introduce a more stringent loan pricing and eliminate loan products that have become unprofitable."