Building new homes has not been a growth area for the past couple of years. Still, homebuilder stocks have not performed badly over the past year. Beazer Homes (BZH) has gained nearly 300% in the period, Lennar (LEN) has doubled, KB Home (KBH) is up about 25% and Toll Brothers (TOL) is up about 4%.

Today’s fourth-quarter and fiscal year-end report from KB Home could bring some reality back to the housing sector. KB reported revenues down 27% from a year ago on lower sales and more land sales. Home sales alone were down 32%, and the average selling price was also down 12% to $203,400.

4 Turnaround Stocks That Will Make a Comeback in 2010

The company had a pretax loss of $91 million in the quarter, considerably better than the prior year loss of $307.3 million. But KB was able to deliver a tax credit of about $191 million, which nets out to a profit of $100.7 million for the quarter, or EPS of $1.31, substantially up from the year ago EPS loss of $3.96.

When Lennar reported earnings last week with a surprise positive EPS of $0.19, shares in all the homebuilder stocks got a nice bump. Lennar’s earnings also came from a tax break amounting to $1.34/share. Today’s report from KB should bring a bit of reality back to the housing sector.

Top line numbers are down, average sales price is down, operating income is negative and there’s no good news from mortgage lenders. In fact, the Office of Thrift Supervision reported yesterday that the number of U.S. homes in foreclosure with U.S.-bank-backed mortgages topped the 1 million mark for the first time ever.

Only 87.2% of mortgages serviced by national banks and thrifts are current and performing. Mortgages 60 or more days past due rose to 6.2% of the portfolio, up nearly 74% from a year ago.

Things started badly in 2008 and have gotten worse. Even prime mortgages are being affected — some 3.2% of these mortgages are 60 or more days past due, more than double the rate one year ago.

Loan modification programs, whether federally or privately sponsored, have a re-default rate of about 50% within six months of the modification. That rate is improving with more recent modification plans, and modification plans now outpace foreclosures by two-to-one.

Unemployment shows little sign of declining anytime soon, and even those with jobs are either unwilling or unable to get credit. Homebuilders will continue to struggle, at least through the first half of 2010 and maybe longer.

Related Articles:

• China Overtakes the U.S. as World’s Largest Auto Market
• Consumer Restaurant Spending on the Upswing
• Two of the Best Recovery Stocks to Buy Now