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It’s one thing to jump on the bandwagon when things are getting better, it’s quite another to jump off of it when everyone around you, not to mention your own company’s earnings, would seem to confirm that sentiment. But that’s just what Donald J. Tomnitz, CEO of D.R. Horton

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“I still don’t see a lot of jobs being created,” he told an earnings conference call, sending his company’s stock down when it should have been riding higher on a 24 percent year-over-year jump in new orders for homes. He is concerned about the future of this fledgling housing recovery, and he has reason to be. Mortgage delinquencies and foreclosures are driven by unemployment.

The homebuilders are rising from the ashes, after overbuilding and a credit crash sent sales and construction to levels not seen economists began counting all those numbers; they are rising, but not necessarily thriving. While overall buyer demand has been weak, distressed properties (foreclosures and short sales) have stood as the greatest competition, as many of those homes are in fact relatively new construction.

The good news is that mortgage delinquencies are falling, down to 5.41% of all mortgages outstanding in Q3 of 2012 from 5.88% a year ago, according to a new report from TransUnion.

“Continued declines in mortgage delinquency rates are a welcome sign and reflect that relatively more homeowners are able and willing to make their mortgage payments each month,” said Tim Martin, group vice president of U.S. Housing in TransUnion’s financial services business unit. “However, we still have a long way to go to reach more ‘normal’ conditions of a delinquency rate in the 1-2 percent range for the U.S. average.”

(Read More: Let Real Estate Help Pay for Retirement)

The recovery, like all real estate, is becoming increasingly local, with the hardest hit markets, like Arizona and California recovering faster than New Jersey and Illinois. One disturbing finding from TransUnion: 49 percent of metropolitan areas saw quarterly improvement in their mortgage delinquency rates in Q3, down from 76 percent in Q2 and 73 percent in Q1.

The reason areas in Arizona, Nevada and California are improving so dramatically is because of high investor demand. Investors have driven supplies of distressed properties there so low that those markets are now seeing double digit home price increases. Even those higher prices are not driving investors away because there is still so much rental demand that rents are rising.

“Nationally, rental leasing volumes were up sequentially every month during the last two years,” according to CoreLogic’s November ‘MarketPulse’ report. “Over this same period, an average of 42,000 rentals were added to the stock of rental homes each month. This is more than twice the average flow that the U.S. was experiencing prior to the housing recovery.”

This investor-fueled recovery helps in the short term, but in the long term housing needs to be driven by a healthier economy, income growth and consumption and rising home prices, according to CoreLogic.

(Read More: Home Depot Raises Outlook as Housing Market Improves)

“We are in the second inning,” said Ara Hovnanian, CEO of Hovnanian Enterprises
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Too much uncertainty in the economy lies ahead, and housing lies in the balance.

Sector Watch: U.S. Homebuilders

—Toll Brothers
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—DR Horton
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—Hovnanian Enterprises
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—PulteGroup
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—Ryland Group
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—Lennar Corp
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—Beazer Homes USA
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—Meritage Homes
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—KB Home
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Questions?  Comments?