We have gotten used to a spate of positive housing-related
news lately. The recovery of this sector is expected to gradually
contribute meaningfully to gross domestic product (GDP) and
possibly offset weakness arising from a tight federal fiscal
Among the positive developments, sales of new single-family
houses increased sequentially by about 16% to an annual rate
(seasonally adjusted) of 437,000 units in Jan 2013. This has been
the best performance since mid 2008.
Then, the country's inventory of pre-existing homes (not
adjusted seasonally) dropped 4.9% from December to about 1.74
million units in January, which was the lowest supply of homes in
many years. At the current level of sales, supplies would be
depleted in about 4 months.
Furthermore, the median price for a house resale is on the
upswing and the S&P/Case-Shiller Home Price Indices are
buoyant. While demand was subdued till recently, there are, at
present, not enough homes for sale to meet growing demand. New
residential construction in the form of building permits and
housing starts were strong in February and fresh
residential-related construction is expected to move up sharply
Investors are increasingly gravitating toward the U.S. housing
market. Even hedge funds have gone long on the sector, a big
change from their shorting of sub-prime mortgages during The
Great Recession. The most common investment remains residential
mortgage-backed instruments followed by long positions on housing
stocks. Depending on their risk appetite, investors may invest in
low-risk agency-backed mortgages or select riskier instruments
not guaranteed by the federal government but offering higher
return. Then, investors such as
The Blackstone Group LP
) and others are buying up select properties across the nation to
rent them out for a tidy yield.
Incidentally, with home prices on the upswing, home equity
lending is back in vogue after many years of decline. Home equity
lending is expected to increase, despite greater fiscal
discipline than in the past on the part of borrowers, which
should provide a fillip to consumer spending in the economy.
The feel good factor led to recent IPO-related activity in the
TRI Pointe Homes, Inc.
) successfully raised funds from the public. It is the first
homebuilder to do so in a while.
We look at the highlights of recent performance of some
bellwether housing and allied stocks.
), the biggest homebuilder in America, enjoyed strong revenues
and earnings in 2012. Its fourth quarter 2012 earnings of 34
cents per share beat the Zacks Consensus Estimate by 9.7% and
were significantly better than the prior-year quarter results.
PulteGroup's stock rose almost three fold in 2012 and it was one
of the top performers in the benchmark S&P 500. The stock was
recently trading at a forward P/E multiple of 18.2x compared with
an eye-catching 49.4x for the industry and 14.4x for the S&P
500. We currently have a Zacks Rank #3 (Hold) on PulteGroup.
) adjusted net loss per share of 3 cents in the fiscal fourth
quarter (ending November) missed the Zacks Consensus Estimate by
50%. Earnings, however, improved significantly from the
prior-year quarter loss of 19 cents driven by topline growth of
20%. KB Home was recently trading at a price-to-book (P/B) of
3.9x compared with 2.1x for the industry and 5.6x for the S&P
500. With the housing market recovery gaining momentum, KB Home
believes its strategic initiatives will help it achieve
profitability in fiscal 2013. We currently have a Zacks Rank #2
(Buy) on KB Home.
) adjusted earnings of 48 cents in the fourth quarter of fiscal
2012 (ending November) beat the Zacks Consensus Estimate by 6.8%
and the prior-year earnings by 200% driven by 42% growth in
homebuilding revenue. The stock was recently trading at a forward
P/E multiple of 26.8x compared with 48.7x for the industry. We
currently have a Zacks Rank #3 (Hold) on Lennar.
), the world's second largest home improvement retailer, reported
fourth-quarter fiscal (ending January) earnings of 26 cents per
share that handily surpassed the Zacks Consensus Estimate of 23
cents reflecting improved merchandise and higher demand. The
stock was recently trading at a forward P/E of 18.3x compared
with 24.9x for the industry. We currently have a Zacks Rank #3
(Hold) on Lowe's Companies.
To sum up, following the run-up in stock prices in housing and
allied sectors, we are largely Neutral. However, this evolving
housing space may need to be carefully watched for investment
BLACKSTONE GRP (BX): Free Stock Analysis
KB HOME (KBH): Free Stock Analysis Report
LENNAR CORP -A (LEN): Free Stock Analysis
LOWES COS (LOW): Free Stock Analysis Report
PULTE GROUP ONC (PHM): Free Stock Analysis
TRI POINTE HOME (TPH): Free Stock Analysis
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