Homebuilder ETFs Soar On Lennar Q1 Profit Beat


Homebuilder ETFs provided the foundation for Wednesday's stock market rebound afterLennar 's ( LEN ) first-quarter profit beat Wall Street forecasts.

Thanks to rock-bottom interest rates and towering rents, new permits for home construction climbed to their highest level since 2008. But they're still a far cry from normal levels and the bubble-era high, presenting plenty of room for improvement.

IShares Dow Jones U.S. Home Construction ( ITB ) climbed 2.91% to 24.71 -- the highest price in more than five years. Among all stock ETFs, it carries the highest IBD Relative Strength and Accumulation/Distribution Ratings of 89 and B. That shows it's outpaced 89% of the market in the past 12 months and institutional investors are heavily buying shares with very little selling. Yet it's only halfway to regaining its 2007 apex.

SPDR S&P Homebuilders ( XHB ) jumped 2.42% to 30.52. Aside from homebuilders, it includes home furnishing retailers such asPier 1 Imports ( PIR ),Bed Bath & Beyond ( BBBY ) andSelect Comfort (SCSS).

Lennar -- the third-largest U.S. homebuilder and a major holding in all three ETFs -- vaulted 5% to 43.41, its highest level in nearly six years. It broke out of a two-month long cup base with a 43.32 buy point in double average volume. Q1 earnings and sales jumped. ( See story .) Orders sprang 34% from the year-ago period.

JPMorgan analysts maintained their overweight rating noting that shares do not fully reflect the company's long-term earnings potential. S&P Capital IQ rated shares a hold, contending they trade high above historical averages although in line with peers.

Homebuilding Forecasts

February's single-family housing starts, reported Tuesday, ticked up 0.5% over January and an eye-popping 31.5% from the year-ago month to 618,000 units annualized. They've rebounded 75% from their historic low but are still 46% below normal levels, suggesting significant upside potential for the recovery, according to Credit Suisse.

Credit Suisse analysts forecast total 2013 housing starts to climb 20% year over year to 935,000 units. They expect a 19% increase next year to 1,115,000 units, which would still be 53% below the peak.

February housing permits added 2.7% over the prior month and 25.5% year over year to 600,000. They've advanced for 11 months in a row and remain 67% below their September 2005 high.

Inventories Down

Meanwhile, existing home inventories in January fell 25.12% year over year and for a fifth straight month to their lowest level since December 1999, according to Gilford Securities.

In most key markets, "the supply of existing inventory is at or below six months, a historically sweet spot for new home demand and pricing power," Jeremy Pichot, an analyst with Gilford, wrote in a research report Monday. "Homebuilders are in the beginning of a multiyear up cycle with significant earnings leverage and book-value growth that will make current valuations seem reasonable."

KB Home (KBH) is on deck to release first-quarter results before the market opens Thursday. Credit Suisse expects Q1 orders to surge 33% year over year, which is conservative after KB said orders vaulted 54% year over year through Jan. 18. Its stock rose 3% to 21.57 Wednesday.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs

Referenced Stocks: BBBY , ITB , LEN , PIR , XHB

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