Shares of some top homebuilding companies traded higher at the
close of trading on Monday, Jun 17, buoyed by stronger than
expected housing data released recently.
The National Association of Home Builders/Wells Fargo Housing
Market Index (HMI), known as the homebuilder sentiment index
jumped a robust 8 points to 52 in June from 44 in May. The index
crossed the 50 mark for the first time since the downturn began
in mid-2006. This was also the biggest monthly increase since
The index reflects much better sales expectations for future
as demand for new homes increases. Any reading on this index
above 50 indicates that an increasing number of builders view the
market conditions as good than poor.
Stocks of both large homebuilders like
D.R. Horton, Inc.
) as well as smaller ones like
The Ryland Group, Inc.
Meritage Homes Corporation
MDC Holdings Inc.
) rose on improving expectations.
Overall, the U.S. housing market has seen significant upside
in new home construction activity since mid-2012. The housing
market has steadily made a comeback from the lows witnessed in
mid-2006 from the severe and widespread downturn. U.S. home sales
are rising as low interest rates and increased rentals have
improved the affordability of homes. However, supply remains
limited by low home inventories, both for new and existing homes.
On top of that, strong market demand is further pushing the home
Thus, large homebuilders are witnessing increasing traffic
levels due to heightened consumer demand. Most homebuilding
companies are witnessing a significant growth in both volumes and
average selling prices (ASP).
Though overall new home sales are expected to continue rising
in future months, rising input costs are a concern. As housing
starts accelerate, both labor and construction material costs
would continue to experience upward pricing pressure, which could
impede profits of the homebuilders. Moreover, recent increase in
interest rates is also concerning, though home loans are still
cheaper than historical standards.
NAHB Chief Economist David Crowe believes that some of these
headwinds are weakening. In-fact, recovery of the housing market
is the only bright spot on the U.S. economic horizon, which is
facing the threat of sequestration and a mounting national debt.
As the housing market returns to its pre-downturn level, it will
drive employment upward and build consumer confidence, thus
providing stimulus to the overall economy. The NAHB forecasts a
29% increase in total housing starts in 2013.
D R HORTON INC (DHI): Free Stock Analysis
KB HOME (KBH): Free Stock Analysis Report
LENNAR CORP -A (LEN): Free Stock Analysis
MDC HLDGS (MDC): Free Stock Analysis Report
MERITAGE HOMES (MTH): Free Stock Analysis
PULTE GROUP ONC (PHM): Free Stock Analysis
RYLAND GRP INC (RYL): Free Stock Analysis
TOLL BROTHERS (TOL): Free Stock Analysis
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