As the winter chill subsides, builders are preparing for the
upcoming spring selling season. They are increasing their
inventory of homes, anticipating a relatively strong spring
buying season. A slew of data released recently on new home
constructions shows that the housing sector is gearing up for the
spring selling season.
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As per data provided by the U.S. Department of Housing and Urban
Development and the U.S. Census Bureau, nationwide housing
construction increased 2.8% from Feb to a seasonally adjusted
annual rate of 946,000 units in March. Housing construction
recovered the most in the Northeast and Midwest as these regions
recovered from the harsh winter.
Regionally, the combined housing production data was mixed in
March. Housing production increased 65.5% in Midwest and 30.7% in
the Northeast. On the other hand, housing production
declined 9.1% in South and 4.5% in the West.
The data also showed that single-family housing starts increased
6% to 635,000 units, whereas multifamily starts declined 6.1% to
In fact, some homebuilders who recently released their first
quarter results are also optimistic about a strong spring selling
), which released its earnings for first quarter 2014 on Mar 19,
increased its inventory level 14.3% year over year, driven by
aggressive land investments made in the past quarters. The
aggressive land investments also resulted in a turnaround in
order growth for the company. The company expects a strong spring
Another home building company,
), which released its earnings in the same week as KB Home,
witnessed a 0.7% sequential quarterly decline in order growth due
to a harsh winter. However, the company expects the scenario to
improve this spring. The company witnessed a sequential monthly
improvement in traffic and new orders during the quarter.
Moreover, The National Association of Home Builders (NAHB)
expects 2014 to be a strong year, with gradual improvement in the
housing sector. Homebuilder confidence, as indicated by the
National Association of Home Builders (NAHB)/Wells Fargo housing
market index, remained stable at 47 in April from March. However,
builders improved sales as demand picks once the spring selling
season gets into full swing.
However, tight credit conditions and a volatile job market are
expected to remain concerns. In fact, homebuilders remain
concerned about the shortage of lots and skilled labor, and
rising cost of materials.
In fact, this concern is also reflected in recently released
building permit data. Released in Apr 2014, the data shows that
issuance of new building permits decreased 2.4% in March.
However, it may be noted that the Northeast and Midwest posted
double-digit increase in permit issuance. The number of permit
issuance remained unchanged in the West whereas it declined in
Both KB Home and Lennar Corp. carry a Zacks Rank #3 (Hold).
However, two better-ranked homebuilding companies include
William Lyon Homes
), sporting a Zacks Rank #1 (Strong Buy) and
Taylor Morrison Home Corporation
), sporting a Zacks Rank #2 (Buy).