Homebuilders' Prospects Looking Brighter

It was rumored that market recovery wouldn’t occur until the housing market turned itself around. For months it seemed a popular thing to say.

And why not? It makes sense that in order for millions of Americans to move forward, we needed to have a strong foundation first. Homes are the largest investment most people will make. An unstable housing market spells trouble for our fiscal stability.

There are some signs of life in the housing sector already, but the question remains whether vulture investors will be able to “lift the bottom” into a sustained real estate recovery.

Regardless, this is good news for homebuilders. As this excess inventory is pulled off the market, their prospects should increase. One of the most punished sectors, homebuilders have taken it one the chin, and their performance has mirrored the major indexes this year.

And even though the SPDR S&P Homebuilder Index ETF (NYSE: XHB) is still down roughly 8% for the year, it’s jumped over 30% since last month.

But there have been standouts. D.R. Horton (NYSE: DHI) and Pulte Homes (NYSE: PHM) have both outperformed their index and peers like Toll Brothers (NYSE: TOL).

In fact Moody’s just downgraded TOL.

Now if residential property is starting to move, what about commercial?

Unfortunately, things may not be looking as good. Standard & Poor just completed a study that indicates commercial real estate default rates should continue to rise. Specifically, they believe credit originated in 2005 to 2007 should do the worst.

Comments

[Mad Hedge F...:]

But it's an ever diminishing universe. Pulte Homes (PHM) is buying Centex (CTX) for $1.3 billion, net of all the debt they are acquiring in a stock only deal. Centex stock is up 33% on the news. This is a bold move in that it creates the nation’s largest home builder. I wonder how many finished, but unsold houses they are getting? And undeveloped land? A spate of takeovers like this, where the strong take over weak, overleveraged players, consolidating the industry, is a classic sign of a market bottom.

Apr 08 11:21 AM

[HardwoodFlo...:]

Preposterous. The big builders will bethe last to partcipate in a housing recovery. That's so 1999. The housing market of the future is 1995-2000. Before the big builders dominated- it's small builders and custom shops. Not McMansions- the SUVs of homebuilding.

Apr 10 05:00 PM