Home Price Gains A Sign Of Market Improvement

Includes: DHI, FICO, LEN, PHM
by: Poonkulali Thangavelu

The housing sector, the one that brought down the economy, has been slow to recover and add to economic growth in this cycle. Recent reports provide a source of cautious optimism for investors watching for a turnaround in the sector.

The National Association of Realtors' report on March used home sales, for one, provides some encouraging signs for investors that the housing market is slowly and surely improving.

This is further borne out from reports of realtor associations in two major states at the forefront of the housing market downturn, California and Florida, as well as from the Illinois Association of Realtors.

The NAR reported that March sales of existing homes were down 2.6% from February levels. However, sales were up 5.2% from levels seen in March of 2011.

Inventories are also steadily working their way down, with March levels down almost 22% from year ago levels.

What is more encouraging, median home prices nationally were up 2.5% to $163,800 from year ago levels.

A reduction in the representation of distressed sales to 29% of total sales, down from 40% a year ago and 34% for February 2012, probably helped stem price declines.

Regionally, only the Northeast saw median prices declines, down 1.9%, from year ago levels. The Midwest median price is up 5.2%, with the South up 6.2% and the West gaining 1.6%.

In California, the California Association of Realtors reports that the median home price in the state is up 9.2% to $291,080 in March. This price also represents a 1.6% gain from a year ago, making for the first year-over-year price rise in 16 months.

Single-family home sales in the state were off 4.5% from a month ago and 2.3% from a year ago. However, considering only condo and townhouse properties, sales rose 27.6% from February levels and were about even, up 0.7%, with year ago levels.

In the San Francisco Bay area, the epicenter of the technology boom, home sales jumped more than 37% from February levels, while sales in the Inland Empire region, an area especially hard hit by the housing downturn, saw sales jump 29% in March.

In another encouraging sign, the Golden State's inventory of unsold single-family homes was down to 4.1 months of supply, from 5.4 months a month ago and a year ago.

In Florida, the Florida Association of Realtors tells a similar story, reporting median March sales price of $139,000 for single-family homes in the Sunshine State. This represents an increase of 10.3% from a year ago, while condo and townhouse prices jumped 20.8% to $105,000 from March 2011 levels.

Inventories of single-family homes in Florida were down 43% from a year ago to 5.9 months' supply, while inventories of condo/townhouse properties were down 44% to six months' supply.

Sales figures were down in the state though, with single-family sales off 5.7% from a year ago and condo/townhome sales off 12.4%.

In Illinois, sales trends hew to the national trend, with the Illinois Association of Realtors reporting home sales up 21% for March from a year ago.

In fact, this is the best March performance in four years, and one that augurs well for the spring selling season, according to the IAR.

Pricewise, the realtors' association sees signs of stabilization, with March median prices of $130,000 holding steady with March 2011 levels. This is the first time since June 2010 (when the home buyer tax credit was available) that median home prices haven't decreased the IAR reports.

With mortgage rates still at historic lows, and the employment outlook slowly improving, it seems that these preliminary signs of improvement show more home buyer interest in the market.

This holds some promise for a housing sector recovery and consequent pick up in construction, and the sector could start to add to, rather than detract from, gross domestic product going forward.

A recovery also bodes well for stocks of home builders such as Pulte (NYSE:PHM), DR Horton (NYSE:DHI) and Lennar (NYSE:LEN).

Indeed, D.R. Horton, Lennar and Pulte have all reported a jump in orders for the first quarter. D.R. Horton's order book was up 19% compared to the 2011 first quarter. And Lennar saw its first quarter orders grow 33%. Pulte reported that its orders are up 15% in the first quarter.

These homebuilders all cater to multiple markets. Besides being geographically diversified, Pulte also caters to different buyer groups such as first-time buyers and retirees through different brands.

A housing market recovery is also good news for firms such as FICO (NYSE:FICO) that provide facilitating services for the mortgage industry. Lenders use FICO's credit score as part of the mortgage qualifying process.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.