The return of homebuilder?
If you have not noticed, the homebuilders stock is starting to show signs of life. We had predicted 2007 will be when this sector starts its recovery as the bottom for these stocks were in late 2006. Thus far, our prediction has been correct. DR. Horton (DHI), Toll Brothers (TOL) and KB Homes (KBH) are heading higher. Since our last article about Homebuilders, these stocks are up almost 20 percent. While these stocks have had a nice run, we believed this might just be the beginning of the ascent, here are some reasons:
While overall home sales are still soft, the excess inventory is nearly gone. Through aggressive pricing and incentives, these homebuilders have been able to move their inventory. With less homes sitting idle, builder can now focus on building at a more sustainable rate (only when customers are actually going to buy them). This will help reduce risk going forward. The bleeding from overbuilding appears to have been patched.
Long term interest rate is still low. Last I checked, a typical 30 years fixed rate were a little above 6%. We believed it will remain around this level for at least another year. For families planning to live in their home, this is a great environment. We predict the spring buying season should be a decent one for the homebuilders.
Recent earning reports from the major homebuilder suggest the worse is over. For example, DHI reported less than expected loss a few weeks ago. Inventories are down, but in-line with consumer demand. These are all good signs things have bottomed out.
Unemployment rate is low, therefore consumer confidence is high. People appear to be doing well. Those that have been sitting on the fence waiting for the right opportunity to buy will slowly get serious about buying in the next few months. We believed the “sitting on the fence” period is about to expire.
New and existing home prices throughout the country have declined or plateau, making it somewhat affordable again. While investors will likely remain at bay, the typically home buyers should return as price is again reasonable. Real Estate is local; locally we are seeing increased activities again.
The bottom line is the market is super efficient and all of the things we have mentioned are likely already priced in, but not fully though. There are still skeptics our there that continue to predict a housing crash. We see thing differently. The dream of home ownership remains the number goal of many families; it is only a matter of time before people start heading back into the market again. If you wait until business is in full bloom, these stocks will be a lot higher. The only want to make money in this market is to buy the sector is not so hot. If it is hot, it is usually too late to get into the game.
