Zacks Industry Outlook Highlights: Lennar, PulteGroup, KB Home and Meritage Homes

 Zacks Industry Outlook Highlights: Lennar, PulteGroup, KB Home and Meritage

PR Newswire

CHICAGO, Jan. 9, 2013

CHICAGO, Jan. 9, 2013 /PRNewswire/ --Today, Zacks Equity Research discusses
the U.S. Homebuilding, including Lennar Corporation (NYSE:LEN), PulteGroup,
Inc. (NYSE:PHM), KB Home (NYSE:KBH) and Meritage Homes Corporation (NYSE:MTH).


A synopsis of today's Industry Outlook is presented below. The full article
can be read at 


After the tough years 2006-2007, the housing market is now recovering
steadily. The stability in the home buying market, combined with low interest
rates and increased rentals, have increased the affordability of homes.
Improvement in employment and consumer confidence is also contributing to a
rise in demand for new homes.

Inventory of foreclosed homes and short sale homes is declining, thus
stabilizing prices of new homes. Additionally, buyers are selecting larger and
upscale homes with energy-efficient features, which are increasing average
sale prices.

Thus, homebuilders are witnessing increasing traffic levels due to heightened
consumer demand. Most homebuilding companies are witnessing significant growth
in both volumes and average selling prices (ASP). New home orders, backlogs
(number of homes under sales contracts at the end of the year) and homes
delivered are climbing year over year. Home prices have started moving up
lately with market demand gaining momentum.

Moreover, improving homebuilding revenues combined with tight cost control and
better overhead leverage (as volumes improve) are boosting margins for most
homebuilders. The large discounts and incentives offered in response to
declining demand and an oversupply situation are gradually being rolled back.

Overall, the U.S. housing market has seen significant upside in new home sales
volume for the first nine months of 2012 with industry-wide sales increasing
roughly 25% from prior-year levels. The improving housing outlook thus has
been a solitary bright spot on the economic horizon.

The National Association of Home Builders/Wells Fargo Housing Market Index
(HMI), known as the homebuilder sentiment index, rose for the eight
consecutive month in December, improving by 2 points to 47. This is a
significant improvement from the depths of the housing downturn and is the
index's highest level since April 2006. The improvement in this index suggests
an increased demand for housing and better sales prospects for the next few

Focus on High-End Communities

Most homebuilders are focusing on the high end communities. The average
selling prices (ASPs) are improving for most large-cap homebuilders due to
changes in the community/product mix. ASPs have gained from increased sales in
high-end communities of California, Arizona, Colorado and Florida, where home
prices are generally higher.

Given the scenario, large builders are eating into the shares of other
undercapitalized small/medium-sized private builders on the back of overall
housing demand, stronger capital and better land positions.

Lennar Corporation (NYSE:LEN) strategically focuses on acquiring new home
sites that would boost margins and benefit the bottom line. The company
focuses on high-margin, well-positioned communities and avoids fringe or
tertiary markets where price is the only driver. The company's focus on
quality instead of quantity is benefiting margins and boosting new sales

PulteGroup, Inc. (NYSE:PHM) is also shifting its focus toward high-priced
Pulte-branded move-up homes, which improve the overall ASP. A better mix of
sales, particularly Pulte-branded move-up homes, as well as addition of new
higher margin communities, is consistently boosting the company's margins.

Small homebuilders like KB Home (NYSE:KBH) has started rolling out communities
in highly desirable submarkets, primarily in the Central and West Coast
regions, which allows it to sell larger, higher-priced homes, driving up the
ASP. The company is also reallocating resources to focus on core preferred
markets with strong growth prospects like those of California and Texas. KB
Home is also targeting higher income, first-time and move-up buyers -- all of
whom are more inclined toward buying a new home rather than buying a

Another small homebuilder, Meritage Homes Corporation (NYSE:MTH) is investing
in well-positioned and high-priced land and new communities in the most
desirable submarkets, which should ensure profits as the market gets stronger.

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