Zacks Industry Outlook Highlights: Lennar, KB Home, D.R. Horton and PulteGroup
CHICAGO, May 3, 2013
CHICAGO, May 3, 2013 /PRNewswire/ --Today, Zacks Equity Research discusses
the U.S. Homebuilding, including Lennar Corporation (NYSE:LEN), KB Home
(NYSE:KBH), D.R. Horton, Inc. (NYSE:DHI) and PulteGroup, Inc. (NYSE:PHM).
A synopsis of today's Industry Outlook is presented below. The full article
can be read at
The housing market has steadily made a comeback from the lows witnessed in
mid-2006 from the severe and widespread downturn. The stability in the home
buying market, combined with low interest rates and increased rentals, has
increased the affordability of homes.
Moderate job growth and slowly increasing consumer confidence are also
contributing to a rise in demand for new homes. Inventory of foreclosed homes
and short-sale homes are declining, thus stabilizing prices of new homes. Home
prices have started moving up with market demand gathering momentum.
As the housing market returns to its pre-downturn level, it will drive
employment upward and build consumer confidence, thus providing stimulus to
the overall economy. In fact, the health of the housing market is often an
indicator of the health of an economy at large.
Homebuilders are thus 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.
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 during the housing downturn have mostly been called back.
Overall, the U.S. housing market has seen significant upside in new home sales
volume for 2012 with industry-wide sales increasing roughly 25% from
prior-year levels. New home construction activity improved 25% in 2012. Faced
with the fiscal cliff at 2012 end, and the threat of sequestration and a
mounting national debt, the recovery of the housing market was one bright spot
on the U.S. economic horizon.
Increased Investments in Land Positions
With sales and profitability improving, most housing companies have
strategically focused on acquiring new home sites in high demand areas, which
will further improve revenues and profits. In addition to purchasing finished
home sites, companies like Lennar Corporation (NYSE:LEN), KB Home (NYSE:KBH)
and D.R. Horton, Inc. (NYSE:DHI) also acquire early stage raw lands in A-plus
locations, on which finished home sites can be built faster at a relatively
D.R. Horton has indeed stepped up investments in homes under construction,
land development and finished lots on the strength of its improved liquidity
position from solid sales growth in 2012. The company's land and lot position
is now the strongest in its 35-year history.
PulteGroup, Inc. (NYSE:PHM) spent $925 million on land and land development in
2012 and plans to spend another $1.2 billion on land and related development
in fiscal 2013 and 2014. While the company is disciplined in adding land
positions, it is also divesting lower-margin projects and exiting
underperforming communities and lower-margin land lots which no longer fit
into their operating strategy. This would free up cash to invest in other
potential opportunities, generating higher returns.
KB Home has also exited underperforming markets like South Carolina, downsized
operations in Arizona and Charlotte, disposed of unnecessary land and reduced
exposure to risky joint ventures.
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