Zacks Industry Outlook Highlights: Lennar, Meritage Homes, D.R. Horton, Ryland Group and PulteGroup

Zacks Industry Outlook Highlights: Lennar, Meritage Homes, D.R. Horton, Ryland
                             Group and PulteGroup

PR Newswire

CHICAGO, Aug. 23, 2013

CHICAGO, Aug. 23, 2013 /PRNewswire/ --Today, Zacks Equity Research discusses
the U.S. Homebuilding, including Lennar Corp. (NYSE:LEN-Free Report), Meritage
Homes Corp. (NYSE:MTH-Free Report), D.R. Horton, Inc. (NYSE:DHI-Free Report),
The Ryland Group Inc. (NYSE:RYL-Free Report) and PulteGroup, Inc.
(NYSE:PHM-Free Report).


Industry: Homebuilding


The housing market has steadily made a comeback from the lows witnessed from
the severe and widespread downturn. However, the housing momentum seen in 2012
and in the first half of 2013 seems to have moderated somewhat with the recent
spike in mortgage rates, tight credit availability and a limited supply of
land and labor.

In spite of the recently rising interest rates, they are still below
historical levels and housing is still very much affordable. Thus, high
affordability levels, increased rentals and historically low interest rates
are driving the housing momentum. In addition, accelerating job growth and
increasing consumer confidence are boosting demand for new homes.

Supply, however, is constrained by low home inventories, both for new and
existing homes. A shortage of land and labor is restricting the construction
of homes, both single and multifamily. Home prices have thus started to move
up with market demand gaining momentum and supply remaining limited. In fact,
rising home prices and thinning home inventories have created a sense of
urgency among homebuyers who are now more anxious to buy a house before prices
shoot up further.

Most homebuilding companies are resultantly witnessing a significant growth in
both volumes and average selling prices (ASPs). New home orders, backlogs
(number of homes under sales contracts at the end of the year) and homes
delivered continue to climb 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. Most homebuilders believe the housing momentum will continue
into 2014.

The National Association of Home Builders/Wells Fargo Housing Market Index
(HMI), known as the homebuilder sentiment index, jumped 3 points to 59 in
August from 56 in July. This was the fourth consecutive monthly increase in
the index and was also the strongest increase in almost eight years. The jump
in the index shows that the recent interest rate hikes have not dampened the
housing recovery.

How Did the Big Players Perform This Quarter?

It was a mixed Q2 for the homebuilders. Among the big homebuilders Lennar
Corp. (NYSE:LEN-Free Report) and Meritage Homes Corp. (NYSE:MTH-Free Report)
beat the Zacks Consensus Estimate for both revenues and earnings. Both
companies saw increasing demand and pricing in most housing markets despite
rising interest rates.

While D.R. Horton, Inc. (NYSE:DHI-Free Report) and The Ryland Group Inc.
(NYSE:RYL-Free Report) beat the Zacks Consensus Estimate for earnings on the
back of pricing and margin gains, they missed expectations for revenue. Rising
interest rates slowed down the order growth for DHI in the latter half of the
quarter, which we believe hurt the top line.

PulteGroup, Inc. (NYSE:PHM-Free Report) was the worst performer this quarter,
missing the Zacks Consensus Estimate for both earnings and revenues due to
declining net order growth.

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