Builders May Escape Inventory Shadow: Chart of the Day

A decline in the number of U.S. homes that may have to be sold is “undeniably providing support for a nascent recovery” in housing, according to Robert C. Wetenhall Jr., an analyst at RBC Capital Markets LLC.

The CHART OF THE DAY displays the total number of homes that have entered foreclosure proceedings or have mortgages at least 30 days overdue, according to quarterly data compiled by the Mortgage Bankers Association.

In last year’s fourth quarter, so-called shadow inventory amounted to 5.13 million. The figure was the lowest in three years and 18 percent below its peak, reached in the third quarter of 2009.

“The trend positions the housing market to benefit from tighter supply levels in the future,” Wetenhall wrote yesterday in a report that examined U.S. homebuilders’ outlook for their spring selling season.

Builders will start working on 700,000 new homes this year, according to Wetenhall, who increased his estimate by 50,000. The New York-based analyst’s current projection almost matches January’s annual rate of 699,000 starts, as compiled by the Commerce Department.

KB Home (KBH) and Lennar Corp. (LEN) are his top stock picks in the industry. Both builders have outperform’ ratings, which means they are poised to beat their peers during the next 12 months. D.R. Horton Inc., PulteGroup Inc. and Toll Brothers Inc. (TOL) are rated sector perform.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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