Homebuilding Stocks Rally as March Sales Surge
U.S. homebuilding stocks, led by Lennar Corp. and Standard Pacific Corp., posted the biggest weekly gain since July as two reports showed sales are recovering from the depths of the housing-market collapse.
New home sales increased 27 percent in March from the previous month to an annual pace of 411,000, the largest rise since recordkeeping began in 1963, the Commerce Department said today. Sales of existing homes jumped 6.7 percent to 5.35 million in March, the first increase in four months, the National Association of Realtors reported yesterday.
Buyers are rushing to take advantage of tax credits of as much as $8,000 by signing contracts before May 1 and completing the deals by June 30. The sales recovery will extend past the deadline, according to Michael Rehaut, an analyst with JPMorgan Chase & Co.
“We expect the builders to continue to show positive order growth during the spring selling season, as well as order growth in the second half of the year,” Rehaut wrote in a note today to investors.
Publicly traded homebuilders probably will benefit from the sales surge more than their closely held competitors because they have more capital to buy land, build homes before signing up buyers and increase market share, said Bernard Markstein, senior economist at the National Association of Home Builders in Washington.
‘Capital Is King’
“They have a competitive advantage because of their better access to capital markets,” Markstein said in a telephone interview. “And capital is king now.”
The S&P Supercomposite Homebuilding Index gained 13 percent this week, the most since a 14 percent rally by the 12-stock group during the week of July 17. The index is up 29 percent this year, compared with the 9.2 percent increase by the Standard & Poor’s 500 Index. Last year, the homebuilders group rose 18 percent while the S&P 500 added 24 percent.
Lennar Corp. of Miami, the third-largest builder by revenue, gained 20 percent this week to $20.53 as of 4 p.m. in New York Stock Exchange composite trading. Standard Pacific Corp. of Irvine, California, climbed 19 percent to $6.58. Pulte Group Inc. of Bloomfield Hills, Michigan, the largest U.S. homebuilder, also rose 19 percent, to $13.19.
The unsold new home inventory fell to a 6.7-month supply, the lowest level since December 2006, the Commerce Department reported. That could drive up prices, Megan McGrath, a housing industry analyst for Barclays Capital Inc., wrote in a note to investors.
National median home prices gained 4.3 percent year-over- year to $214,000, McGrath said.
‘Makes Me Concerned’
The increase in sales may not last, said Vicki Bryan, a senior yield analyst with New York-based Gimme Credit LLC, who covers homebuilders. The percentage gain in new home sales last month was off an annual pace of 324,000 in February, the lowest since the Commerce Department began keeping records, Bryan said.
“It makes me concerned this is stimulus-driven and could be pulling sales ahead,” Bryan said in a telephone interview. “I don’t see sustainability.”
KB Home, a Los Angeles-based builder that specializes in homes for first-time buyers, is keeping sales offices open until midnight this weekend for a “Moonlight Madness” sale to help customers take advantage of the tax credit, according to its Web site.
At the Twin Lakes development in Cary, North Carolina, where KB Home sells its line of Martha Stewart houses starting at $230,000, buyers closed on four properties in the past 24 hours, said Kristen Kelly, a KB sales associate. New homes are appealing in part because they’re a better value than existing houses in the Raleigh-Durham area, which has avoided the worst of the recession, she said.
“I’ve had people say I’m eligible for the tax credit, but I’d rather get what I want,” Kelly said. “This is our busiest time of year. This is our holiday season.”
To contact the reporter on this story: John Gittelsohn in New York at firstname.lastname@example.org.