Builders rally on improved real estate outlook

AP News
Posted: Mar 09, 2012 12:58 PM
Builders rally on improved real estate outlook

U.S. homebuilders surged on Friday after a Credit Suisse analyst upgraded five stocks in the sector, citing improved order prospects as real estate agents report higher interest from potential homebuyers.

The analyst, Daniel Oppenheim, upgraded three stocks to "Outperform" from "Neutral": DR Horton Inc., Lennar Corp., and Toll Brothers Inc. Shares of Meritage Corp. and Ryland Group Inc. were raised to "Neutral" from "Underperform."

Oppenheim said in a note to clients that Credit Suisse's latest monthly survey of agents found sharply higher buyer traffic, with a buyer index reaching its highest point since the survey began in 2005, before the housing crash.

In recent years, the survey has been a good indicator of homebuilder stock trends, Oppenheim said. Stocks fell modestly from a recent peak in early February, and the latest survey "points to further upside in homebuilding stocks in the near term," Oppenheim said.

He now expects orders for the homebuilder stocks he covers to rise 18 percent this year, and 19 percent in 2013. Oppenheim previously had expected gains of 11 percent and 15 percent, respectively.

"Should the stronger traffic trends continue, we should see potential for further upside to volume," he said.

Builders are hoping sales recover this year after a dismal 2011.

However, Oppenheim said homebuilders continue to face risks. Foremost is that a greater number of foreclosed homes are expected to reach the market in the wake of a recent national agreement between regulators and major lenders over mortgage foreclosure practices. An increase in the supply of foreclosed properties on the market could dampen demand for new homes.

Despite signs of improvement in the economy, the housing market has continued to struggle, in part because of delays in reaching the $25 billion agreement over foreclosure abuses by lenders. The settlement is expected to clarify rules to foreclose on borrowers, which could allow banks to proceed with millions of foreclosures that have been stalled.

The housing industry could get a further boost from a program the Obama administration announced on Tuesday offering some relief to homeowners who have government-backed mortgages. The government would cut the fees it charges to insure those borrowers.

Shares of DR Horton led Friday's sector rally, rising 87 cents, or 6 percent, to $15.46 in midday trading

Meritage Corp. shares added $1.52, or 5.8 percent, to $27.78. Toll Brothers Inc. gained $1.06, or 4.6 percent, to $24.49; and Lennar Corp. rose $1.19 or 4.8 percent, to $25.88. Ryland Group added 99 cents, or 5.4 percent, to $19.35.

Elsewhere among builders, Hovnanian Enterprises Inc. rose 11 cents, or 3.9 percent, to $2.90; and PulteGroup Inc. gained 31 cents, or 3.4 percent, to $9.22.