By Rick Munarriz, The Motley Fool
Filed under: Investing
One of the hottest sectors this past week was housing. Things certainly didn’t start out that way. One of the industry’s bellwethers posted disappointing quarterly results on Monday with revenue and earnings growth falling well short of analyst expectations.
But investors hungry for a second opinion got substantially better news when D.R. Horton — the country’s largest homebuilder — posted blowout quarterly results. Revenue soared 49%, and profitability skyrocketed 173% higher.
Most indications point to a speculative market in which potential homebuyers are rushing to lock in home prices before they head even higher. The National Association of Realtors reports that the average home is on the market for just 62 days, an entire month shorter than the average of 91 days a year earlier. The association also reported that home prices rose 11.8% last month, and that’s the largest year-over-year increase since 2005.
This has all of the makings of another housing bubble, but investors didn’t care. They dove into the residential property developers last week, with several companies cranking out double-digit percentage gains.
|
Company |
April 26 |
Weekly Gain |
|---|---|---|
|
D.R. Horton |
$26.66 |
21% |
|
PulteGroup |
$21.35 |
19% |
|
Meritage Home |
$49.26 |
19% |
|
M/I Homes |
$25.10 |
18% |
|
Hovnanian Enterprises |
$5.67 |
15% |
|
KB Home |
$23.04 |
13% |
|
M.D.C. Holdings |
$38.18 |
13% |
|
Toll Brothers |
$34.69 |
12% |
|
Lennar |
$42.30 |
11% |
Source: Barron’s.
We’re not just talking about a week of gains here. Pulte , KB Home , and Hovnanian more than doubled last year. Hovnanian saw its stock soar 363% in 2012!
It probably isn’t a surprise to see luxury homebuilder Toll Brothers doing so well in this climate. High-end retailers have held up surprisingly well at this stage of the economic turnaround, so it’s not a shock to see the affluent taking advantage of historically low rates to jump on freshly constructed properties. However, Pulte, KB Home, Hovnanian, and D.R. Horton cater to mainstream homebuyers merely looking for a place to call their own after years of renting.
It may not get any easier from here, but investors probably felt that way at the end of last year. Hovnanian has given up some of last year’s gains, but most of the other developers have only padded their already impressive 2012 returns. KB Home is already trading 46% higher in 2013 after more than doubling last year.
The pent-up demand is there for new homes, but investors should be looking out for any signs that the bubble will burst. The last thing they want is to be smack-dab in the middle of a sudsy mess.
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Source: FULL ARTICLE at DailyFinance