Sector Snap: Homebuilders mostly up on new report

Homebuilder shares mostly higher on government report showing surge in housing starts, permits

Associated Press

LOS ANGELES (AP) -- Homebuilder shares were mostly trading higher on Tuesday following a government report showing that builders began construction on houses and apartments last month at the fastest pace in more than four years.

The Commerce Department reported that housing starts rose in February to a seasonally adjusted annual rate of 917,000. That's up from 910,000 in the previous month, and it's the second-fastest pace since June 2008. Construction on single-family homes rose to an annual rate of 618,000, the most in 4½ years.

Meanwhile, building permits, a sign of future construction, increased 4.6 percent to 946,000. That was also the most since June 2008.

All told, housing starts have risen 28 percent higher over the past 12 months.

The latest housing starts report provides further evidence that the housing recovery is gaining strength.

An improving job market, persistently low mortgage rates and rising home values have helped fuel U.S. homes over the past year. New-home sales jumped 16 percent in January to the highest level since July 2008.

The combination of heightened demand and a tight supply of previously occupied homes for sale have motivated builders to ramp up construction. Builders started work on the most homes last year since 2008.

Despite the positive sales trends, many builders are facing higher costs for building materials and competition for land cleared for development. Some also are having trouble obtaining financing to buy land and cover construction costs.

Those concerns have dampened homebuilder confidence the past two months, according to the National Association of Home Builders/Wells Fargo builder sentiment index. Still, the survey for this month showed that builders' outlook for sales over the next six months climbed to its highest level in more than six years.

Many of the large homebuilders have reported sharp gains in completed sales and new home orders, raising expectations for a stronger spring home-selling season this year.

In a research note on Tuesday, Raymond James analyst Buck Horne said he saw "surprising acceleration" in the price of new homes in virtually every market he recently visited.

The analyst raised his earnings estimates for several homebuilders, adding he believes there is still room for consensus earnings estimates to move higher than what he believes is achievable. Something, he said, that could "drive further stock momentum."

Horne raised Toll Brothers Inc. to "Strong Buy" from "Outperform." He also raised Lennar Corp., KB Home, and Weyerhaeuser Co. to "Outperform" from "Market Perform." Horne maintained an "Outperform" rating on PulteGroup Inc.

Here's a look at how a number of homebuilders fared by afternoon trading:

Hovnanian Enterprises Inc.: Up 18 cents, or 3 percent, to $6.17.

Lennar Corp.: Down 29 cents to $41.29.

Toll Brothers Inc.: Up 57 cents to $34.69.

PulteGroup Inc.: Up 5 cents to $20.80.

KB Home: Up 55 cents, or 2.7 percent, to $20.97.

DR Horton Inc.: Down 20 cents to $24.21.

Weyerhaeuser: Up 49 cents to $30.69.

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