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U.S. states with warmer climate to drive homebuilder growth

By Sagarika Jaisinghani

Dec 4 (Reuters) - Homebuilders with a presence in the U.S. south and west are set to gain next year as more Americans swap the frozen north for warmer climes, drawn by some of the country's highest job growth rates.

New home construction is projected to rise 24 percent on average next year in eight states along the west and south coasts, compared with the 8 percent forecast for this year, according to the National Association of Home Builders.

These states - Texas, Florida, Arizona, Nevada, North and South Carolina, Georgia and California - accounted for about half of the total job growth in the 12 months to September, according to RBC Capital Markets.

"Part of (the migration) is job-related," said Morningstar Inc analyst James Krapfel, "but the biggest thing is, people want to live where the weather is just more liveable."

The shift bodes well for D.R. Horton Inc, the largest U.S. homebuilder, and rivals Lennar Corp and PulteGroup Inc, each of which gets a large part of its revenue from these states.

RBC analyst Robert Wetenhall expects orders at the three homebuilders to rise about 16 percent on average next year. Their order growth averaged 11.5 percent in the past three quarters.

This growth, along with low interest rates and proposed rules to let Americans buy homes with down payments as low as 3 percent, augments the forecast for a more stable housing recovery next year.

A widespread land shortage forced PulteGroup and D.R. Horton to slow the rate at which they built homes. The duo have been buying land this year, but their holdings are still less than Lennar's, especially in the west.

Lennar, which builds about 40 percent of its homes in the West Coast, southeast Florida and Houston, has best weathered the slowdown in the housing market, thanks to its substantial land assets.

At 13.5 percent, the company is expected to post the highest return on equity in 2015 compared with its main rivals, according to Wetenhall.

The forecast for KB Home is the lowest at 5.3 percent. Although the company builds almost a third of its homes in California, inconsistent execution has held back its share price, Wetenhall said.

The median price targets on the stocks of D.R. Horton, Lennar and PulteGroup have increased in the past month, while KB Home's target was unchanged, according to Thomson Reuters data.

(Editing by Robin Paxton and Savio D'Souza)

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