Pronouncements that American housing is back have been wrong, or at least overly hopeful, so many times it's easy to dismiss any optimism and remain skeptical.
Lennar's (LEN) strong quarterly report on Monday added some validity to the story that the home sector finally is, actually, recovering. It's true that we've been hearing it for years, and in that time, the housing industry has been at best uneven. But trading in the shares of Lennar and a group of its competitors suggests investors are giving more credence to the rebound idea these days.
You might not like the reasons behind it. You could still think it's an upturn that's gotten started on a flimsy foundation. A big part of what's bolstering the stocks is the Federal Reserve. The U.S. central bank has elevated a number of assets with its bond market interventions, and earlier this month it said it would be a big buyer of mortgages. The securitized bond-buying plan, which will be worth untold billions by the time it's done, if it ever is, could keep rates down and make borrowing easier for home buyers.
In other words, the Fed's insatiable demand for mortgages may be a gift to the homebuilders, driving demand for the thousands of dwellings they put up every year.
Maybe that won't last forever, but for the time being, it is creating profits for equity investors. Earlier in the session, Lennar hit its best level in five years after saying it earned $87.1 million, or 40 cents a share, in the third quarter, up from $20.7 million, or 11 cents a share, in the year-ago period. Revenue rose 34% to $1.1 billion, while new orders climbed 44% to 4,198 homes.
In recent trading, Lennar was at $37.06, down 45 cents on the day, but still in a place it was back in mid-2007. Same with Toll Brothers (TOL), D.R. Horton (DHI) and PulteGroup (PHM). KB Home (KBH) and Hovnanian (HOV) haven't been nearly as good, but both are within range of their 52-week highs.
The cautious view would rely on the same data, as this MarketWatch article does, to point out the possibility that ample optimism is already in the stocks of the homebuilders, limiting the chance for added gains. They might get tested by the time the third quarter wraps up on Friday.
Later this week, a series of housing reports are due, starting with the Case-Shiller price index. New-home sales, pending-home sales and the FHFA price index are also on the calendar. That should have something to say about where prices trend for the very near term, and depending on the details, may influence the longer view of housing as well.
Let us know what you think. Is housing really back this time, or is another bubble getting built? Have housing stocks run up too high, or do they have more gains coming?