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D.R. Horton Hits 52-Week High as Housing Recovers

Zacks Equity Research

On Jul 1, shares of national homebuilder, D.R. Horton, Inc. (DHI) reached a 52-week high of $25.19 as housing improves steadily as is evident from a series of encouraging housing data released over the past few days.

The beleaguered housing market is finally showing some signs of improvement as construction spending gained steadily during spring and summer.

The housing slowdown that began in the second half of 2013 was aggravated by harsh winter in the December quarter, delaying construction and raising serious doubts about the strength of the housing market.

Moreover, shortage of lots and skilled labor, rising cost of materials and declining inventory of new homes were not making things any better for the builders. Also, the spike in mortgage rates and rising home prices were hurting demand. As a result, many companies witnessed declining order trends in the December quarter.

However, as the winter chill subsided and spring selling season set in, several homebuilders recorded improving order trends in the March quarter. Order trends improved sequentially for D.R. Horton, PulteGroup, Inc. (PHM), Toll Brothers, Inc. (TOL) and Ryland Group, Inc. (RYL). Among the early reporters for the current quarter, both Lennar Corp. (LEN) and KB Home (KBH) reported strong order numbers so far.

Improved job creation, a slight decline in interest rates and improving inventory levels also gave a boost to the housing market. Recently, the sector reported some encouraging numbers, indicating that it is gathering steam.

The latest report from the National Association of Realtors showed that existing home sales climbed 4.9% in May from April. The May monthly increase was the best single month rise since Aug 2011. The report also stated that inventory levels have improved. Another report by the same association showed that pending home sales rose 6.1% in May.

New home sales data released last week showed that sales of newly built, single-family homes rose 18.6% in May, much higher than expectations. The new home sales increase was the highest reported by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau since May 2008.

Homebuilders’ confidence, as indicated by the National Association of Home Builders (:NAHB)/Wells Fargo housing market index, rose 4 points to 49 in June, indicating that the builders’ expectations for the next 6 months have improved.

These encouraging data signal that the housing sector is well on the verge of a recovery. Though headwinds from supply shortage, rising land, material and labor costs and tight credit conditions exist, homebuilders are increasingly optimistic of improving demand in the future quarters.

D.R. Horton carries a Zacks Rank #2(Buy).

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