Financial Strength of Homebuilders Draws Interest from Investors

Written by: Scott Sery

The economy is very reliant on the housing market.  When the housing market starts to slide, the economy follows shortly thereafter.  However, when the housing market surges, the economy will get a good boost from that surge.  But it is not all buying, building, and selling of homes.  There are many other branches and sectors that are associated with home building.   One such area is those home builders that have publicly traded stock.  And that stock has been gaining a lot of interest from investors lately.

There are a good number of builders that are small private companies.  They are local and would never dream of being large enough to go public with stock.  However, there are also quite a few big builders.  They have been around for years and have had stock that is being traded for quite some time.  For many of these builders the Great Recession was not a happy time.  Their stocks lost up to 80% of their value, and stayed depressed for a number of years.  But now, as we continue the recovery and the housing market is looking better, the values of these stocks are climbing back up.  As they go up, they are drawing the interest of investors.

Take for example Lennar Corporation (NYSE:LEN) and PulteGroup Inc (NYSE:PHM).  Two very large homebuilders (with market caps around or over $8 Billion) that both saw their stock prices drop in value by as much as 80% in 2007 and 2008 (going from $50-$60 range down to the $8-$10 range).  Now as their stocks are approaching their 2006 levels, investors are coming back in.  Where they go from here is still up in the air, many reports are skeptical if they can keep up with the surge in business.  But regardless of what happens, these are just two of many companies that have seen an influx of money.

The main reason is that mortgage rates are still holding at or near all-time lows.  This means more people are refinancing, buying, or building new homes.  The cheap money is encouraging people to spend money.

And because of the access to cheap money the housing market is picking up.  The latest report from the NAHB shows that building permits are up 14.3% from March to April, and they are up over 35% from April 2012 to April 2013.

Jobless claims are dropping, and the unemployment rate has fallen by .4% since January.  This means more people are making more money, and they are spending it on housing.  The housing market is picking up, and since a good portion of those buying homes are buying new homes, home builders are seeing the profits come in.  Investors, both individuals and hedge funds or private equity companies are cashing in on this trend.  They know that the housing market is on track for a big recovery, and they are cashing in on it.  Be aware, I am not giving investment advice and the trends could shift at any time.  But from the way things have gone during the past few months, home builders are drawing quite a bit of interest from investors.


Financial Strength of Homebuilders Draws Interest...

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