Zacks Industry Outlook Highlights: PulteGroup, Toll Brothers, Ryland Group and Lennar
CHICAGO, April 24, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the Homebuilding, including PulteGroup, Inc. (NYSE:PHM-Free Report), Toll Brothers, Inc. (NYSE:TOL-Free Report), Ryland Group, Inc. (NYSE:RYL-Free Report) and Lennar Corp. (NYSE:LEN-Free Report).
Industry: Homebuilding
Link: http://www.zacks.com/commentary/32269/
Homebuilding Stocks: Has Spring Sprung?
The housing slowdown that began in the second half of 2013 was aggravated by a harsh winter. This took a toll on the homebuilders in the December quarter, delaying construction and raising serious doubts as to the strength of the housing market.
The weather has no doubt been a major spoilsport for the sector in the past quarter. However, there are other pressing issues for the builders as well. Shortage of lots and skilled labor, rising cost of materials and a declining level of new homes in inventory are not making things easier for these builders. Moreover, the recent spike in mortgage rates and rising home prices are hurting demand. As a result, many companies saw declining order trends in the last reported quarter.
Orders declined around 18% at PulteGroup, Inc. (NYSE:PHM-Free Report), 6% at Toll Brothers, Inc. (NYSE:TOL-Free Report) and 4% at Ryland Group, Inc. (NYSE:RYL-Free Report) in the last reported quarter. Though order trends improved year over year for others like Lennar Corp. (NYSE:LEN-Free Report), it slowed down from the past quarter.
A slew of data released recently clearly shows that the housing sector has had it tough in the recent past.
Homebuilder confidence, as indicated by the National Association of Home Builders (NAHB)/Wells Fargo housing market index, dropped to 47 in both April and March and 46 in February from 56 in January indicating increasing builder concerns about meeting ongoing and future demand thanks to a shortage of lots and labor.
Further, housing starts declined 0.2% to an annualized rate of 907,000 in February from the prior month, weighed down by lower multi-family starts. Meanwhile, single-family homes and apartments rose only slightly. The February data was a continuation of the January trend when starts dropped 16%. New home sales also dipped 3.3% in February as the weather remained bitter and supply constraints continued to plague homebuilders.
However, as the winter chill subsides and builders prepare for the upcoming spring selling season, improving trends may well be in the cards. Builders are increasing their inventories of homes as they anticipate a relatively strong spring buying season. This might propel homebuilder stocks higher in the months ahead as demand for new homes rise.
Although interest rates are rising, they are currently doing so below historical levels; housing is still affordable. In addition, accelerating job growth, an improving economy and unlocking pent-up demand will likely boost demand for new homes for the rest of the year.
Building permits, a measure of future construction, rose 7.7% in February, the highest rate since October last year and, more importantly, the second highest rate since the middle of 2009. The strong permits show that we can expect steady gains in construction activities over the spring and summer months. NAHB also expects 2014 to be a strong year for housing, expecting a big increase in single-family construction.
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