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Q&A With Top Real Estate Analyst: 10 Questions Investors Should Know

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In a new report, JPMorgan analyst Michael Rehaut lists and answers the ten biggest questions about homebuilders in 2016. Here’s the full list:

1. Given the 20 percent pullback in the group since 12/1/15, has anything changed fundamentally?

Rehaut sees the homebuilder market as fundamentally “fairly stable” and sees the large pullback as a buying opportunity.

2. What can be learned from 2015’s varied performance across the group?

The market differentiated top names based on execution, liquidity, balance sheets and risk aversion.

3. What will housing starts and home prices do in 2016?

JPMorgan forecasts a 10 percent gain in single-family starts and new home sales and a 3-5 percent gain in home prices.

4. How will the Fed tightening program impact the stocks and the industry?

The housing market will likely not be meaningfully impacted by the Fed’s conservative tightening plans in 2016.

5. How bad will Houston get, and could it spread to Dallas?

Rehaut believes that Houston is in store for a rough selling year in 2016, but has yet to see evidence of weakness in the Dallas market.

Related Link: Jefferies Lowers Oil & Gas Price Forecasts

6. How much longer will labor shortages continue to impact the builders?

JPMorgan predicts that labor shortages will continue to impact builder results for the next two quarters, but the impact should diminish in the second half of the year.

7. What is the likelihood of more public-to-public M&A occurring in 2016?

Rehaut believes that the M&A wave will continue in 2016, but does not expect additional public-to-public deals.

8. Which markets look the strongest/weakest entering 2016?

Dallas, San Antonio and Charlotte are three of the strongest markets, and Washington D.C., Atlanta and Austin are among the weakest.

9. In light of the recent pullback, how much more attractive are current valuations?

JPMorgan views current P/E/ multiples and P/B valuations as attractive on a historical basis.

10. What are your top picks for 2016?

JPMorgan has upgraded PulteGroup, Inc (NYSE: PHM), and Meritage Homes Corp (NYSE: MTH) from Neutral to Overweight and WCI Communications Inc (NYSE: WCIC) from Underweight to Neutral, but names CalAtlantic Group Inc (NYSE: CAA) as its top overall large-cap stock pick.

The firm also has an Overweight rating on Toll Brothers Inc (NYSE: TOL), LGI Homes Inc (NASDAQ: LGIH) and William Lyon Homes (NYSE: WLH).

Disclosure: the author holds no position in the stocks mentioned.

Latest Ratings for PHM

DateFirmActionFromTo
Nov 2017BuckinghamDowngradesBuyNeutral
Oct 2017FBR CapitalMaintainsBuy
Oct 2017BarclaysMaintainsEqual-Weight

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