Market Overview

Home Builder Stocks Soar as Housing Battles Back


According to several sources the housing demand has been on a steady rise as the home builders of the nation struggle to keep up. There have been many new orders since the supplies of the existing homes have been steadily declining. Stocks of the home builders continue to increase even though they were on the rise before the recovery from the housing boom and bust even really began. They are up 54 percent from just a year ago. Many builders are now going public since there is more room for growth in the market. Taylor Morrison is a company that recently went public Wednesday April 10th of 2013. The company raised $523.6 million dollars as its initial public offering of 23.8 million shares was priced at $22 dollars each which was the high end of its expected range.


Taylor Morrison builds homes in California, Florida, Arizona, Colorado and Texas. The costs of its homes hovers around $364,000 on average which is not luxurious but also not the entry level. Taylor Morrison reported that they had $1.4 billion dollars of revenue in the year of 2012 with a 46% increase in sales and orders, up from 2011. However, the company is not a startup and already has a significant land pipeline when compared to Tripoint (TPH). It has substantial momentum in orders and backlog and is doing well. Some analysts have said that they expect Taylor Morrison’s revenues to grow somewhere around the range of 50 to 60 percent this year. They are not hard on the builders, especially the builders that have been concentrating in areas such as Arizona and California that were hit hard.


In California and Arizona the inventories are low and the prices are on the rise mostly because of the huge demands from investors for properties that are foreclosed. Investors have jumped in because of the strong new single family rental market and are doing well on rents. However, some analysts may argue that the demand is already starting to slow down just a bit. Surprisingly investors brought fewer properties in the year of 2012 than they did in 2011 despite the billion dollar buying sprees that were funded by large Wall Street hedge funds. It is said that investment home sales declined to 1.21 million, down 2.1 percent from 1.23 million in 2011. However, those sales had been under a million during the market downturn.


Almost 4 million single family homes have been put into the market since 2005 so single family rents are starting to flat line. The supply is finally starting to catch up with the demand with single family rents up just by 0.1 percent in March from last year. Prices are starting to rise in the markets again because all of the investors who use cash are finding that there is not much left to buy. The regular buyers cannot compete with the big investors so they are moving towards the home builders which threw the homebuilders off guard. This is because the builders did not see this happening in their forecast. So now they are back to ramping up business to meet the demands while they cannot foresee how long the demands will last. This is because when the home prices get high enough investors may cash out, which would lower the prices and push inventories even higher.


The new asset class REO (bank owned foreclosures) to rent model put a stable base on home prices and lowered the distress significantly in the market. If investors hold and rent the homes recovery will continue but if they decide to cash in then things could take a turn quickly.

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Markets Trading Ideas


Related Articles

View Comments and Join the Discussion!