Market Overview

Beazer Homes, Hovnania Enterprises Leading The Homebuilding Sector Sharply Higher

Beazer Homes, Hovnania Enterprises Leading The Homebuilding Sector Sharply Higher

Homebuilding stocks have been on a strong run up in the past month, with the major names in the space recording double-digit gains.

Beazer Homes USA, Inc. (NYSE: BZH) are up 45 percent since November 10 and Hovnanian Enterprises, Inc. (NYSE: HOV) has rallied about 49 percent. Meanwhile, luxury homebuilder Toll Brothers Inc (NYSE: TOL) has been up 17 percent and KB Home (NYSE: KBH) was up 16 percent over the last month as well.

The SPDR S&P Homebuilders (ETF) (NYSE: XHB) has been up about 10 percent.

During the same period, the S&P 500 (INDEXSP:.INX) was up a more modest 5.2 percent.

Year-to-date gains of housing stocks have also been commendable:

  • Beazer Homes: +30 percent.
  • Hovnanian Enterprises: +32 percent.
  • KB Homes: +40 percent.

Toll Brothers bucked the trend, showing year-to-date losses of 1.6 percent.

What Is Driving The Rally?

  1. The housing market has been on a roll this year, with most housing market metrics faring very well, suggesting a thriving and vibrant sector. Existing home sales report for October released in late November showed existing home sales rise to over a 9.5-year high.
  2. In October, housing starts soared 25.5 percent to a seasonally adjusted annual rate of 1.323 million, marking the highest levels since August 2007.
  3. The National Home Builders Association's survey measuring confidence among homebuilders remained elevated in November.
  4. The housing market is also deriving support from mortgage rates. The mortgage rate, though rising to the year's high in recent sessions, has been low by historical standards. The annual average rate was higher than current mortgage rates from 1972 through 2011, according to Freddie Mac (Federal Home Loan Mortgage Corp (OTC: FMCC)).
  5. Affordability is another factor that has proved positive for the sector. The robust employment market, as revealed by the average jobs gains in excess of 180,000 and jobless rate, which slipped to a nine-year low in November and rising wage inflation have proved bullish for the housing market.
  6. The Fed funds rate has been maintained at extremely accommodative levels for about seven years now, although a small incremental upward adjustment was made in December last. The Fed funds rate serves as the benchmark for other key lending rates.

At Last Check

  • Beazer Homes shares were down 3.39 percent at $14.94.
  • Hovnanian Enterprises was up 1.27 percent at $2.40.
  • KB Home shares were down 0.52 percent at $17.17.
  • Toll Brothers was down 1.85 percent at $32.37.
  • XHB was down 0.65 percent at $35.42.

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