January housing numbers boost homebuilders

The annual build rate for the month was stronger than that seen in December.

By Benzinga Feb 16, 2012 6:30PM

Image: Home under construction (© Corbis)By Michael Foster, Benzinga Staff Writer


More new houses were being built in January, news that may benefit Beazer Homes (BZH), DR Horton (DHI), Pulte (PHM) and other developer stocks. In total, new home builds rose by 1.5% to an annual build rate of 699,000 houses -- stronger than December's figure of 689,000.


A mix of lower unemployment, cheap land, and low borrowing costs have resulted in an increase in home orders for Beazer and DR Horton, causing both stocks to rise slightly Thursday in pre-market trading.


But Beazer dropped sharply in the late afternoon to close down 5% at $3.48, while DR Horton fell less than 1% to close at $14.47.


Analysts had hoped for a 2.7% increase in new home starts, according to a Bloomberg survey of 79 economists, and estimated the annual build rate at between 640,000 and 736,000, thanks to a stabilizing housing market and warmer weather.


Record-low confidence in the housing sector has recently strengthened, as builders grew more confident in the new-home market than before the subprime crisis. Earlier this month, greater construction spending pointed to strength in the American economy. Private construction was up 2.1% in December, driven by demand for new commercial spaces. Residential construction was not as strong, with a 0.8% increase over November's figures.


While mortgage rates hit another record low, the number of new home sales has been disappointing. Last week, Fed chairman Ben Bernanke said that the Fed has "helped lower mortgage rates to the lowest point in many, many decades, yet we are not seeing as much activity as we would like to see."


Homebuilders have been challenged by slumping demand for years and have been hit harder than almost any other sector since 2007. Signs of health have shown up recently, but they are dim at best. While Beazer Homes is still losing money, its losses fell in the last quarter of 2011 to 58 cents a share, an improvement of 27.5% from the previous quarter. Still, the company disappointed with greater-than-expected losses for 2011 of $2.77 per share.


Other builders have turned around, but growth is slow. DR Horton returned to profitability in 2011 with earnings of 10 cents per share in four consecutive quarters. At the end of 2011, the company was able to adjust for falling revenue (down 17.5%) by lowering costs.


Similarly, Pulte Homes saw its losses turn to gains at the end of 2011, with fourth-quarter earnings of 4 cents per share up from a surprising loss of 34 cents per share in the previous quarter. Pointing to growing demand and a gross margin expansion strategy, analysts are expecting greater profitability in 2012.


The rise in new home starts for January points to momentum in the industry and is another positive trend for home builders. The drop in foreclosure inventory, which fell by more than 8% by the end of 2011, is another sign that the need for new builds may be rising. However, the rise in new home builds must be balanced against lower mortgage applications, although those figures have recently been driven by refinances more than actual new applications.


More from Benzinga:

11Comments
Feb 17, 2012 2:01PM
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It seems odd to me that analysts had even hoped for such a large percentage of new home starts when so many people are struggling to make ends meet.
Feb 17, 2012 1:59PM
Feb 17, 2012 1:56PM
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It's shocking to me that so many new homes are being built in this recession. Guess it's just another example of a disappearing middle class. 
Feb 17, 2012 2:22PM
Feb 17, 2012 2:19PM
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Basically, Ben Bernanke should buy me a house. That's what I think.
Feb 17, 2012 2:11PM
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Bernanke's speech today highlights the vicious circle of the housing market and the economy. It's tough to see a way out right now.
Feb 17, 2012 2:09PM
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New home starts are not always an accurate gauge of the overall economy. Many are built on spec and not necessarily sold in the near term. I sell homes in the NY area, mostly re-sales. My colleagues are seeing an increase in sales, not major, but a noticeable increase. We are moving in the right direction.
Feb 17, 2012 2:04PM
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Yea, but this is also showing that the banks are loosening the purse strings again. Which can be good or bad depending if they are truly qualifying the loans this time. What is interesting is the amount of people feeling comfortable again to buy. I don't think this is showing a larger gap between upper and lower class but rather the middle class emerging from renting/ their parents basements. Also, we are seeing some federal laws forcing banks to loan to those who short sold a fews yrs back. Again pushing the middle class to own the "American Dream" again.

Either way its putting some money into the economy and making the world go round. Lets just not get into the same mess again. ONLY BUY WHAT YOU CAN AFFORD. Save cash before you leverage to the max and can't pay off what you owe for 50 years.

And banks, stop being such a bully :)  
Feb 17, 2012 2:02PM
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I've been long home buildings and I've been lovin it!
Feb 17, 2012 2:02PM
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Find a new realtor that is desperate for a sale, they would be smart to be negotiable on their commission.  No sense in getting ripped off!
Feb 17, 2012 2:00PM
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wow, home boosting. i could use a new home. any advice? where to buy? who to buy from? should i actually pay my realtor, or are there ways to dwindle his/her fee down to nothing? just curious. i don't have any intent of screwing over my realtor.
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