Homebuilder Confidence Bounces Back; Here's Why Real Estate Stocks Will Too
NEW YORK ( TheStreet) -- Homebuilders are getting much more confident about the economy as the summer wears on -- and their stocks should reap the benefits soon.
Homebuilder confidence pierced a pivotal level in July's survey by the Wells Fargo and the National Association of Home Builders, reaching 51 on a 100-point scale for the first time since January, when the polar vortex began cutting into sales. The index measuring today's sales conditions increased four points to 57, while the index measuring expectations for future sales rose six points to 64, the survey said. Traffic of prospective buyers increased three points to 39 on the survey's scale.
Investors should be moving now to consider whether this means building stocks can finally shake off their recent torpor -- most builders have trailed the broader market this year. Earnings reports begin next week, with NVR
"The builders are still in the third or fourth inning of the recovery,'' Morningstar analyst Jim Krapfel said. "The confidence numbers are encouraging and build on new home sales and permits for May."
The PHL Housing Sector Index is actually down about 1% this year, trailing the 7% jump in the S&P 500
"A fair number of institutional investors are circling the waters waiting for these stocks," McGrath said.
Housing stocks are still not worry-free, though.
Institutional players are still waiting for a catalyst to get the stocks moving, McGrath said. The two potential catalysts out there are the broader economy's drive (finally!) toward full employment, or a 5.5% unemployment rate, and promises by the regulator of Fannie Mae
Credit has been much tighter for housing than for auto loans -- one reason that car and truck sales have virtually recovered to pre-recession levels while home building is still less than half of a more-normal pace, McGrath says. Recent surveys of realtors suggest that conditions haven't improved much, she said. The next step is up to regulators, she said.
The numbers to watch next week are new home orders at major builders, the analysts agreed. McGrath expects orders to rise 7%, blending a weak April and some rebound since. Pulte is likely to see orders decline because it has reduced the number of communities it's building, focusing on boosting profit margins more than volume, she added. But Horton could see orders jump 15%, she said. Lennar Homes