One of the best-performing sectors of the U.S. economy this year was also one of the hardest hit by the recession: homebuilders, whose stocks have outpaced the broader market with a modest rebound in home prices and increased demand for properties.
Despite the Reserve Bank of Australia (RBA) slashing interest rates in both May and June, sales of new homes in Australia continued to fall, dropping by as much as 3.7 per cent for a third consecutive month in September.
Much of recovery, however, has unevenly benefited the luxury sector.
The SPDR S&P Homebuilders ETF (NYSEARCA: XHB), a benchmark for the sector, has gained 45.44 percent year-to-date, compared to 14.23 percent for the S&P 500. It is up to its highest level since 2008. The iShares Dow Jones US Home Construction ETF was up 62.46 percent year-to-date at Wednesday's close.
"We believe that the housing market is improving at a moderate pace, benefiting from an increase in employment rates, higher consumer confidence and several years of pent-up demand," Zacks Equity Research stated Tuesday.
Bloomfield Hills, Mich.-based PulteGroup Inc. (NYSE: PHM) has been one of the strongest companies on the S&P 500. Its stock has gained 146.43 percent year-to-date, closing on Wednesday's at $15.55.
Miami's Lennar Corp. (NYSE: LEN) shares have risen 75.67 percent year-to-date to $34.52. Fort Worth, Texas-based D.R. Horton Inc. (NYSE: DHI) is up 63.12 percent year-to-date to $20.57. Los Angeles' KB Home (NYSE: KBH) is up 90.03 percent to $12.77 at Tuesday's close.
Toll Brothers Inc. (NYSE: TOL), the largest U.S. luxury home builder, reported a 46 percent profit increase in second-quarter earnings in August. New home orders jumped 57 percent to 1,119. Its stock has gained 71.11 percent year-to-date to close at $34.94 on Wednesday, its highest price since early 2007.
Continued fragility in the housing market and high employment could put a damper on continued gains, Zacks warned. Tight credit standards have also cut into demand by making mortgage financing difficult to obtain.
"There have been signs of a gradual strengthening in the housing market in the first half of 2012. However, homebuilders have cautioned that the process of stabilization is erratic and not adequately broad-based," said Zacks.
Zacks said it was not "generally bearish" on the homebuilder sector, but cited lower earnings at Fastenal Co. (FAST), Masco (NYSE: MAS) and Vulcan (VMC) as potential concerns.
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