Shares Of Homebuilders Advance On Analyst Upgrades

NEW YORK (AP) — Shares of homebuilders climbed Friday after an analyst upgraded several companies in the sector and said demand for new homes should slowly recover over the next two years.

JP Morgan analyst Michael Rehaut also said in a note to clients that home price declines will their end as the industry sees modest improvements in sales pace and community growth.

Rehaut upgraded Toll Bros. and KB Home from "neutral" to "overweight," and highlighted an "overweight" rating on Lennar Corp. Meanwhile, he downgraded MDC Holdings Inc. to "underweight" from "overweight" and said its conservative balance sheet and risk profile will lead to underperformance during the upturn.

On Thursday, the Commerce Department said construction of single-family homes and apartments rose 1.5 percent to an annual rate of 598,000 units, the highest level since November. That was slightly lower than the 600,000-unit pace economists had expected and remains more than 70 percent below the peak rate hit in 2006.

A precipitous drop in pricing will spur demand and positive order growth, historically a powerful catalyst, Rehaut said.