NEW YORK (TheStreet) -- The springtime expiration of federal tax credits for homebuyers created more uncertainty in the already-unstable housing market. Industry players like D.R. Horton (DHI) and M.D.C. Holdings (MDC) seemed to benefit the most from new home sale volumes in the run-up to the April 30 deadline, but there is still time for the patient investor to reap the benefits.
D.R. Horton and M.D.C. Holdings outpaced sector peers on volume, primarily because the two homebuilders were willing to go out and build spec homes, explained Stifel Nicolaus analyst Michael R. Widner. In other words, they were willing to take the risk of building new home inventory without contracted buyers in place. The bet paid off when hoards of homebuyers showed up in April wanting to take advantage of the credits, and were willing to make a rushed deal to qualify for the incentives.
While spec building helped D.R. Horton and M.D.C. Holdings grow closed sales volume by 60% to 6,805 homes and 71% to 1,135 homes, respectively, in the second quarter, the pair may now face a new risk of having overbuilt, potentially overexposing themselves to excess inventory now flooding the market.
"They both have more inventory than I'd like them to have, but I'm not overly negative," Widner told TheStreet. "It just means they slow down on spec building for a couple months and hope the market bounces back a little bit."
Would a new round of credits help or hurt the economy?
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV