(Adds pending home sales report and shares of construction-materials makers.)
BOSTON (TheStreet) -- Homebuilder stocks have jumped as much as 45% over the past three months, and are being buoyed today by a report showing pending home sales greatly exceeding economists' estimates.
The National Association of Realtors' index of pending home sales rose 7.3% to the highest since April 2010, compared with forecasts of a 1.5% gain. But the question remains whether it's a fragile rally based on overly optimistic expectations for the economy or an early sign that a sustained real estate recovery is in the offing.
Investors put out the welcome mat for homebuilders in the first half of the year, pushing up their share prices despite the worst pace of new-home sales since the Great Depression on expectations of a long-awaited rebound after the 2008 and 2009 slump.But the industry couldn't step up sales, and shares slumped, as the nation faced continued economic headwinds from as far away as Japan. It's been a volatile ride for homebuilders' shares this year as they rose steadily in the first half of the year, then plunged 29% in the third quarter, only to rally 25% over the past three months. That leaves the iShares Dow Jones U.S. Home Construction Index Fund (ITB) at a loss of 10% for all of 2011. The broader S&P 500 Index is down 0.6% this year after having gained 8.3% in three months. But the new-home market recovery appears tenuous. In October, single-family new-home starts increased from the previous month, but remained close to record lows and were down about 1.5% versus a year earlier, according to the latest data from the S&P/Case-Shiller National Home Price Index. Among the issues keeping potential new-home buyers on the fence is the threat of continued declines in home prices, concerns over job security and tougher borrowing standards on the part of lenders. There are some positive economic signs that would support a view that it may be time to start nibbling at these stocks. For example, the unemployment rate fell to 8.6% in November, the lowest level in more than 2 1/2 years, while consumer confidence is rebounding strongly, according to the Conference Board's index of consumer confidence, as it jumped in December to its highest level since April. And Goldman Sachs said in a Dec. 15 report that "the housing-price bottom is probably in sight," but added that housing prices might decline as much as 3% in 2012 before starting to recover. Still, many expect that even a slight recovery, coupled with years of pent-up demand, will bring the industry a pop. And few want to see a turnaround for homebuilders more than mutual fund manager Fidelity, which has a longstanding bet on the sector and is the largest shareholder in several homebuilders -- in some instances holding a stake of as much as 15%, or two to three times that of the No. 2 shareholder. Nevertheless, the question remains when an industry recovery will gain traction. Industry analysts remain cautious. "We see tepid demand for new-homes sales in 2012 with pricing expected to be flat to slightly lower," S&P Capital IQ said in a Dec. 27 research note. "(Home shopper) traffic to new-home communities remains very slow, and we believe low mortgage rates will not boost demand." And, similarly, JPMorgan Chase (JPM) said a Dec. 23 research note that "given the more challenged macro environment and our more muted demand outlook for 2012, we believe valuations will likely remain depressed relative to historical averages over at least the next two to three quarters." The industry's group of leaders has slimmed down over the past few years to about a half-dozen homebuilders, and the majority of them are expected to regain their strength when an economic recovery does indeed lead to a rebound in demand. Along with an increase in homebuilders are construction-materials companies. Masco (MAS) was at one point today the biggest gainer in the S&P 500, rising more than 6%. It's up 47% this quarter. Cement maker Cemex (CX) has surged 71% in three months. Here, then, is the outlook for the nation's six biggest new-home builders and how they're different from one another:
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