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Jim Cramer: Homebuilders Back From the Wilderness

Editor's Note: This article was originally published at 7:30 a.m. EDT on Real Money on Sept. 25. To see Jim Cramer's latest commentary as it's published, sign up for a free trial of Real Money.

NEW YORK ( Real Money) -- They simply didn't hurt that much. That's the only reaction you can have to Stuart Miller's comments about the spike in mortgage rates, at least when it comes to the business of Lennar (LEN - Get Report), one of the nation's largest homebuilders.

Miller's quarter, a strong one by any stretch of the imagination, was, to me, the test I have been waiting for. It's a gauge of what has happened in this incredibly important industry after the 10-year Treasury yield almost doubled and mortgage rates went from roughly 3.5% to 4.85% in a matter of months.

This is the first quarter that really encompasses that rise. Some of the company's sales were no doubt saved by mortgage lock-ins, the period defined by August -- but a glimpse of September that Stuart offered "Mad Money" viewers shows that it was, indeed, no more than a speed bump along a road to a very strong housing recovery.

June, the first month of the rate impact rise, was very strong for this national homebuilder. July, however, seems like it was the exact opposite. Yet it came roaring back in August, and it looks like, between the lines, that September remained strong.

What could explain this conundrum? The cost of a product is going up substantially, and yet sales do not get hurt that badly and orders still go higher, although not as high as some analysts expected.

Miller says everything hinges on the production deficit and easier credit year over year. In other words, the U.S. is building far fewer residences than we needed -- between 900,000 and 950,000 -- and we can't possibly make up for the "production deficit" that the downturn has caused.

Many believe the overbuilding hangover of the mid-2000s is still with us. That's not apparently the case any longer, Miller said. Plus, there's the difficulty of building new units, because of a shortage of entitled land and the dearth of smaller homebuilders, who could not survive the downturn. This makes it so there's much more room to build homes than what people had recognized. We know that Lennar's 18,250 to 18,500 prospective units are far fewer than what's needed. Otherwise, gross margins wouldn't be on the rise, despite the hefty increases in labor, moderated by a declining price of the key ingredient of lumber.

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