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Housing Sales Surge Could Push Homebuilders Higher -- if It Lasts

NEW YORK (TheStreet) -- The last two days of housing stats are looking very nice indeed -- especially today's.

For this past month, anyway, these numbers are eroding -- though not wiping away -- the concerns that have been cropping up about home sales. Housing seemed to be the one part of the economy not recovering smartly from this winter's weather-induced growth stallout.

Today the Census Bureau reported that new single-family home sales rose 19% in May to an annual rate of 504,000 -- the best since 2008. That followed a report Monday that existing-home sales rose 5% in May from April, though they remain almost 5% below May 2013 levels.

The news is heartening on three levels.

The first is the most obvious. People are beginning to buy houses, apparently. And the gain in inventories of existing homes for sale last month may quell fears that people with mortgages bigger than their homes' value will stay put in large-enough numbers to stall the recovery.  

Importantly, this points to more gains this summer, since a shortage of homes for sale has been limiting the market's recovery for a year or more.

Secondly, the gain in new home construction is great for jobs. Every new single-family home built is worth three to four new jobs, depending on whether you include likely hiring at home-improvement centers like Home Depot (HD) or Lowe's (LOW), furniture stores and the like.

If May's gains are sustained, that's would be an important factor in pushing the 6.3% unemployment rate below 6% by fall. The jump reported today works out to 300,000 to 400,000 jobs if sustained -- by itself, enough to shave 0.2% off unemployment.

Thirdly, at least some home builders are running lean enough that a pop in sales will fall quickly to the bottom line.


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Case in point: Pulte (PHM) said in April that it had expanded its gross margins for nine straight quarters, climbing by 5.8 percentage points to 23.8% of revenue.

"Last time our margins were at this level was back in 2005, a time when industry volumes and related demand were obviously much higher than what we [are] experiencing currently," Pulte CEO Richard Dugas said. "Stated plainly, we are running a much more efficient business today, as we're able to generate much higher earnings at current production levels."

Likewise, rival Ryland (RYL) said its home building gross margins rose 1.7 percentage points to 21.1%.

"We anticipate that gross margin will gradually claim as the year progresses," CEO Larry Nicholson said.

It's management 101 that margins respond quickly to a pop in demand when a business is running lean. If May is really the beginning of a strong summer, with new-home sales gains in the same mid-teens range as in 2012 and 2013, that could lead to a nice run for builders.

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