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Builders Get Double Dose of Good News

Standard Pacific jumps 15%.

Homebuilder stocks rose Tuesday after a Banc of America Securities analyst upgraded the sector and small-cap firm

Standard Pacific

(SPF)

reported quarterly results that eased liquidity worries about the company.

Greater affordability of homes, reduced construction and declining interest rates will help the builders and the housing market, BofA analyst Daniel Oppenheim said in a research note.

Oppenheim says he sees upside potential of 20% on average among builder stocks. He upgraded

KB Home

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,

MDC Holdings

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and

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Pulte Homes

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to buy from neutral and lifted

Toll Brothers

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to neutral from sell.

Of the group, Pulte Homes was one of the biggest gainers, up 3.4% to $15.76.

The recent declines in mortgage rates and home prices have resulted in affordability levels better than the average from 1991 to 2007, Oppenheim says. Coupled with this improving demand picture, new construction continues to fall.

Most of the builder stocks are trading around book value, but the sector traded as high as two times book value in the 1990 to 1992 rebound, Oppenheim says. "In addition, we think book value is currently more realistic than in '90 given that the builders have already taken significant writedowns (average of 30% of '06 book value)," he says in his note.

At the same time, Standard Pacific's stock surged 15% to $5.27 in morning trading, as investors cheered the company's ability to generate $348 million of cash flow in the fourth quarter. Liquidity worries have swarmed the builder in recent months.

Standard Pacific reported a loss of $441 million, or $6.80 a share, compared with a loss of $98 million, or $1.53 a share, a year earlier. Analysts expected a loss of 89 cents, according to Thomson Financial.

Importantly, the company also said it exited six joint ventures and reduced its joint venture debt by 39% year over year to $771 million in the quarter.