Homebuilder Bear Softens

Bank of America analyst Daniel Oppenheim shifts his stance on the sector to neutral from cautious.
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Homebuilder stocks got a boost Thursday after one of the sector's more bearish Wall Street analysts shifted his stance on the companies to neutral from cautious.

Bank of America analyst Daniel Oppenheim upgraded several builder stocks, saying he is seeing improvement in traffic, affordability and construction trends.

Oppenheim was one of the first analysts to become cautious on the sector in 2005 because of the deterioration of these same trends.

"We do not expect a smooth upward move, but expect choppiness over the next 12-24 months based on the excess inventory, as it will take time to work through the oversupply," Oppenheim wrote in a research note Thursday morning.

He raised

Standard Pacific

(SPF)

to buy from sell. The following stocks were raised to neutral from sell:

Toll Brothers

(TOL) - Get Report

,

Pulte Homes

(PHM) - Get Report

,

Ryland

(RYL)

,

NVR

(NVR) - Get Report

and

Meritage Homes

(MTH) - Get Report

.

Oppenheim said his monthly survey of real estate agents showed improved buyer traffic in 33 out of 39 markets across the country in November compared to October. However, traffic remains below expectations, he wrote.

The recent declines in new construction and increasing affordability of homes is helping the sector, Oppenheim said. In October, new-home permits fell 32% from a year earlier.

Inventories and rates are the wild-cards. "A seasonal increase in inventories in the Spring could lead to further pressure on prices and additional cancellations. Higher long-term interest rates would also likely lead to additional weakness," Oppenheim wrote.

Builder stocks jumped after the report. Pulte was up $1.79, or 5.8%, to $32.87; Toll rose 97 cents, or 3.1%, to $31.87; and Ryland was adding $2.03, or 4.1%, to $51.17.