Must-See Chart: Homebuilders Rally

NEW YORK (TheStreet) -- Homebuilder stocks jumped into focus this week on strong housing data.

XHB Year to Date Total Returns Chart

XHB Year to Date Total Returns
data by YCharts
Building permits rose to more than 1 million in October, the highest level since June 2008. Although most of the increase in October was explained by multi-family permits, which authorizes construction of apartments rather than single-family homes, analysts noted that there was underlying strength in the permit data.

KBW analysts pointed out that non-seasonally adjusted data showed an 7.4% monthly increase, so the data was not just affected by a higher seasonal adjustment factor. Trulia economist Jed Kolko said the three-month average of total building permits was also at a five-year high.

Meanwhile,  the widely followed S&P/Case-Shiller Index reported a 13.3% annual increase in September, further bolstering home prices.

"We continue to favor large-cap builders based on valuation and balance sheet and note that they typically outperform small to midcaps earlier on in the seasonal trade," KBW analysts said in a report Wednesday.

According to KBW, historically, more than 75% of annual homebuilder returns are generated in the November-to-January time frame.

The analysts have outperform ratings on DR Horton (DHI) Lennar (LEN) and Toll Brothers (TOL)

-- Written by Shanthi Bharatwaj in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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