Homebuilders Rebound on Single-Family Starts

NEW YORK (TheStreet) -- Homebuilders' most important component of this week's Housing Market Index, single-family housing starts, has been stuck around the 600,000 threshold for several months and stayed stuck in two of the three months in the latest report. Single-family housing starts for September and October held in that area but November starts surged 20.8% to 727,000 units from 616,000.

Because of the partial government shutdown Wednesday's housing starts data was for September, October and November.

Homebuilders are thinking that the recent spike in mortgage rates was a factor in a temporary pause in closings but current rates are still near historically low levels. The National Association on Home Builders looks for a gradual improvement in the housing market in 2014. Looking at the chart, single-family starts will be updated to 727,000, but the gap between sentiment and starts remains large with starts below the normal 1,000,000 to 1,200,000 unit range.

The NAHB on Tuesday released its December HMI with a solid reading of 58 up 4 points from November. The HMI has gained 11 points year over year and has been above the neutral reading of 50 for seven consecutive months indicating that homebuilders are confident on the progress the housing market has made since the housing bubble popped.

On Nov. 27 I wrote, Homebuilders Rebound On Permits and Higher Home Prices and since then seven of the 11 homebuilders I track have moved higher given improved sentiment, single family starts and Wednesday's Fed statement that implied that mortgage rates would stay low through 2014.

This morning there is a significant change in ratings for the 11 homebuilders I have been following as nine have been downgraded. Only one of 11 is undervalued by 17.3%. The other 10 are overvalued by 11.7% to 103%. The performances over the last 12 month are disappointing after being fabulous in May. Among the 11, five are down by 1.1% to 18.3% over the last 12 months while the gainers are up by 0.2% to 35.3%. The rebound this week on single family starts and the Fed Statement still has four below their 200-day simple moving averages, with 7 above. My conclusion is that the homebuilders can be traded, but are not for the long term investor.

Beazer Homes (BZH) ($22.21 vs $20.71 on Nov. 26 up 7.2%) has been downgraded to sell from hold is 103% overvalued with a gain of 35.3% over the last 12 months. The 200-day simple moving average is $18.17 with quarterly and monthly pivots at $20.44 and $21.12 and the May 20 high at $23.29.

DR Horton (DHI) ($20.11 vs. $19.93 on Nov. 26 up 0.9%) has been downgraded to sell from hold is 16.4% overvalued with a gain of just 0.2% over the last 12 months. My monthly value level is $17.44 with semiannual pivots at $20.83 and $21.19 and the 200-day SMA at $21.35.

Hovnanian (HOV) ($5.71 vs. $5.00 on Nov. 26 up 14.2%) has been downgraded to strong sell from sell is 27.6% overvalued with a loss of 5.6% over the last 12 months. My monthly value level is $4.95 with the 200-day SMA at $5.45 and semiannual risky levels at $5.69 and $5.77.

KB Home (KBH) ($17.55 vs. $17.81 on Nov. 26 down 1.5%) has been downgraded to sell from hold is 11.8% overvalued with a gain of just 3.2% over the last 12 months. My monthly value level is $15.60 with the 200-day SMA at $19.10 and annual risky level at $22.95.

Lennar (LEN) ($37.43 vs. $36.05 on Nov. 26 up 3.8%) has been downgraded to sell from hold is 11.7% overvalued with a loss of 5.7% over the last 12 months. My monthly value level is $30.68 with the 200-day SMA at $36.80 a semiannual pivot at $35.45 and semiannual risky level at $40.29.

MDC Holdings (MDC) ($30.05 vs. $30.41 on Nov. 26 down 1.2%) has been downgraded to sell from hold is 17.3% undervalued with a loss of 18.3% over the last 12 months. My semiannual value levels are $28.44 and $27.72 with the 200-day SMA at $32.57 and annual risky level at $37.07.

M/I Homes (MHO) ($23.57 vs. $22.25 on Nov. 26 up 5.9%) has been downgraded to strong sell from sell is 13.4% overvalued with a loss of 7.4% over the last 12 months. My monthly and semiannual value levels are $19.42 and $19.20 with the 200-day SMA at $22.33 and quarterly risky level at $32.61.

PulteGroup (PHM) ($18.42 vs. $18.95 on Nov. 26 down 2.8%) remains sell rated is 41.8% overvalued with a loss of just 1.1% over the last 12 months. My monthly value level is $16.48 with the 200-day SMA at $18.63 and quarterly risky level at $25.32.

Ryland Group (RYL) ($40.75 vs. $40.02 on Nov. 26 up 1.8%) has been downgraded to sell from hold is 39.7% overvalued with a gain of 9% over the last 12 months. My semiannual value level is $33.71 with the 200-day SMA at $40.43, a monthly pivot at $39.60 and quarterly risky level at $41.25.

Standard & Pacific (SPF) ($8.31 vs. $8.16 on Nov.26 up 1.8%) has been downgraded to strong sell from sell is 58.7% overvalue with a gain of 14.9% over the last 12 months. My monthly and semiannual value levels are $7.75 and $7.58 with the 200-day SMA at $8.24 and semiannual risky level at $$8.73.

Toll Brothers (TOL) ($34.61 vs. $34.88 on Nov. 26 down 0.8%) remains sell rated is 23.5% overvalued with a gain of 6.5% over the last 12 months. My annual value level is $30.91 with the 200-day SMA at $33.12 with monthly and quarterly pivots at $34.47 and $34.61 and semiannual risky level at $40.19.

At the time of publication the author held no positions in any of the stocks mentioned.

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This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier is the chief market strategist at ValuEngine.com. He has been a professional in the U.S. Capital Markets since 1972, transferring his engineering skills to the trading and investment world.

Suttmeier has an engineering degree from Georgia Tech and a Master of Science degree from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. He became the first long bond trader for Bache in 1978, and formed the Government Bond Department at LF Rothschild in 1981, helping establish that firm as a primary dealer in 1986. This experience gives him the insights to be an expert on monetary policy, which he features in his newsletters, and market commentary.

Suttmeier's industry licenses include, Series 7 and Registered Principal (Series 24). He has been the Chief Market Strategist for ValuEngine.com since 2008 and often appears on financial TV.

Click here for details on Suttmeier's "Buy and Trade" investment strategy.

Richard Suttmeier can be reached at RSuttmeier@Gmail.com

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