Homebuilder Shares a Prospective Buy Here

But: Liquid Capital Should be Nimble, and Long- Term Investors Might Take a Taste Now, and a Bite Later

You would have thought that given Beazer Homes' (NYSE: BZH) bad news today, homebuilder shares might be lower. However, a well-timed Bloomberg article speaking to the seasonal push for housing that follows the Superbowl, published a minute after midnight this morning, got traders started early looking for a homebuilder share recovery. Even BZH's shares are up 3% at the hour of scribbling here. More importantly, I see the industry poised for a significant drive higher, but not without disruption.

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Homebuilder Shares A Prospective Buy Here

It makes logical sense that once the NFL football playoffs conclude, married men have a weekend void to fill. Well, it seems their wives and fiancés don't miss a beat in getting their men busy prepping a nest and looking for a house. The spring home buying season officially begins after the Superbowl, according to the experts, and this year they have their hopes on the first GDP contribution from the sector since 2005, according to Bloomberg's article.

The Commerce Department reports that the yearly peak in New Home Sales has occurred in March or April in 12 of the last 14 years. Since new home construction takes time, prospective buyers look to spring in order to be in their home by the start of the school year. Thus, each spring brings new hope to the industry.

A closer look at the numbers though, shows that while growth is finally expected for 2011, it's nothing special. Decent percentages are forecast on historically horrible numbers. The National Association of Home Builders (NAHB) strong forecast only has the absolute pace of new home sales reaching 385K. But, I expect that because Fannie Mae (OTC: FNMA.OB) (forecasts 18% rise), the Mortgage Bankers Association (forecasts 10%) and the NAHB (+20%) are all looking for growth, and while homebuilder stock speculators are looking for any reason to place the early bet, we will see today's spurt continue. I don't think the appreciation in homebuilder shares will be without disruption though, and so I advise liquid capital to be nimble, and long-term money to take a taste now, and save some appetite for later as well.

My reasoning for this is because I anticipate harsh January weather destroyed the home sales pace for the month in much of the country, and I expect the possibility of bad housing news this month is not yet perfectly factored in by today's enthusiasts driving the shares higher. All of December's deceptive growth in new home sales was born in the Western U.S., and that will have to be the case, and some, in January for sales to continue rising overall.

The Employment Situation Report for January showed construction employment declined by a hefty 32,000 through the snowy month. Given the amount of job shedding in the decimated industry through the recession, the number, however small, is actually an extremely disheartening sign. When the month's housing sales results are reported, I expect they could fluster the market, unless what I am reporting today is understood by then.

Still, the speed and willingness of capital to chase homebuilder shares now, thus their upside sensitivity, is a positive factor to investment in the sector now, in my view. Beazer Homes (NYSE: BZH) reported orders for homes slipped, and BZH shares were down as much as 4% on the news. However, they have now accomplished a 7% swing as speculative money is flooding into the industry. I think you can count on this push driving higher over the near-term.

Even as Beazer reported a poor fiscal first quarter, it noted a 50% sequential month increase in new home orders in January, and said the rate was about equal to the prior year. Thus, perhaps the 72% increase in Western US new home sales reported for December were simply a leading indicator of an even better than expected drive for overall new home sales across the country. The stocks are catching fire, that's for sure, with K.B Homes (NYSE: KBH) up 4%; Toll Brothers (NYSE: TOL) up 3.9%; PulteGroup (NYSE: PHM) up 2.8%; D.R. Horton (NYSE: DHI) up 3.3%; and the SPDR S&P Homebuilders ETF (NYSEArca: XHB) up 1.9%.

The shares of homebuilders have been recovering gradually since early 2009, from the rock bottom the entire market touched. The chart of the XHB shows that the market saw a dip in the summer of 2010, when tax incentives expired and the housing market with it. Since then, capital has been speculatively hopeful for an organic recovery to begin in housing. With most of these cyclical companies only now coming out of years of producing losses, and with real EPS only prospectively seen in 2012 for most of the industry, the sector may be set up to benefit from a surprisingly better pace of sales growth this year. We may not be at inflection point, but it appears we are at a point of important change, which investors tend to benefit greatly from. If earnings estimates are set up for upward adjustment as it appears, these homebuilder stocks should see rich price appreciation as well through the year.

DISCLOSURE: I have no interest in any security mentioned



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO).

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