Have You Noticed the Interesting Pickup in This Sector?

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If you've run away from housing stocks, now could be the time to pause and look back at the sector. Three Foolish thoughts tell you why:

  • Homebuilders' last quarter earnings are improving.
  • Homebuilders are working harder to lure buyers.
  • Data on housing is starting to get a little less ugly.

That adds up to a pickup -- albeit a slow one. But the way the housing market has bled over the years, any positive sign is big news.

I'm feeling better now
Last quarter's results from most of the homebuilders seem to hint at a possible bottom for the industry.

For instance, both Pulte (NYS: PHM) and Hovnanian Enterprises (NYS: HOV) came up with narrower third-quarter losses from the year-ago period, while D.R. Hortonturned around last year's losses to profits in its fiscal fourth quarter.

Are buyers suddenly realizing that rock-bottom home prices present a good time to buy? That's what the current revival in new orders and backlogs (a key indicator of future revenue) seems to be suggesting. The table below shows by how much new home orders and backlogs went up for some of the homebuilders in their most recent quarters.

Company

Rise in New Orders

Rise in Backlog Units

Beazer Homes (NYS: BZH) 33%84%
Standard Pacific (NYS: SPF) 38%40%
KB Home (NYS: KBH) 40%22%
D.R. Horton7%18%
Hovnanian Enterprises33%13%

Source: Company quarterly reports.

Clearly, things are improving across the board. Remember that rising orders now no longer have unfair comparisons from the now-expired federal tax credits that were in effect early last year.

Come to me
With many buyers remaining reluctant to buy, homebuilders are doing everything they can to woo them. Most striking has been their "green" efforts.

KB Home is expanding its solar initiative by adding solar power systems and other energy-saving features to some of its already popular customized homes. D.R. Horton caught the eye of chemical giant Dow Chemical for the rollout of its revolutionary solar roofing shingles.

Many homebuilders, including KB and NVR (NYS: NVR) , have now agreed to implement the U.S. Environment Protection Agency's new energy guidelines that require new homes to be more energy efficient.

Apart from greener homes, homebuilders are trying out other incentives. Beazer's using a strategy of buying and renting foreclosed homes, something that Lennar is showing interest in, too. NVR went against its "land-less" policy some time back by purchasing a big land portfolio in Washington. And Toll Brothers (NYS: TOL) surprised many last week by lapping up a Seattle-based homebuilder in a bid to target a new market.       

Finally, some smiles around
Most of the recent housing data have thankfully treated us to more positives than negatives.

The National Association of Realtors reported a very surprising rise in the sale of previously owned homes in the U.S. in October. New house sales also rose in September and October. To top that, Freddie Mac's U.S. Economic and Housing Market Outlook for October highlighted a slow yet gradual pickup in apartment building construction this year.

Homebuilder stocks also went wild last month when The National Association of Home Builders/Wells Fargo Housing Market Index posted its highest one-month gain in more than a year, indicating improving consumer confidence.

It doesn't matter if it is the rock-bottom mortgage rates or the unbelievably low house prices that are attracting home shoppers, it's just good that buyers are getting active.

I also see faint rays of hope when home improvement retailers deliver better numbers, as it also suggests folks are shelling out more on doing up their homes, another sign of a housing recovery.

The Foolish bottom line
True, the wounds of the housing bubble are still sore. But when critical metrics start looking better, we shouldn't be indifferent. As I said earlier, happier housing data and more concrete numbers from homebuilders could be the healing salve for a lot of wounds.

Watching developments in the housing sector could be really interesting now, because we sure want to keep our doors open to any good opportunity that comes our way. Check back at fool.com to follow our coverage of the homebuilders, and click the links below to add these stocks to your stock watchlist, which brings you Foolish news and analysis.

At the time this article was published Neha Chamaria does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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