Did Housing Jump the Shark?


Interest in housing stocks has risen from the basement to the attic.

TRI Pointe Homes (NYSE: TPH) began trading today after boosting the size of its offering by 17% earlier in the week to 13.7 million shares. Imagine that! A real estate developer erects a successful IPO. The shares priced at $17 last night -- above the expected range of $14-$16 -- and that still wasn't enough. TRI Pointe Homes began its publicly traded life this morning by opening at $19.56.

The news has clearly been uplifting for the industry this week.

Shares of D.R. Horton soared 12% on Tuesday after posting better than expected results. Profitability more than doubled as closings and orders were up 26% and 39%, respectively. D.R. Horton's backlog has grown 62% over the past year.

PulteGroup shares did open lower today, but that was only because the homebuilder's 27% uptick in new orders trailed what its peers had reported earlier this earnings season. You won't see Pulte shareholders complaining. The stock has popped sixfold since bottoming out in late 2011.

The market warmed up to developers last year, and the housewarming party led to the shares of several leading builders -- Pulte included -- more than doubling in 2012.

However, it often pays to be a contrarian.

Residential real estate builders may have healthy order backlogs at the moment, but we saw how cancellations spiked when home prices faltered during the market's collapse.

That doesn't seem likely to happen now. The S&P/Case-Shiller index that tracks home prices in 20 major cities revealed earlier this week that home prices have soared 5.5% over the past year. It's the strongest year-over-year showing since the summer of 2006.

That's good news, but how exactly did that bubble work out?

If mortgage rates begin to inch higher or if young homebuyers continue to move away from the suburbs and opt for existing properties in metropolitan hubs, then do you really think home prices will continue to move higher?

There are no signs that housing has peaked, but ask any investor that was burned the last time that the climate got this frothy and developers had their shares bid up this high. It pays to get out before the rest of the neighborhood.

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The article Did Housing Jump the Shark? originally appeared on Fool.com.

Longtime Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

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