As the housing marking continues to stabilize nationally, builder stocks have seen some recent growth. DR Horton, one of Forbes 2000 leading companies, was singled out as the best performing stock on the S&P 500, on July 9, 2013.
The comeback in builder stock is believed to be attributed to CoreLogic’s May 2013 Report of fewer foreclosures. The report showed a significant decline in foreclosures. Year over year foreclosures went from 71,000 to 51,000 nationally, a 29% decline from May of 2012 and a 27% decline of completed foreclosures.
Anand Nellathandi, president & CEO of CoreLogic shared, “We continue to see a sharp drop in foreclosures around the country and with it a decrease in the size of the shadow inventory. Affordability, despite the rise in home prices over the past year, and consumer confidence are big contributors to these positive trends. We are particularly encouraged by the broad-based nature of the housing market recovery so far in 2013.”
DR Horton wasn’t the only company to see growth in the market, other builders like Pulte, Lennar and Toll Brothers reported recent and steady profits, but with that brought some concerns. Is the market surging too fast?
The REO market, inventory that has already been foreclosed on and being held by mortgage servicers and hasn’t been listed as homes for sale, could have a negative effect on pricing.
Another concern, which has seen a lot of press, is whether the large institutionalized investment firms will pull back from their buying patterns as a result of the rising prices and in turn begin selling their inventory, also causing a pricing adjustment to the housing market.
Jonathan Gray of The Blackstone Group, assured the public on CNBC that they are still buying. They are simply refocusing their efforts in markets like Chicago, Atlanta, and Florida, areas that are pricing a larger value currently.
To add salt to a 5 year wound in our economy, Gray pointed out that in many large markets across the country, home prices are still lower than in 2006.
Benjamin De Los Monteros of Cherry Picker Investments in Chicago, says, “I can imagine the hesitancy with the sudden surge in builder stocks. There are still many unknown factors to play out regarding the country’s shadow inventory. Who is holding? Who is selling? And when is right time to sell? It’s like a game of poker, if you know the number of cards on the table, the number of players in the game, the size of the pot, then figuratively speaking, you should know how to play your hand. Dumping thousands of investment properties on the market all at once doesn’t serve anyone any good, especially the largest holders.”