Shares of US homebuilding companies are soaring with the uptick in the housing sector. New home sales are still 50% below the 40-year average. As the housing sector improves, shares of homebuilders may still have plenty of room on the upside.
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The Standard and Poors Supercomposite Homebuilder Index covers 11 companies and is up 53% this year as of August 10. Markets with limited inventory are focusing on first-time buyers, requiring larger down payments. Buyers have easier access to credit and interest rates are still at historic lows.
As the economy continues to improve, housing may continue to be a leader. Houses sold at a seasonally adjusted rate of 350,000 per year as of June’s report. That’s about half the 40-year average recorded by the Commerce Department.
That number is up 46,000 from the annual number reported a year earlier in 2011. That’s just enough of a rise to bolster investor confidence in the sector.
Equivalent returns annually in the S&P Homebuilders Index is the best it’s been since 1995, increasing more than 100% so far this year. Most of the growth has been in multifamily housing and single family growth only represents about .22% of the housing growth that adds to gross domestic product (GDP).
Single family housing growth hit its peak in January 2006 with a 50% increase. By March 2009, it had reached a 50-year low. Built-up demand is a welcome ingredient in the housing rebound scenario.
Housing comeback is still being stymied, however, by the stubbornly high unemployment rate, tight credit conditions, and a backlog of foreclosures which have not yet hit the market. This may cause stocks of housing companies to move in fits and starts, offering investors entry points along the way.