Home Builders Find ‘Hope’ in January

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Builder Lennar Corp. says fourth-quarter orders surged 20% from a year earlier.

Has the hard-hit home building sector finally struck bottom? More industry watchers are starting to answer “yes.”

Earlier Wednesday, Lennar Corp., one of the nation’s largest builders, reported that its fourth-quarter orders surged 20% from a year earlier, far surpassing analysts’ expectations. (Some analysts admitted they thought orders would decline.)

“I’m feeling somewhat more confident that the market is, in fact, changing,” CEO Stuart Miller said in the company’s conference call with analysts and investors. “The general environment is different this year than it has been in the past.”

Mr. Miller said that traffic from prospective buyers serious about buying a home is picking up, possibly because renters are looking to buy homes to escape escalating rents. (As we’ve reported, apartment vacancy rates fell to their lowest level in more than a decade in the fourth quarter and landlords continue to respond by jacking up the rent.)

His optimism comes as other indicators show the housing market might be moving past the worst downturn in generations. Earlier this week, the National Association of Home Builders reported that the number of areas in its Improving Markets Index jumped to 76 in January, up from 41 a month earlier. The NAHB, the industry’s main trade group, has also reported that its confidence index is improving. That closely watched number hit 21 out of 100 in December, bringing it to its highest point since May of 2010.

This nascent optimism has become the talk of the real-estate industry in recent weeks. Investors betting there will be a solid spring selling season put some major pep in builder stocks in recent weeks. (It’s a phenomenon known as the “hope trade.”) So far this year, Hovnanian Enterprises has soared nearly 60%, while KB Home is up nearly 30%. No major builder shows a year-to-date loss.

Of course, no one thinks housing is out of the woods. Foreclosures remain a major problem, as does elevated unemployment. In his call, Mr. Miller mentioned tight lending standards, which he says are preventing plenty of would-be buyers from crossing the finish line.

But demand will ensure that the market eventually returns to a healthy level. “Now, whether that’s in 2012 or whether it takes more time for the markets to settle and stuff is yet to be seen and I don’t want to opine on that, but I think that over time, we’re going to see demand push through the stringency of the mortgage market,” he said.

For now, builders will settle for a decent spring selling season. And if that doesn’t happen, look for their confidence – and those stock prices – to fall again.

Follow Dawn @dwotapka

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