Upbeat reports lift home builder stocks

Toll Brothers built Marlboro Ridge in Maryland. The home builder reported orders for its luxury homes have jumped this quarter.
Toll Brothers built Marlboro Ridge in Maryland. The home builder reported orders for its luxury homes have jumped this quarter. (Linda Davidson/The Washington Post)
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By Dina ElBoghdady
Washington Post Staff Writer
Thursday, November 12, 2009

U.S. home builder stocks surged Wednesday, invigorated by Toll Brothers' announcement earlier this week that orders for its homes have jumped during the latest quarter, outpacing expectations.

Shares of Los Angeles-based Toll jumped more than 16 percent, to close Wednesday at $21.41. Other builders that issued upbeat reports this week, Atlanta-based Beazer Homes and Reston-based Comstock Homebuilding Cos., also got a boost. Beazer shares climbed 12.4 percent to $5.73. Comstock shares rose 7.1 percent to close at 90 cents.

The companies' reports are the latest sign of stabilization in the nation's battered housing market, but swelling unemployment and related foreclosures could upend the gains.

The building sector appears to be benefiting from an uptick in buyers lured by low interest rates, low home prices and an $8,000 tax credit that's been available since early last year, experts who track the industry said. The builders have whittled down their supply of homes, which helps set them up for a rebound.

Reston-based NVR said its third-quarter profit doubled last month, fueled by a 13 percent increase in orders for new homes. Its shares rose 3.4 percent Wednesday, to close at $705.

"The trends are stabilizing for builders, but it's not like they're making money hand over fist," said Michael Larson, an analyst at Weiss Research. "They're still struggling, in some cases, with debts they racked up in the past."

Preliminary fourth-quarter results released by Toll late Tuesday show that home orders were up 42 percent from the same time last year. The company, which specializes in luxury homes, said its contract cancellations slowed and its revenue climbed. Final results are scheduled to be issued Dec. 3.

Robert I. Toll, the company's chief executive, said in a statement that improved consumer confidence, stabilizing home prices, as well as declines in unsold homes and contract cancellations "suggest that the new home market should be improving. We sense that it is, though slowly and through choppy waters."

While demand picked up in late March, it has been volatile since Labor Day, possibly because of concerns about the economy and unemployment, Toll said.

Michael Widner, a Stifel Nicolaus analyst who tracks the building industry, said in a note to investors that it's "highly unlikely" that the sector will experience a "normalized earnings environment" earlier than 2012.

Widner predicted a substantial drop off in home sales starting in December, after the original deadline for a federal home buyer tax credit kicks in.

Even though the tax credit was extended from Nov. 30 to April 30, it faces "significantly diminishing returns going forward," he said. As for a new $6,500 tax credit for some current homeowners, Widner said he expects it to have little impact.

Widner also anticipates a steady climb in interest rates as the Federal Reserve winds down its program to buy mortgage-backed securities, further sapping demand for homes.

Adding to the building industry's challenges, Widner said, are what continue to be record-high home vacancy rates.

Owners desperate to sell empty homes often lower prices, making builders vulnerable to the financial drag it puts on home values.

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