Homebuilder Shares Climb After Orders for New Houses Rise

U.S. homebuilders rallied to the highest in almost two years after four companies reported an increase in orders and contracts to buy existing homes climbed more than forecast, signs that the housing market may be reaching bottom

Ryland Group Inc. (RYL), based in Westlake Village, California, had the biggest gain among builders after reporting a 46 percent increase in orders. Its shares rose 14 percent to $21.62 at the close in New York, the largest gain in three years.

The Standard & Poor’s 1500 Homebuilding Index of 11 companies climbed 4.8 percent to the highest level since May 2010 after PulteGroup Inc. (PHM), M/I Homes Inc. (MHO) and Meritage Homes Corp. (MTH) also reported increases in orders.

The rising demand for new homes is an indication that housing is finding a low amid improving U.S. employment. The index of pending home purchases rose 4.1 percent to the highest level since April 2010, the National Association of Realtors reported today. The median forecast of 43 economists surveyed by Bloomberg News called for a 1 percent gain.

“The momentum is building for the homebuilding industry, and the numbers speak for themselves,” Brad Hunter, chief economist for Metrostudy, a Houston-based firm that tracks housing starts, said in a telephone interview today. “All around the country, traffic is improving and the quality of traffic is improving. When somebody comes into the sales office, they’re more likely to pull the trigger and sign a contract.”

New Home Sales

New homes sold at an annual pace of 328,000 in the U.S. in March, up 7.5 percent from a year earlier, the Commerce Department reported April 24. The median estimate in a Bloomberg News survey forecast a rate of 319,000. The U.S. unemployment rate was 8.2 percent last month, down from 8.9 percent a year earlier, according to Labor Department data.

Publicly traded homebuilders may be taking market share from private firms because they have better access to financing and are able to buy land and build in the best locations, said Robert Curran, a managing director at Fitch Ratings Ltd.

“We’re seeing for the public builders, pretty broadly, some pretty healthy improvement,” he said. “It’s clear nationally that we are having a more normal-type spring selling season.”

Ryland’s backlog, an indication of future sales, rose 44 percent, and revenue increased 29 percent, the company reported yesterday after the close of regular U.S. trading. Its net loss narrowed to $5.1 million from $19.5 million a year earlier. 

M/I Homes, based in Columbus, Ohio, reported a 15 percent increase in deliveries and a 17 percent increase in new contracts. Its shares gained 8.6 percent today.

PulteGroup Inc., the largest U.S. homebuilder by revenue, had a narrower first-quarter loss as it reduced costs and sold houses at higher prices. Orders rose 15 percent and the company’s backlog climbed 12 percent. Shares of the Bloomfield Hills, Michigan-based company rose 10 percent today.

D.R. Horton Inc., the largest U.S. homebuilder by volume, earlier this week reported earnings that beat analysts’ estimates, its fifth straight quarter of profitability.

“It was the first quarter in several years that fundamental demand came in stronger than expected, allowing us to beat our forecast for the period,” Chief Executive Officer Richard Dugas said in a conference call with analysts. “We are pleased with how the year has started off, including a continuation of better sales activity thus far in April.” 

To contact the reporter on this story: Prashant Gopal in New York at pgopal2@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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