Tags: Horne | homebuilder | buyer | housing

Raymond James Bullish on Homebuilder Stocks

By Dan Weil   |   Monday, 30 Dec 2013 08:11 AM

Raymond James housing analyst Buck Horne is enthusiastic about homebuilders, particularly Lennar and Toll Brothers, because of a combination of seasonal and fundamental factors.

"If there's a time to own homebuilders in the calendar year, this is the time — the period from the middle of November through Super Bowl Sunday [Feb. 2]," he tells CNBC.

"We call it the hope trade, and it's remarkable the track record of outperformance homebuilders have had during this time period in anticipation of a strong spring selling season."

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But what if mortgage rates keep rising? The path of interest rates typically has little impact on this seasonal phenomenon, Horne explains.

On Friday, the 30-year fixed mortgage rate stood at 4.56 percent, according to Bankrate.com.

On the fundamental side, "the [housing] recovery is gaining speed," Horne notes. The S&P/Case-Shiller index of home price for 20 cities soared 13.3 percent in the year through September.

"Customer traffic levels in the communities . . . has remained pretty strong," he adds. "The number of completed specs [homes built on speculation] has remained at historic lows in a lot of communities, and valuations remain appealing."

The average loan size of mortgages being applied for is at an all-time of nearly $270,000, according to the Mortgage Bankers Association.

"The buyers that are out there are much more affluent. They have much larger home savings and home equity saved up, and they're looking for a larger type of house," Horne argues. "The first-time buyer, unfortunately, remains pretty well locked out of the market."

To be sure, existing home sales dropped 4.3 percent in November, according to the National Association of Realtors (NAR), the third straight month of decline.

"It's a clear loss of momentum," NAR Chief Economist Lawrence Yun told reporters, according to Bloomberg. "Even with the weakening, we expect home sales to be the best in seven years."

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