Homebuilders Take a Break from Rally Mode

Housing names are trading lower across the board today, despite one of the nation’s largest homebuilders reporting better-than-expected financial results.

On Tuesday, Lennar (NYSE:LEN) announced earnings for the fourth quarter. Net income came in at $124.3 million (56 cents per share), compared to $30.3 million (16 cents per share) a year earlier. Revenues for the three-month period ended November 30, 2012 surged 42 percent to $1.35 billion, as gross margin on homes improved 410 basis points. On average, analysts polled by Thomson Reuters expected earnings of 44 cents with revenue of $1.31 billion.

Stuart Miller, chief executive officer, explains in a statement, “Our fourth quarter reflects the recovery in housing with solid profitability in all of our business segments. Our homebuilding sales pace continued to grow with a 32 percent increase in new orders, while our homebuilding gross margin percentage increased 410 basis points over last year to 23.5 percent and our homebuilding operating margin percentage increased 660 basis points over last year to 12.2 percent. Our homebuilding machine continues to improve and be our primary driver of profitability, fueled by our opportunistic land acquisitions and increasing operating leverage due to higher absorption per community and overall deliveries.”

Shares are trading lower…

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However, shares of Lennar fell more than 2 percent in afternoon trading, as new orders for the fourth quarter came in at 3,983 homes, slightly below Wall Street estimates. Other homebuilders such as DR Horton (NYSE:DHI) and PulteGroup (NYSE:PHM) also traded in the red. KB Home (NYSE:KBH), one of the largest and most recognized homebuilders in the nation, fell more than 1 percent.

Considering the rebound in the homebuilders, a pullback is not unusual. Lennar shares doubled in price last year, while KB Home surged more than 130 percent. As a contrarian indicator, Bank of America initiated Buy ratings on Toll Brothers (NYSE:TOL) and DR Horton earlier this month.

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While some analysts are still cautious on the housing sector, CoreLogic expects to see more improvement in home prices this year. Home prices across the country, including distressed sales, increased 7.4 percent year-over-year in November. This represents the biggest increase since May 2006 and the ninth consecutive year-over-year increase, according to CoreLogic. The firm expects home prices to rise in 2013 by six percent, as low inventory levels and fewer distressed home sales continue to aid the market.

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