The biggest story for homebuilders can be seen at the top. Three of the largest homebuilders: D.R. Horton, Toll Brothers, and Meritage showed gains on stocks over the last year. These three giants bounced back strong after multi-year lows. This is welcome news in a sea of negativity and inventories which were too high.
D.R. Horton (DHI), America's biggest homebuilder specializes in starter homes for first time homebuyers. What is attractive to these buyers is they do not have to sell existing homes. Most often they come directly from rentals into new homes. They have seen a 100% increase in their stocks.
Toll Brothers (TOL), masters of mass-produced luxury homes, have seen a 50% increase in their stock. This company should not rebound as quickly as Horton, but should be in a great position when credit markets loosen up as these buyers move up to more expensive homes.
By mid-2008, the Congressional Budget Office (CBO) reckoned that the U.S. suffered from an oversupply of 1.7 million units, dwarfing all previous records. Fortunately, the market is working with a vengeance to shrink the oversupply. In the second half of 2008, housing starts fell to an average annual rate of 770,000 units; so far this year, the figure is around 500,000.
All these factors point to a recovery in late 2009 or early 2010 for housing markets. For an industry which has cut costs and inventory dramatically in most areas, the basic math of the real estate market is slowly moving towards a recovery that's now dawning. These are all guesses at timing but let's admit resurgence in home sales is happening as we speak. I can definitely say there is a "New Affordability" in the air.