Time to Re-evaluate Homebuilding Stocks?

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The reverse merger announced Monday morning between the homebuilding group associated with Weyerhaeuser Co. (NYSE: WY) and homebuilder TRI Pointe Homes Inc. (NYSE: TPH) is causing some investors to take another look at the homebuilding sector. Shares are up today, but perhaps not as much as some observers think they should be.

TRI Pointe shares are up about 7% from Friday’s close, but the stock was up nearly 16% at one point. What TRI Pointe gained from the transaction was approximately 27,000 building lots in exchange for $700 million in cash. As a land bank, TRI Pointe controlled or owned just under 2,700 lots as of the end of June. A tenfold increase in building sites should probably have given the company a bigger boost.

But TRI Point’s shares were off nearly 20% between coming public in February and last Friday. Other homebuilders are also down for the year, and their land banks are even larger. Toll Brothers Inc. (NYSE: TOL), for example controlled more than 47,000 home sites as of July 31st.

Lennar Corp. (NYSE: LEN) reported that it controlled more than 146,000 home sites. KB Home (NYSE: KBH) reported that its portfolio of land totalled nearly 56,000 lots at the end of its third quarter. PulteGroup Inc. (NYSE: PHM) controlled more than 126,000.

During the housing market collapse, some homebuilders sold off land and their inventories of building sites may no longer be viewed as the solid foundation it once was.

Share prices in all these firms is down about 10% since TRI Pointe’s public offering in February. Investors clearly don’t place an awful lot of value on home sites when rising interest rates, falling consumer confidence, and higher prices for new homes look to be weighing down new building. Share prices are flat to up 2% for the other homebuilders today.

Today’s transaction between TRI Pointe and Weyerhaeuser could signal that homebuilders are only going to enjoy a temporary halt in what has been a downward trend in their share prices.

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