Evaluating a Housing Stock Bubble (DHI, LEN, TOL, USG, HD, STC, ELLI, XHB, ITB)

Investors have been chasing up the housing stocks higher and higher over the last year.  The economy is only just now seeing a better housing market and foreclosures and the shadow inventory are finally getting blown out. Some markets are even facing a shortage of housing inventory.  While we are nowhere close to a housing bubble, we wanted to see if the stocks which trade around housing are in a bubble.

Mortgages are under 4% for conforming mortgages under Fannie Mae and Freddie Mac, and even jumbo loans over $417,000 are available for under 5%.  It almost feels like free money for those who can qualify.  This is what has been driving the interest in the shares in and around the fringes of the housing market. We selected leaders and active shares in the various aspects around the housing sector to see if these shares are in a bubble.

DR Horton Inc. (NYSE: DHI) is worth some $5.3 billion and shares are up 1% at $16.67 and shares are up more than 100% from the lows as its 52-week trading range is $8.03 to $17.91.  Thomson Reuters has a consensus price target of $17.70.

Lennar Corp. (NYSE: LEN) is worth some $5.1 billion and shares are up 0.2% at $27.03 and shares are up more than 100% from the lows as its 52-week trading range is $12.14 to $30.12.  Thomson Reuters has a consensus price target of $28.51.

Toll Brothers Inc. (NYSE: TOL) is worth some $4.4 billion and shares are up 1.3% at $26.23 and shares are up almost 100% from the lows as its 52-week trading range is $13.16 to $28.75.  Thomson Reuters has a consensus price target of $29.07.

USG Corporation (NYSE: USG) is down on Tuesday but at $17.18 it is up over 200% from its lows as the 52-week range is $5.75 to $19.44. Thomson Reuters has a consensus price target of $19.71.

The Home Depot, Inc. (NYSE: HD) is at a new high for the year with a 1.4% gain to $53.05 against a prior 52-week range of $28.13 to $52.88. Thomson Reuters has a consensus target of $54.57.

Stewart Information Services Corporation (NYSE: STC) provides title insurance and real estate related services. With a 1.4% gain to $15.09, its shares have nearly doubled from the yearly low as the 52-week range is $8.12 to $16.28 The market value is still only $292 million and the Thomson Reuters consensus price target is $15.50.

Ellie Mae, Inc. (NYSE: ELLI) is a fairly new outfit as a public company which provides business automation software for the mortgage industry. After a 2.6% gain to $16.96 the market value is $367 million and the 52-week range is $3.46 to $17.39.  While Elli Mae is up over 300% from the lows, Thomson Reuters has a consensus target of $19.20 on this stock.

Here are the ETFs.  The SPDR S&P Homebuilders (AMEX: XHB) is up 1.2% at $20.89 and the 52-week range is $12.21 to $22.43. The rival housing ETF, the iShares Dow Jones US Home Construction (AMEX: ITB), is up 1.6% at $15.66 versus a 52-week range of $8.21 to $16.30.

What is interesting is that even if these housing stocks have risen massively from the lows of the last year, analysts still see more upside.  If the price gets up above those consensus targets then you are officially getting into a ‘housing stock bubble’ but even then that will not assure that the stocks tank.

It is important to remember that many of these stocks are still a fraction of their former highs in the last decade.  If investors believe that housing is going to continue improving, then what the analysts think just might not even matter.

JON C. OGG