Homebuilder Confidence Gains Strength in December

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The National Association of Home Builders (NAHB)/Wells Fargo housing market index for December rose four points to 58 from a reading of 54 in November. The reading was higher than a forecast of 55 from Bloomberg. An index reading above 50 indicates that more builders view sales conditions as good than view them as poor.

The current sales conditions sub-index jumped six points in December, from 58 to 64, and the sales expectations sub-index came in at 62, up two points month-over-month. The sub-index that estimates prospective buyer traffic rose three points to come in at 44.

The NAHB’s chief economist noted:

The recent spike in mortgage interest rates has not deterred consumers as rates are still near historically low levels. Following a two-month pause in the index, this uptick is due in part to release of the pent-up demand caused by the uncertainty generated by the October government shutdown. We continue to look for a gradual improvement in the housing recovery in the year ahead.

Among homebuilder stocks Tuesday morning, KB Home (NYSE: KBH) was off the most, down about 1.5% at $16.93 in a 52-week range of $14.93 to $25.14. The consensus price target is $19.20, and current year earnings per share are estimated at $0.60, which analysts expect to more than double to $1.25 in the next fiscal year. The price-to-earnings (P/E) ratio for the trailing 12 months is nearly 72, but that drops to 13.6 for the next year, a much more reasonable number. The price target implies a gain of more than 13%, compared with a rise of less than 4.5% in the past 12 months.

TRI Pointe Homes Inc. (NYSE: TPH) was the biggest gainer Tuesday, up 2% in morning trading at $18.39, in a post-IPO range of $13.43 to $21.25. The company in November announced a merger of its homebuilding business with the building division of Weyerhaeuser Co. (NYSE: WY), and that is what has jolted the stock up from its lows set in October.