U.S. homebuilders have not felt this good about their business in a decade.
Sentiment jumped 3 points in October to a level of 64 on the National Association of Home Builders/Wells Fargo Housing Market Index. Anything above 50 is considered positive sentiment. The index stood at 54 last October.
“The fact that builder confidence has held in the 60s since June is proof that the single-family housing market is making lasting gains as more serious buyers come forward,” said NAHB Chairman Tom Woods, a homebuilder from Blue Springs, Missouri. “However, our members continue to tell us there are still pockets of softness in some markets across the nation, and that they face challenges regarding the availability of lots and labor.”
Of the index’s three components, two saw gains in October.
Sales expectations in the next six months rose 7 points to 75, while current sales conditions rose 3 points to 70. Buyer traffic, however, didn’t move, sitting at 47— the only component still in negative territory. Regionally, on a three-month moving average, the West registered a 5-point gain to 69, and the Northeast, Midwest and South each rose 1 point to 47, 60 and 65, respectively.
Some analysts are also bullish on the stocks of publicly traded homebuilders. The seasonal “Hope Trade” is set to kick in next month. This is traditionally when builder stocks are at their lows of the year, so investors buy in during the slow winter months in the hope of a busy spring sales season.
From 1998 through last year, the homebuilders outperformed the S&P 500 between Nov. 21 and Feb. 6 by 14 percent on average. In 12 of those 17 years, the sector outperformed the S&P and the average outperformance in those years was 23 percent, according to a new report from Compass Point Research and Trading.
Compass Point is now upgrading two builders, Beazer (BZH) and CalAtlantic Group (CAA) to buy and reiterating its buy rating on DR Horton (DHI). CalAtlantic was formed by the recent merger of Ryland and Standard Pacific. Compass Point is also raising price expectations for several builders who cater to younger buyers.
“Lower price point builders have outperformed the sector on numerous verticals this year, and we believe this outperformance should continue as home builders are rewarded for strong volumes (externally and organically) in the market as credit expansion continues to play a big factor,” Compass Point analysts wrote in the report.
Mortgage giant Fannie Mae on Monday announced new tools for lenders designed to, “bring more certainty and simplicity” to them and to enhance credit access to borrowers. They include using what’s called “trended credit data,” which gives lenders better access to a borrower’s long-term credit history.
“Our aim is to help lenders serve their customers efficiently so that more qualified borrowers have access to mortgage credit,” Fannie Mae CEO Timothy Mayopoulos said. “We are enhancing our offerings, improving our tools and innovating through the technology we provide to our customers. Our goal is to make sustainable homeownership a reality in communities across the country while reducing risk for taxpayers,”
Freddie Mac also announced a partnership Monday with Quicken Loans to, “pilot several new initiatives aimed at helping provide more Americans the opportunity to achieve homeownership, while also building a smarter American mortgage finance system.”
Credit availability has been one of the biggest roadblocks to homeownership during this recovery, especially for younger, first-time homebuyers.