For Immediate Release

Chicago, IL – August 23, 2013 – Today, Zacks Equity Research discusses the U.S. Homebuilding, including Lennar Corp. (LEN-Free Report), Meritage Homes Corp. (MTH-Free Report), D.R. Horton, Inc. (DHI-Free Report), The Ryland Group Inc. (RYL-Free Report) and PulteGroup, Inc. (PHM-Free Report).

Industry: Homebuilding

Link: http://www.zacks.com/commentary/28694/Homebuilding-Stock-Outlook---Aug-2013

The housing market has steadily made a comeback from the lows witnessed from the severe and widespread downturn. However, the housing momentum seen in 2012 and in the first half of 2013 seems to have moderated somewhat with the recent spike in mortgage rates, tight credit availability and a limited supply of land and labor.

In spite of the recently rising interest rates, they are still below historical levels and housing is still very much affordable. Thus, high affordability levels, increased rentals and historically low interest rates are driving the housing momentum. In addition, accelerating job growth and increasing consumer confidence are boosting demand for new homes.

Supply, however, is constrained by low home inventories, both for new and existing homes. A shortage of land and labor is restricting the construction of homes, both single and multifamily. Home prices have thus started to move up with market demand gaining momentum and supply remaining limited. In fact, rising home prices and thinning home inventories have created a sense of urgency among homebuyers who are now more anxious to buy a house before prices shoot up further.

Most homebuilding companies are resultantly witnessing a significant growth in both volumes and average selling prices (ASPs). New home orders, backlogs (number of homes under sales contracts at the end of the year) and homes delivered continue to climb year over year.

Moreover, improving homebuilding revenues combined with tight cost control and better overhead leverage (as volumes improve) are boosting margins for most homebuilders. Most homebuilders believe the housing momentum will continue into 2014.

The National Association of Home Builders/Wells Fargo Housing Market Index (:HMI), known as the homebuilder sentiment index, jumped 3 points to 59 in August from 56 in July. This was the fourth consecutive monthly increase in the index and was also the strongest increase in almost eight years. The jump in the index shows that the recent interest rate hikes have not dampened the housing recovery.

How Did the Big Players Perform This Quarter?

It was a mixed Q2 for the homebuilders. Among the big homebuilders Lennar Corp. (LEN-Free Report) and Meritage Homes Corp. (MTH-Free Report) beat the Zacks Consensus Estimate for both revenues and earnings. Both companies saw increasing demand and pricing in most housing markets despite rising interest rates.

While D.R. Horton, Inc. (DHI-Free Report) and The Ryland Group Inc. (RYL-Free Report) beat the Zacks Consensus Estimate for earnings on the back of pricing and margin gains, they missed expectations for revenue. Rising interest rates slowed down the order growth for DHI in the latter half of the quarter, which we believe hurt the top line.

PulteGroup, Inc. (PHM-Free Report) was the worst performer this quarter, missing the Zacks Consensus Estimate for both earnings and revenues due to declining net order growth.