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Goldman Sachs Buying Homebuilding Industry; Index Rating Raised

July 23, 2012 Leave a comment
Construction workers build new homes at a new housing development on August 16, 2011 in Petaluma, California. The Commerce Department reported that new home construction fell in July with homebuilders beginning construction on a seasonally adjusted 604,000 homes for the month, a 1.5 percent decline from June.
— Photo Courtesy of http://www.zimbio.com —

Goldman Sachs is raising ratings on the homebuilding industry as they are finding that  U.S. homebuilders are very attractive investment at this point.   Goldman projects that the housing market is beginning it’s strong recovery that will drive surge in new home sales as stated in a reported today by Goldman Sachs Group Inc.

“The super cyclical housing market has turned and a strong recovery in new-home sales is ahead,” the Goldman Sachs analysts wrote. “Over the last year a number of risks to the housing market have abated, giving us confidence that rising home prices will drive a 3-7 year up-cycle in the U.S. market.”

New houses sold at a pace of 369,000 in May, the highest rate since 2010, the Commerce Department reported last month.

Goldman Sachs analysts Joshua Pollard and Anto Savarirajan  make a case that  Investors “have yet to grasp the significant decline in shadow inventory,” as the supply of homes for sale has fallen to six months from 10 months in the past two years.

Shadow inventory, or the homes projected to hit the market through foreclosures and short sales, is down 15 percent in Arizona, California, Florida, Nevada and Texas, while growth in building permits indicates a 34 percent increase in demand in those states, they said.

“Investors are quickly swallowing new foreclosure supply, limiting shadow inventory and creating a floor for home prices,” Pollard and Savarirajan wrote. “We expect any further decline in inventory to serve as a platform for price appreciation, further aiding sales.”

Pollard and Savarirajan added to their  buy list   MDC Holdings Inc. and KB Homes and maintained buy on Pultegroup and Toll brothers.

The 13-member Bloomberg Industries homebuilder index reversed earlier losses and increased 1.1 percent. The measure has rallied 55 percent this year, compared with a 7.4 percent gain in the Standard & Poor’s 500 Index.

Additional Reading:

Retooling the U.S. Housing Industry: How It Got Here, Why It’s Broken, How To Fix It

Campaign 2012: Twelve Independent Ideas for Improving American Public Policy

Cash Flow Notes 2012

Categories: Economy, Real Estate Tags: , , , , , ,