Home builders and investors both see signs of a turn

ByABC News
February 9, 2012, 8:11 PM

— -- Barb Jandric, the head of Minnesota's biggest real estate broker, hasn't seen the Minneapolis market boost sales without government aid in six years — until a narrow gain in 2011. Ryland Chief Executive Larry Nicholson hasn't seen a yearly profit since before the recession, but the home builder expects one this year, buoyed by a 31% increase in homes on order at year's end.

Enthusiasm about a housing rebound may be getting out of hand on Wall Street, where stock prices for home builders have jumped 20% to 134% since August even though housing starts are expected to rise just 15% to 20% this year.

But as Federal Reserve Chairman Ben Bernanke prepares for a major speech on housing Friday, talk is turning from when housing will hit bottom to whether it's time to buy housing stocks and count on the sector to propel the economy again.

The housing market still has big problems, from tight credit for all but government-backed loans to a glut of foreclosures expected to hit the market now that the nation's biggest mortgage servicers have reached a $25 billion settlement with state attorneys general and the federal government. On the other hand, prices are now below historical norms, relative to incomes and rents, in most of the nation, inventories of homes for sale are down and sales volumes began to pick up late in the year.

"It's beating on its own heartbeat now," said Jandric, president of Edina Realty in Edina, Minn. "Our big campaign for this year is to make sure home sellers understand things are different than a year ago. They don't know the market has been changing for the last six months."

The stock market was first to pick up the idea that the housing market is turning. Shares of Hovnanian Enterprises, a Red Bank, N.J.-based builder, have led the charge since summer. The caveat, though, is that the stock market has pushed builders' stocks higher in the fall and early winter for the last eight years in a row, leading to seven disappointments so far once the spring selling seasons failed to show hoped-for improvement, said Buck Horne, an analyst at Raymond James in St. Petersburg, Fla.

"We still see long-term issues that have to be solved before we get back to what we've always thought of as normal levels of housing construction," Horne said.

This year's gains will still leave construction at less than half its pre-recession pace, he said.

Better profits are beginning to turn around at big real estate companies. Berkshire Hathaway, which owns Edina Realty, said its Home Services of America unit, which owns 22 regional real estate brokerages around the country, saw revenue rise 12% in the third quarter as profit doubled to $22 million. Realogy, the franchiser that owns Coldwell Banker and Century 21, also reported that third-quarter sales rose. Both said sales in the first half of the year were below 2010, and neither has released fourth-quarter results yet.

Even builders, who lost up to 90% of their stock market value from 2005 through last year, are feeling better. CEOs such as PulteGroup's Richard Dugas said they expect to return to profitability this year. Attendance at the National Association of Home Builders' annual trade show in Orlando, which Bernanke will address on Friday, is up 10% this year, NAHB Chief Executive Officer Jerry Howard said.