Home-Builder Stocks: Not As Good As You Think?

Home prices are jumping and just registered the largest increase in seven years. Warren Buffet is reportedly buying real estate, having touted it earlier this year, and SmartMoney is calling real estate “a beacon of relative strength in an otherwise weak economy.” It outlines the best way to play a real estate recovery, from home building stocks to REITs to owning property.

This sounds great, just the shot in the arm this crummy economy needs. But before you throw your savings into KB Home (KBH) and Lennar (LEN), this may not be as good as the headlines imply.

It’s possible this price jump is a spurt produced by kinks in the real estate hose. Because prices are low, people are renting out their places instead of selling them -– helped because all those people who have been forced into renting are driving up rental prices. If prices rise a tad, today’s landlords may change course and dump their homes on the market. Meanwhile three million properties still haven’t even hit foreclosure.

And unemployment, while falling, is still high. That makes it hard or nerve-wracking for many to buy.

US Unemployment Rate Chart

US Unemployment Rate data by YCharts

Investors love to call an end of the housing rout, as YCharts’ Dee Gill discussed here. But some have been burned before by the ups and downs of Pulte (PHM), D.R. Horton (DHI), Ryland (RYL), Lennar and Toll Brothers (TOL).

PHM Chart

PHM data by YCharts

The most recent housing numbers may, in retrospect, look prescient. But they may just as easily end up looking somewhere between misleading and meaningless.

From the editors of YCharts.YCharts Pro Investor Service includes professional stock charts, stock ratings and portfolio strategies.



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