Shares of home builders rose on Wednesday as data continues to indicate that the housing market is well on the road to recovery. Last week, the government said that new home sales hovered near the two-year high in August. According to the Standard & Poor’s Case-Shiller Index, in July, nationwide home prices rose in comparison with last year. This was the second consecutive year on year gain.
While builder confidence is at a six-year high, single family home constructions in August rose by the fastest annual rate in more than two years. One reason for the increasing number of home sales is the substantially lower mortgage rates. And the reason for rising prices is that the number of homes available for sale is limited. However, this is likely to change as prices get better, as more people will then come forward to list their homes.
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In his note to clients, Citi Investment Research analyst Will Randow has said that his survey indicates that new home prices are on the rise while the number of incentives is falling. However, price rise and reduction in incentives in September are modest, he has said.
“This month's survey shows continued gradual momentum in September despite the normal slowdown, which supports our view that 2011 was a trough period for new home sales and that we will gradually recover to mid-cycle new home sales levels in the coming years," Randow has written in his note.
The same analyst has also raised the price target for D.R. Horton from $19 to $25, and kept a ‘Buy’ rating, as he feels that the company is in a better position to generate above-average profit margins. He also feels that its efforts at cost control will stand it in good stead were the housing market to stumble again.
The stock was changing hands at $21.80 in afternoon trading, gaining $1.09 or 5.3 percent.
Lennar Corporation(NYSE:LEN) soared 6.92% to $37.41, The Ryland Group, Inc.(NYSE:RYL) added 5.60%, Standard Pacific Corp.(NYSE:SPF) soared 9.13%, KB Home(NYSE:KBH) added 6.07%, Hovnanian Enterprises, Inc.(NYSE:HOV) was the biggest gainer and soared 12.24% and D.R. Horton, Inc.(NYSE:DHI) added 6.18%.