Best of the Week
Most Popular
1.Gold Price Trend Forecast, Where are the Gold Traders? - Bob_Loukas
2.Stocks Bear Market of 2017 Begins? Shorting the Dow At its Peak! - Nadeem_Walayat
3.Betting on President Trump Leaving Office Early, Presidency End Date - Betfair Market - Nadeem_Walayat
4.Why Stock Market Analysts Will be Wrong About 2017 - Clif_Droke
5.Is This The Best Way For Investors To Play The Electric Car Boom - OilPrice_Com
6.Silver Price 2017 Trend Forecast Update - Video - Nadeem_Walayat
7.Gold Price Set For Very Bullish 2017, Trend Forecast - Austin_Galt
8.10 Things I learned From Meetings With Trump’s Transition Team - - John_Mauldin
9.How Investors Can Profit From Trumps Military Ambitions - OilPrice_Com
10.Channel 4 War on 'Fake News', Forgets Own Alt Reality Propaganda Broadcasting - Nadeem_Walayat
Last 7 days
The Best Reasons to Buy Gold in the Age of Trump - 22nd Feb 17
Silver, The Return of Stagflation - 22nd Feb 17
Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - 22nd Feb 17
Gold: Short End US Rates Matter More Than Long End Real Yields - 22nd Feb 17
CONTINENTAL RESOURCES: Example Of What Is Horribly Wrong With The U.S. Shale Oil Industry - 22nd Feb 17
Here’s Proof Rising Rates Are Good for Gold - 21st Feb 17
Gold and Silver Weekly Update - 21st Feb 17
US Dollar and Gold Battle of the Cycles - 21st Feb 17
NSA and CIA is the Enemy of the People - 21st Feb 17
Big Moves in the World Stock Markets - Big Bases - 21st Feb 17
Stock Market Uptrend Continues - 21st Feb 17
Brent Crude Oil Price Technical Update: Low Volatility Leads to High Volatility - 20th Feb 17
Trump’s Tax System Could Spark The Wave Of Self-Employment - 20th Feb 17
Here’s How to Stay Ahead of Machines and AI - 20th Feb 17
Warning Signs Of Instability In Russia - 20th Feb 17
Warning: This Energy Investment Could Wreak Havoc On Your Portfolio - 20th Feb 17
The Mother of All Financial Bubbles will be Unimaginably Destructive when it Bursts - 19th Feb 17
Gold’s Fundamentals Strengthen - 18th Feb 17
The Flynn Fiascom, the Trump Revolution Ends in a Whimper - 18th Feb 17
Not Nearly Enough Economic Growth To Keep Growing - 18th Feb 17
SPX Stocks Bull Market Continues to make New Highs - 18th Feb 17
China Disaster to Trigger Gold Run, Trump to Appoint 5 of 7 Fed Governors - 18th Feb 17
Gold Stock Volume Divergence - 17th Feb 17
Gold, Silver, US Dollar Cycles - 17th Feb 17
Inflation Spikes in 2017, Supporting Gold Prices Despite Increased Odds of March Rate Hike - 17th Feb 17
Roses Are Red... and So's Been EURUSD's Trend - 17th Feb 17
Gold Trade Note Sighted - 17th Feb 17
Gold Is Undervalued Say Leading Fund Managers - 17th Feb 17
NSA, CIA, FBI, Media Establishment 'Deep State' War Against Emerging 'Trump State' - 16th Feb 17
Silver, Gold Stocks and Remembering the Genius of Hunter S. Thompson - 16th Feb 17
Maps That Show The US’ Strategy In Asia-Pacific - 15th Feb 17
The Trump Stock Market Rally Is Just Getting Started! - 15th Feb 17
Tesco Crisis - Fake Prices, Brexit Inflation Tsunami to Send Food Prices Soaring 10% 2017 - 15th Feb 17
Stock Market Indexes Appear Ready to Roll Over - 15th Feb 17
Gold Bull Market? Or was 2016 Just a Gold Bug Mirage? - 15th Feb 17
Here’s How Germany Buys Time From China - 15th Feb 17
The Stock Trader’s Actionable Guide to Trump - 15th Feb 17
Trump A New Jacksonian Era? The Fourth Turning (2) - 14th Feb 17
Stock Market Yet Another Wall Street 'Witch's Brew' - 14th Feb 17
This Is Why You Don’t Own A Lot Of Stocks - 14th Feb 17
Proposed Tax Reforms Face Enormous Headwinds - 14th Feb 17

Market Oracle FREE Newsletter

State of Global Markets 2017 - Report

Sign of Another U.S. Housing Market Bubble?

Housing-Market / US Housing May 13, 2013 - 10:52 AM GMT

By: Money_Morning

Housing-Market

All you have to do is look at a price chart of Lennar Corp (NYSE: LEN) to see the proof that the U.S. housing market is on the mend.

Since January 2012, shares of the Miami, Fl.-based new homebuilder have more than doubled.


In fact, since the industry nearly collapsed six years ago, new-home construction for builders like Lennar is now clearly on an upswing.

According to the March 2013 report from the U.S. Commerce Department, new home construction was on pace for more than one million units for the first time since the gaudy days of June 2008.

Much of this home-buying fervor can be attributed to a few important points:

1. A pent-up demand that has built up over the last six years,

2. Low inventories,

3. And an outrageously low interest rate environment thanks to the Federal Reserve.

The question now is whether or not the "Housing Bubble 2.0" still has legs, making Lennar Corp. a smart new buy with plenty of room to run.

Is Lennar Still a Buy?

Of course, evaluating Lennar on its own merits is a fine exercise in due-diligence.

The numbers alone tell us that the third largest U.S. homebuilder has righted its ship from its downward spiral back in 2007-08 and is now posting strong--and getting even stronger-- financials.

In the most recently reported quarter, Lennar's revenue increased 36% t0 $990 million, up from last year's quarter of $725 million. Also during the quarter the company was able to increase earnings to $57.5 million, or 26 cents per share, compared $15 million, or 8 cents from the previous year.

However, there is a caveat to the increased earnings. Lennar's results included the reversal of a $25 million deferred-tax asset, without which analysts believe the earnings per share amount would have still been a very impressive 15 cents for the quarter.

Another big positive for Lennar, is that it has 34% (4,055) more homes on back order than it had last year.

The average selling price of a home also jumped from $246,000 to $269,000 in the same period a year ago. This translates to gross margins increasing to 22.1% from 20.9%.

Lennar is also continuing to increase its market share by purchasing additional lots. These lots are getting harder and harder to come by, but the company did spend over $500 million on land purchases in the first quarter and is focusing on buying further lots on which to build future homes.

So Lennar's financials look extraordinary and the company seems to be doing all the appropriate things in preparation for the continued housing demand.

However, does the ball keep on rolling? Or is housing about due for another tumble since the foundation it is built upon is made of FED-created dollars?

That's why there's more to this story since so much of it rides on what is in store for the U.S. economy.

Ask yourself, who is buying these new homes - especially if the banks aren't lending? With household wages stagnant and unemployment at highs, - where are the new buyers coming from?

For that matter, where are the first-time buyers or the trade-up buyers?

Yes, prices are moving higher but a lot of the new homes are being bought by foreign buyers or those with enough cash to bypass the mortgage market.

This type of buyer falls under the classification of "fast money" and history suggests "fast money" will be gone as fast as it came.

But whether it's fast money, first time buyers or trade-up buyers who are driving Lennar's increasing top and bottom line, the company's continued success ultimately depends on continued increases in home prices, coupled with the FED's easy money policy, in order to maintain momentum.

As long as home prices continue to rise, the company will benefit from higher collateral and ever-increasing borrowing power. But if home prices stagnate, the company's increasing build out will be hampered.

Also, if interest rates rise the company will face significantly higher cost of capital, which will pinch margins. Worse yet, if home prices stagnate and interest rates rise, together, the company could be facing some serious headwinds.

Lennar's Shaky Foundation

With "Housing Bubble 2.0" assuredly on the horizon, I wouldn't want to be a holder when the inevitable day arrives.

But how far off into the horizon before that day comes is anybody's guess.

As mentioned above, Lennar's share price has more than doubled in the last 18 months. With freshly printed money being thrust into the economy there is still room for upside in Lennar's share price.

In fact, I could even envision a scenario where even after the Fed decides to begin raising interest rates home prices could still go higher as a new mini-wave of buyers chooses to lock-in the lower rate before even further increases make home purchasing undesirable.

All the above-listed scenarios and possible eventualities make it impossible for me to properly time and offer a semi-accurate recommendation on the direction of Lennar's share price.

Even brilliant economists and mathematicians are struggling to piece this together - and I don't want any part of it. So I'd be a SELLER of Lennar and look for opportunities in other sectors where I don't have to be directly subjugated to the whims of the Fed.

[Editor's Note: If you have a stock you would like to see us analyze in a future issue, leave us a note in the comments below and we'll add it to our list.]

About the Author: David Mamos brings nearly 15 years of analytical experience to the table with a background ranging from big-picture fundamental analysis to highly technical trading decisions. He began his career working as a financial advisor with Royal Alliance in 2001 and helped clients with portfolio management as well as buy-sell decisions before transitioning to the development, implementation and execution of trading strategies for aggressive investors.

Source :http://moneymorning.com/2013/05/13/buy-sell-or-hold-is-l...

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife