Best of the Week
Most Popular
1.Election Forecast 2015 - Opinion Polls Trending Towards Conservative Outright Win - Nadeem_Walayat
2.UK Solar Eclipse - End Time Sign, Judgement Day, Doomsday! - Nadeem_Walayat
3.Gold And Silver - When Will Precious Metals Rally? Not In 2015 - Michael_Noonan
4.Preparing for the Next Stocks Bear Market - Forecast 2015-2016 - Gary_Savage
5.Is a Stock Market Crash Imminent? - David Eifrig
6.Gold Price Slumps as US Dollar Soars, What's Next? - Nadeem_Walayat
7.US Dollar Forex Pairs and Gold Chartology - Rambus_Chartology
8.Election Forecast 2015: The Day Labour Lost the General Election - Nadeem_Walayat
9.The ECB Should End QE Next Month - EconMatters
10.Silver Price Poised to Surge - Zeal_LLC
Last 5 days
Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - 31st Mar 15
Gold and Misery, Strange Bedfellows - 31st Mar 15
Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - 31st Mar 15
Don’t Celebrate the U.S. Housing Market Recovery Yet - 30th Mar 15
A Middle East Nuclear Holocaust - 30th Mar 15
Peak Gold? – Goldman Sachs Research Warns of Peak Gold Production - 30th Mar 15
With Yemen Burning, Arab Spring II Is Underway - 30th Mar 15
No FED Bets From the BIS - 30th Mar 15
Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - 30th Mar 15
Economic Recovery, Geopolitics and Detergents - 30th Mar 15
U.S. Dollar, Commodities and the Gold Miners GDXJ ETF Analysis - 30th Mar 15
Stock Market Short-term Downtrend - 30th Mar 15
David Cameron Election 2015 Debate Facts Check - Employment, Immigration, Debt & Deficit - 29th Mar 15
Stock Market About Ready to Crash! - 29th Mar 15
Reflections in a Golden Eye - Gold Market Rejection, Repatriation and Redemption - 28th Mar 15
Stock Market Inflection Point - 28th Mar 15
Gold And Silver - What Moved Price? Bab el-Mandeb And Uranus Square Pluto. What?! - 28th Mar 15
Stock Market Investment Parachutes; Do You Have Yours? - 28th Mar 15
Peak Gold Misunderstanding, is Gold About to Run Out? - 28th Mar 15
Deflation Watch: Key U.S. Economic Measures Turn South - 27th Mar 15
The Hard-Earned Truth About Recreational Real Estate - 27th Mar 15
Bitcoin Price Still in Important Territory - 27th Mar 15
Stocks Bear Market Conditions - Index Market Range Warning - 27th Mar 15
BEA Leaves Q4 2014 U.S. GDP Growth Essentially Unchanged at 2.22% - 27th Mar 15
Brazil Economy Victim of Vulgar Keynesianism - 27th Mar 15
Gold to Fuel Silver Price Upleg - 27th Mar 15
Gold and Silver Stocks Will Rise Again! - 27th Mar 15
Risk of ‘World War’ between NATO and Russia on Ukraine as Yemen Bombed - 27th Mar 15
FOMC Minutes Turned The Gold Tide - 27th Mar 15
Sheffield Hallam Election Battle 2015 - Lib Dems Go to War Whilst Labour Sleeps - 27th Mar 15
Gold Effect On Mining & Shale Wasteland - 27th Mar 15
How Stock Investors Should Play the 2016 Presidential Race - 26th Mar 15
MidEast Energy Alert: Why the Crisis in Yemen Could Get Ugly Very Fast - 26th Mar 15
Stock Market Downward Spiral of Dumbness - 26th Mar 15
The Monetary Approach Reigns Supreme - 26th Mar 15
Stock Market Large Gap Down, Despite the Algos' Push Back - 26th Mar 15
Crude Oil Surges, Gold price Spikes as Middle East Tensions Escalate - 26th Mar 15
The U.S. Housing Market Recovery Is Fabricated Optimism - 26th Mar 15
Why Yemen Is The Next Saudi-Iranian Battleground - 26th Mar 15
The Crude Oil Price Crash and China Economic Slow Down - 26th Mar 15
Global Financial Markets Are More Distorted Than Ever Before - 26th Mar 15
One More Stock Market Rally and Then a Huge Drop Expected - 26th Mar 15
Danger Will Robinson - Stock Market Crash Warning - 25th Mar 15
Learn the Basics of Corrective Elliott Waves - 25th Mar 15
Why CNBC Is Hazardous to Your Financial Health! - 25th Mar 15
Will Your Retirement Accounts Survive The Coming Tax Code "Revolution"? - 25th Mar 15
US Dollar - Americas Phoenix - 25th Mar 15
California’s Epic Drought: Only One Year of Water Left! - 25th Mar 15
What’s Wrong With Silver? - 25th Mar 15
SPX Futures Appear Weak. WTIC and Gold May Be at Max Retracement - 25th Mar 15
We’re at the Dawn of a “New Energy Age” - 25th Mar 15
A Very Weak U.S. Economic Recovery - 25th Mar 15
Zero UK CPI Inflation Rate Prompts Deflation Danger Propaganda For Fresh Money Printing - 25th Mar 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

US Economy Still on Life Support

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

© 2005-2015 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

Free Report - Financial Markets 2014