Best of the Week
Most Popular
1.U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - Nadeem_Walayat
2.The Coming U.S. Economic Collapse Will Trigger a Revolution - Harry_Dent
3. Stock Market Crash a Historical Pattern? - Wim_Grommen
4.Global Panic - U.S. Federal Government Stockpiling Ammo – Here’s What We’re Going to Do - Shah Gilani
5.AI, Robotics, and the Future of Jobs - Aaron Smith
6.This is Your Economic Recovery With and Without Drugs - James_Quinn
7.Gold and Silver Price Getting Set To Explode Higher - Austin_Galt
8.The Something for Nothing Society - Lifecycle of Bureaucracy - Ty_Andros
9.Another Interesting Stock Market Juncture - Tony_Caldaro
10.Inflation vs the Deflationary Straw Man - Gary_Tanashian
Last 5 days
The Ultimate Demise Of The Euro Union - 1st Sep 14
Palladium Price Breaks Multi-Year High Over $900 - 1st Sep 14
When Complexity Becomes Chaos - 1st Sep 14
Designer War By Default - 1st Sep 14
Islamic State or Russia? Ten Key Questions Towards Pragmatism - 1st Sep 14
Mixed Emotions for the Gold Market - 1st Sep 14
These Clowns Are Dragging Us Into War with Russia - 1st Sep 14
Marx And The Capitalist Cancer Of Overproduction - 1st Sep 14
Scottish Banks Salivating at the Prospects for an Independent Scotland of 6 Million Debt Slaves - 1st Sep 14
Small Man Europe Is Now In “Effective State Of War” With Russia - 31st Aug 14
The Unintended Blowback Of False Flags - 31st Aug 14
Tesco Supermarket Death Spiral Latest Profits Warning and Dividend Slashed - 31st Aug 14
Dow, Gold and Silver - A Last Stand, A Fake Out And A Surge - 31st Aug 14
If U.S. Consumers are so Confident Why aren't They Spending? - 31st Aug 14
Scotland Independence House Prices Crash, Deflationary Debt Death Spiral - 31st Aug 14
Obama’s “Catastrophic Defeat” in Ukraine - 30th Aug 14
Stock Market Inflection Point Approaching - 30th Aug 14
Gold And Silver - Elite's NWO Losing Traction. Expect More War - 30th Aug 14
Corporations Join Droves of Americans Renouncing US Citizenship - 30th Aug 14
Peter Schiff U.S. Housing Market, House Prices Bubble Warning - 30th Aug 14
Russia, Ukraine War - It’s Time to Play the “Gazprom Card” - 29th Aug 14
The One Tech Stock Investment You Should Never Sell - 29th Aug 14
Bitcoin Price $500 as Current Downside Barrier - 29th Aug 14
Don't Get Ruined by These 10 Popular Stock Market Investment Myths - 29th Aug 14
Low Cost Transcontinental Gold - 29th Aug 14
Gold Bullish Central Banks Should Give Money Directly To The People - Helicopter Janet? - 29th Aug 14
US House Prices Bull Market Over? Trend Forecast Video - 29th Aug 14
The Fed Meeting at Jackson Hole Exposed Yellen’s Greatest Weakness - 29th Aug 14
AAPL Apple Stock About To Get sMACked - 29th Aug 14
A History of Unlimited Money: Learn From It or Repeat Its Mistakes - 29th Aug 14
How You Can Play to Win When Market Makers Are Calling the Shots - 28th Aug 14
EU Gas Supply Is In Real And Imminent Danger - 28th Aug 14
Central Banks at the Root of Evil - 28th Aug 14
European Bond Market: Bubble of all Bubbles! - 28th Aug 14
Employers Aren’t Just Whining: The “Skills Gap” Is Real - 28th Aug 14
The ISIS Menace - Just What We Need, Another War - 27th Aug 14
The Risky Business of Methane-Rich “Fire Ice” - 27th Aug 14
CFR Recommends Policy Shift that is Very Bullish for Gold - 27th Aug 14
Ukraine Standoff Signals Global Power Shift - 27th Aug 14
Stock Market Panic Decline Begins - 27th Aug 14
The Monopoly of the Government Education Cartel - 27th Aug 14
How to Invest in Silver Today for Double-Digit Gains - 27th Aug 14
The Big Solar Energy Breakthrough We've Been Waiting For - 27th Aug 14
U.S. Empire’s Bumpy Ride - 27th Aug 14
Gold Market and the Interest Rate Trap - 27th Aug 14
Stock Market Staring Into the Great Abyss - 27th Aug 14
A Look at the Coming 30-year Inflation Cycle - 27th Aug 14
Forex Trading - Will USD/CHF Rally Above 0.9200? - 27th Aug 14
Europe’s Depressing Economy Dog Days of Summer - 27th Aug 14
How The Coming Silver Price Bubble Will Develop - 26th Aug 14
A Nation of Shopkeepers - Supply-Side (Voodoo) Economics? - 26th Aug 14
Stock Market Bear Tracks Abound In Wall Street - 26th Aug 14
65,000 U.S. Marines Hold up a Mirror to the Economy - 26th Aug 14
Bitcoin Market Provides Clues for Investors - 26th Aug 14
The Key to Trading Success - 26th Aug 14
Will The US Succeed in Breaking Russia to Maintain Dollar Hegemony?... - 26th Aug 14
Even Mainstream Academia Worried about Massive Bubbles in Markets - 26th Aug 14
Iraq and Syria Follow Lebanon's Precedent - 26th Aug 14
Colonization by Bankruptcy: The High-stakes Chess Match for Argentina - 26th Aug 14
Dow Stock Index On The Cusp - 26th Aug 14
Prohibition Laws and Agency Regulations - 26th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

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

© 2005-2014 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