D.R. Horton, Inc. (DHI), Lennar Corporation (LEN), Toll Brothers Inc (TOL): 3 Home Builders and 3 Reasons You Should Buy Them

Add to historically low mortgage rates the dynamic of incredibly tight apartment supply and you get a significant incentive to shift from renting to buying. In Q1, REIS estimates apartment vacancies sank to just 4.3%. For comparison, the measure was 8% exiting 2009.

Home builder book values have been growing as the value of land climbs.

Why is book value important? Builders are relatively simple businesses. They buy land and build homes and book sales once they’re sold. If prices are increasing, the value of their assets helps show the true value of the assets on their balance sheet.

The growth in builder book value, combined with the recent share price drop, has made shares in these companies more attractive.

The price to book value at D.R. Horton, Inc. (NYSE:DHI) peaked in May at 2.3 and has since fallen to 1.9. At Lennar Corporation (NYSE:LEN), the measure has sunk from 2.4 to 2.0. And, the price-to-book ratio for Toll Brothers Inc (NYSE:TOL) peaked last fall at 2.2 and has since dropped to below 1.8.

Historically, you’ve been well served buying price-to-book values near 1 and selling price-to-book readings closer to 3. Since none of the three have price to book ratios near 3, it appears there’s more room to run.

Final word

Builders aren’t overbuilding and rates remain cheap based on home sales and mortgage rate history. This, combined with tight home supply and high rents, offers additional opportunity for builder revenue and profit growth.

But, is it the right time to take advantage of recent fears? While Fools shouldn’t buy and sell their holdings over and over, it can be helpful to consider seasonal cycles and their affect on share prices.

According to the Seasonal Investor database, all three company’s shares have historically been rewarded in the third quarter following late Q2 stumbles.

This suggests the industry wide sell-off in June was pretty much inline with prior years. While the past doesn’t guarantee the future, if trends play out as they have previously, now might be a good time to buy.

The article 3 Home Builders and 3 Reasons You Should Buy Them originally appeared on Fool.com.

Todd Campbell owns shares of D.R. Horton. The Motley Fool has no position in any of the stocks mentioned. Todd is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.