D.R. Horton, Inc. (DHI), The Home Depot, Inc. (HD): A Solid Bet For the Increase In Demand For Housing

Is the housing market really rebounding? Many think so, and the numbers seem to be pointing towards a “yes.” According to Gus Faucher, a senior economist at PNC Financial Services (NYSE:PNC):

“The fact that single-family starts are up is very encouraging, it is more important to the economy in terms of employment and growth… The housing market recovery is continuing and will be an important contributor to economic growth. Permits look very solid, and that is a great sign.”

In January, ground was broken on the most U.S. single-family homes in more than four years, with work beginning on 613,000 single-family houses at an annual rate– the most since July 2008.

The homebuilders

In the same month of January, builders issued over $2 billion in debt and equity. $6.3 billion of debt was issued in total last year– the most in recorded history.  D.R. Horton, Inc. (NYSE:DHI), the nation’s largest homebuilder by volume, reported a 139% increase in net income at the end of their most recent quarter, with homebuilders revenue rising 39% year-over-year. The company’s Chairman of the Board, Donald R Horton chimed in by saying that:

“This quarter was our most profitable first quarter since 2007, with $107.9 million of pre-tax income, a 270% increase from the year-ago quarter. We experienced substantial increases in the number of homes sold, closed and in backlog compared to the year-ago quarter. At the same time, our average sales price has increased due to pricing power, geographic mix and larger average home size. As a result, we achieved dollar value increases in homes sold of 60%, homes closed of 38% and backlog of 80%.”

Mr. Horton also cited increasing demand and his company being “the best positioned it has been in its 35 year history”. The company seems bullish on homebuilding due to demand, but is this demand really there? Or should we be a little more skeptical, like Joel Shine, chief executive officer of Woodside Homes, who said that he “hope[s] the housing market is as good as the capital market seems to think it is,” explaining that “Right now, housing is the pretty girl at the bar.”

Demand is picking up

The demand  is increasing, and this demand may even be sustainable as long as there are more buyers than sellers. Home prices seem to be rising, primarily due to low supply. The number of available homes for sale fell to a 13 month low in January according to the Wall Street Journal, and Greg McBride, senior financial analyst at Bankrate.com, claimed that, “On a national scale, the market is clearly rebounding… It’s not that the prices are crazy, but the buyers outnumber the available homes for sale.”