Lennar Corporation (LEN), Hovnanian Enterprises, Inc. (HOV): Could Silicon Valley Cause a Housing Bubble?

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But Lennar’s performance has been hot even though the Florida housing market is not. Although based in Miami, Lennar operates in states like Arizona, Texas, and Georgia where home values are strengthening.

The company has been experiencing rising demand since 2012, thanks in large part to rising rental rates that make buying a new home a more attractive option. Home building has lagged the population growth in Lennar Corporation (NYSE:LEN)’s markets, which is driving the higher demand. There are land constraints, but Lennar has been scooping up land over the past couple of years which puts it in a desirable position.

Lennar Corporation (NYSE:LEN) had $1.1 billion in cash and cash equivalents at the end of 2012, and the company retired some $302 million in debt last year. It pays a dividend of $0.04 and it can repurchase up to 6.2 million shares under an existing share-repurchase program.

Off the fence

The Case-Shiller housing index, a gauge of home prices, advanced 12.2% in May, with some of the strongest showings coming from markets such as Atlanta, Las Vegas, and San Francisco. But Robert Shiller, according to a CNBC interview, doesn’t suspect that a bubble is forming and instead believes these conditions might continue for another year or so.

Another pervasive theme throughout housing is that buyers that have been on the sidelines about making a home purchase are getting off the fence. Mortgage rates have been inching higher since May, and so far it really hasn’t been a deterrent, housing executives say. Instead, buyers are jumping in before rates go even higher. So rising rates are actually helping housing activity, not hurting it.

The home builders all have a pretty good story to tell. Pipelines are full, margins are rising, and buyers haven’t shown signs of being deterred by rising mortgage rates. While I like all three of these home builders, Hovnanian might be the best. And that’s because it’s just now hitting its stride with plenty of upside ahead.

Gerelyn Terzo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Gerelyn is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Could Silicon Valley Cause a Housing Bubble? originally appeared on Fool.com and is written by Gerelyn Terzo.

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