Lennar Corporation (LEN), The Ryland Group, Inc. (RYL): Home Builders Rise as Housing Recovery Presses On

Several news sources recently reported that the confidence of US home builders surged in June – a signal that the housing market recovery is gaining ground.

A consensus of home builders believe conditions for new construction are favorable for the first time since the housing market tanked seven long years ago. This green shoot of optimism was recently reported by the National Association of Home Builders/Wells Fargo Housing Market Index.

Home Builders Confidence is Robust

Leading home builders note that home prices are rising and the inventory of homes for sale is tightening. Combined with a slowdown in foreclosures, these factors are boosting the housing market. The spike in confidence was said to be “surprisingly robust,” according to a recent Reuters report.

In sum, the housing market index spiked to 52, up from 44 in the previous month, and this beat many analysts’ forecasts. Readings above 50 mean a consensus of builders believe market conditions are favorable rather than poor. The confidence metric is up by 23 points from the same period in 2012.

Other Factors Could Curb Housing Market Enthusiasm

While the confidence report is a good indicator for share prices, there has also been a recent spike in interest rates. Some market observers are concerned that the Federal Reserve may start to unwind its standing monetary policy of quantitative easing, and rising rates will push prices higher. Some analysts argue this could slow down the housing market recovery.

Further, while foreclosure rates have slowed, lenders still have inventories of foreclosed properties to bring to the market. And if these distressed properties go up for sale, the demand for new homes will be challenged.

In the meantime, the confidence report and nascent housing recovery have boosted share prices of US home builders like Lennar Corporation (NYSE:LEN), The Ryland Group, Inc. (NYSE:RYL), and Toll Brothers Inc (NYSE:TOL).

Lennar’s Solid Second Quarter

Lennar Corporation (NYSE:LEN) is one of the nation’s home building leaders. In particular, the company builds single family dwellings designed for the first time home buyer.

Lennar Corporation (NYSE:LEN) recently posted solid second quarter results highlighted by adjusted earnings of 43 cents per share, which beat the consensus of analysts by about a dime. The big news is that earnings were up 105% from the same period in 2012. This was due to solid growth in home building revenues and pricing margins – indicators the housing market is in a nascent recovery regardless of the recent concerns over rising interest rates.