MDC has announced that its home building subsidiary, Richmond American Homes of Florida, closed its purchase of The Oaks at Boca Raton. The project is set to start in the fourth quarter of 2013, and revenue should growth significantly. According to Florida Realtors, sales of single-family homes increased 10% for the first quarter of 2013 on a year-over-year basis. The strong demand for houses in the region should propel MDC’s earnings higher.
In addition, M.D.C. Holdings, Inc. (NYSE:MDC) has announced its entry into the Orlando, FL, market by the purchase of Brynmar and Bella Lago. These projects are scheduled for grand opening in the second quarter of 2013. The presence of MDC in Florida will be beneficial since the demand for new homes in the state is strong.
Market outlook
The housing market outlook looks favorable for investors to own building companies. Sales of existing houses have increased for 20 straight months on a yearly basis. Also, total sales rose 0.8% in February to a seasonally adjusted annual rate of 4.8 million. Sales in the southern region of the United States rose 2.6% in February, where Meritage Homes Corp (NYSE:MTH) has a strong presence.
According to United States official data, the national median home prices increased from $170,600 in January 2012 to $173,600 in January 2013. Further, a recent study by Urban Land Institute and Ernst & Young expects home prices to rise by 6% in 2013, 5.3% in 2014, and 5% in 2015. This should further increase home builders’ revenue.
Bankers also believe that the housing market will improve in 2013. According to a survey, 83% of the bankers believe that the level of mortgage delinquencies will decrease or stay the same, a significant improvement over the last quarter. Further, most respondents believe that home prices are rising at a sustainable pace.
Also, it is estimated that the U.S. needs 1.6 million new houses per year to meet the demand from population growth. By 2009, the number of new houses was 554,000, while 945,000 new houses are expected in this year.
Lastly, I believe that the housing market should see solid gains due to steady job growth and improved consumer confidence.
Conclusion
The housing market seems to be improving with the overall economy, and I believe investing in building companies would be a good choice. So far, we have stacked all possible odds in our favor, overall improved economy, declining unemployment rate, increased consumer confidence, strong demand for new homes, and rising home prices. These companies offer excellent investment prospects and the stocks may be bought as a basket to gain exposure to the housing industry.
The article These Builders Look Appealing for Your Growth Portfolio originally appeared on Fool.com and is written by Robinson Roacho.
Robinson Roacho has no position in any stocks mentioned. The Motley Fool recommends Meritage Homes. Robinson is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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