PulteGroup, Inc. (PHM), D.R. Horton, Inc. (DHI), Lennar Corporation (LEN): Housing Construction on the Rise

Now, as the economy recovers and the unemployment rate falls, US households are adopting better living standards. The improvement has led to an increased demand for new homes in the US.

Conclusion and caution

Although these are positive signs for the housing industry as a whole, the pace of recovery for single family homes is likely to be slow in the coming years. Low single digit economic growth and minimal improvements are expected in employment levels. Although the American dream seems to have gained traction in the last three to four quarters, households currently exhibit a tendency towards multi-family apartments over the much more expensive single family homes. This is evident from the high demand for multi-family apartments as well as the recent increase in investment in this particular sector of the housing industry. I believe that the single family housing demand will increase in the long term and move closer to the pre-crisis level. Thus, the residential construction industry will generate moderate returns in the short run, but in the long run these companies are expected to outperform other segments within the housing sector. Amongst the peers analyzed, I strongly believe that D.R. Horton, Inc. (NYSE:DHI) will generate superior returns for investors in terms of both dividends and price appreciation. The company has and will continue to operate at superior margins. In the light of higher revenue growth and lower debt level, the future of the company looks very promising. Hence, I will give a buy recommendation for D.R. Horton, Inc. (NYSE:DHI).

The article Housing Construction on the Rise originally appeared on Fool.com and is written by usman iftikhar.

usman iftikhar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. usman 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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