The combination of the housing bubble bursting and the worst credit crisis since the Great Depression has made 2008 an extremely difficult year for the home building industry. One would assume that the stocks of the large homebuilders would be faring equally poorly, but, somewhat astonishingly, they're doing quite well.

Home builder scorecard

Let's take a peek at a few of the largest home builders in the industry, and how their stocks have fared during 2008.

Surprisingly Strong Homebuilders
Company Dec. 5, 2008 Price Jan. 2, 2008 Price Gain (Loss)
Toll Brothers
$22.03 $19.55 +12.7%
D.R. Horton
$8.10 $12.50 (-35.2%)
$9.06 $16.62 (-45.5%)
$472.50 $515.05 (-8.3%)
Pulte Homes
$11.86 $10.32 +14.9%
Data as of market close December 5, 2008

As you can see, there's quite a wide variance between the best performer and the worst performer. Pulte Homes and Toll Brothers have performed quite well in 2008, NVR has remained fairly flat, while D.R. Horton and Lennar have seen their shares drop significantly.

Apples to Oranges?
Now, you might be thinking to yourself, "How can anyone say that home builders have performed well overall?" To understand the answer, we must compare these numbers to something. For this exercise, we will compare the home builder numbers to the S&P 500's performance in 2008, which lost nearly 40%.

Company Outperforming S&P by
Toll Brothers +52.7%
D.R. Horton +4.8%
Lennar (-5.5%)
NVR +31.7%
Pulte Homes +54.9%
Data as of market close December 5, 2008

Looking at the data this way and it becomes readily apparent that these stocks, with the exception of Lennar, have performed quite well; especially Toll and Pulte.

Let the Head Scratching Begin
If you're anything like me, you're probably wondering just how the top homebuilders - for the most part - have done so well given the current economic conditions. Perhaps I'm overly pessimistic, but I am fairly certain that 2009 will not be kind to home building stocks, or any stocks for that matter (but that's another matter for another day).

In November alone, the U.S. economy shed 533,000 jobs - the worst since 1974. According to the National Association of Realtors, 4.3 million previously occupied homes nationwide were listed for sale at the end of September. At the current sales rate, it would take 10 months to work through the inventory, a full 67% higher than the 6 months considered balanced. Furthermore, the restriction of credit has put a stranglehold on the industry, stifling any real demand for homes. (For related reading, see Economic Indicators Tutorial: Housing Starts.)

Although the homebuilders in this article have outperformed the broader S&P 500 index by a significant amount, 2009 is not shaping up to be a good year to own them. Of course, the government could step in and offer 4.5% 30-year fixed rate mortgages, but, as Alan Heavens of the Philadelphia Enquirer said in a recent article, "A 4.5% mortgage rate means nothing for a person without a job." I couldn't have said it better myself.

To learn more about the causes of the current crisis, be sure to read Why Housing Market Bubbles Pop.
Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  3. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  4. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  5. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  6. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  7. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  8. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  9. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  10. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
Trading Center