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Tickers in this Article: TOL, DHI, CTX, PHM
The financial crisis has wreaked havoc in the real estate market and the prices of stocks involved in this market, and many are wondering if real estate prices are starting to show the early signs of forming a bottom. While the future of the sector is uncertain, many are looking for a stabilization of the real estate market in order for an economic recovery to take shape. Recent Evidence of a Bottom
Recent evidence of this occurred when new home sales hit a record low in January, climbed in February and were flat in March. During the month of March, inventories of new homes dropped by a surprising 5% from February levels. In addition, the builder confidence index jumped by the largest amount in five years, as many first-time home buyers are taking advantage of the $8,000 tax credit that was passed in February. This suggests that the huge declines that we've seen since 2007, in both new home sales and builders confidence, has started to show signs of stability, possibly signaling that the real estate market is starting to overcome the huge amounts of inventories as well as falling prices.

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Toll Brothers (NYSE:TOL) reported a better than expected net loss, for the first quarter, of 55 cents per share. This is compared to the first quarter of 2008, where the company reported a loss of 61 cents per share. In addition, the company's balance sheet has improved, with an increase in the amount of cash available to them at $1.53 billion in the first quarter 2009 compared with $956.6 million in the first quarter 2008. As Robert Toll, the company's chairman and CEO, commented recently, "Ironically, now is a very good time to buy a home. With the decline in home prices and historically low mortgage rates, home price affordability is at an all-time high, according to the National Association of Realtors. As a result, in many markets, inventory is starting to be absorbed by bargain hunters." This shows that, while the company is still facing many challenges, we are seeing better-than-expected numbers when you compare year-over-year earnings per share. (For further reading, see Add Some Real Estate To Your Portfolio.)

D.R. Horton (NYSE:DHI) reported improving first quarter 2009 earnings in comparison to the first quarter 2008. The company reported a net loss for the quarter ending December 31, 2008 of 20 cents, compared to the first quarter 2008, where it reported a loss of 41 cents per share. The number of unsold homes in inventory dropped from 8,138-4,066 in the last year. What these two facts show is that the year over year numbers for D.R. Horton are improving, and the number of unsold homes in its inventory is starting to drop, again, hinting towards a bottom.

Centex (NYSE:CTX) reported improved earning for the third quarter, despite the net loss of $5.34 per diluted share, or $664 million, in comparison with the loss from the same quarter from the previous year of $7.95 per diluted share, or $976 million. As chairman and CEO Timothy Eller said, "We ended the quarter with a strong cash position of $1.47 billion, and anticipate generating positive operating cash flow in the fourth quarter and for fiscal year 2010. Also, we continued to move with urgency to reduce our cost structure, accelerating overhead reductions and further reducing land-related spending." What this is saying is that the company is starting to see improving results as far as year-over-year losses are concerned, and that the company will be profitable again by the fourth quarter of fiscal year 2010. (For more, see Can Real Estate Stabilize Your Portfolio?)

Pulte Homes (NYSE:PHM) reported improving earnings results for the fourth quarter 2008, in comparison with the previous year. For the fourth quarter, the company reported a loss of $1.33 per share, or $332.8 million, in comparison with the loss from a year earlier of $3.46 per share, or $874.7 million. These numbers indicate that, while the company is still facing many challenges, its earnings results are dramatically improving when compared it to the previous year's numbers.

The Bottom Line
While no one knows for sure what the future will bring, one thing is clear: the real estate market is starting to show signs of a bottom. Recent evidence of this includes an increase in the number of new homes sold, a drop in inventories, improving confidence among the builders and improving earnings results of the major home builders, when you compare the current earnings to the year-earlier period. As time goes by, it would not be surprising to see these earnings results continue to consistently improve. (For more, see Five Things Every Real Estate Investor Should Know.)

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