Homebuilder Lennar Corp (NYSE:LEN) reported 2011 fourth quarter earnings per share (EPS) of 16 cents compared with EPS of 17 cents in the year ago quarter. Revenues of roughly $952 million were up 11% quarter over quarter. While the quarter highlighted several improvements for one of the nation's largest homebuilders, the market was most pleased with what it said about the future. (For related reading, see How Interest Rates Affect The Housing Market.)

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Climbing from the Bottom
Shares jumped over 7% on the earnings news as a result of some positive developments. New orders were up 20% while its backlog grew by 35%, respectively. The fact that the housing industry has been scrapping the bottom makes it easier to report good growth numbers, and the company is the nation's third largest homebuilder by revenue, after PulteGroup (NYSE:PHM) and D.R. Horton (NYSE:DHI). The outlook provides good insight into the housing industry though. There is an initial indication that the housing market may finally show signs of stabilization in 2012. Record low interest rates coupled with very attractive real estate prices are giving first timers a golden opportunity to capture tremendous value in the buying process today. Indeed, housing starts for November 2011 climbed to a 19 month high along with improved builder confidence. A favorable outlook sent shares up $1.49 to trade above $22, the highest share price in over four years. (For more information, read Economic Indicators: Housing Starts.)

Not so Fast
Not surprisingly, markets have been anticipating favorable news from the housing industry and has already treated it favorably. The SPDR Homebuilder ETF (ARCA:XHB) is up over 9% already in 2012 compared with around 3% for the S&P 500. It's foolish to think that the housing industry is headed for a full recovery yet with unemployment still high. But the market won't wait for a recovery to occur to push share prices. Still, it will take more than one company's favorable outlook to convince investors these days. First, the market will want to see some similar news from PulteGroup and D.R. Horton as they are the nation's top two homebuilders. KB Homes (NYSE:KBH) and Toll Brothers (NYSE:TOL) are two more quality builders that the market will want to see good news order numbers from as well.

The Bottom Line
It will be a long time before housing starts approaching the levels from 2005 and 2006, if ever. But even a slow and steady housing start growth in 2012 will go a long way in helping to heal the industry and the economy as a whole. Banks are finally making good loans for the right reasons. This year could finally be the beginning of a slow but much needed recovery in housing. (For additional information, read Remodeling The Housing Finance Industry.)

Use the Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    Why ETFs Are a Smart Investment Choice for Millennials

    Exchange-traded funds offer an investment alternative to cost-conscious millennials who want to diversify their portfolios with less risk.
  2. Stock Analysis

    Will J.C. Penney Come Back in 2016? (JCP)

    J.C. Penney is without a doubt turning itself around, but that doesn't guarantee the stock will respond immediately.
  3. Mutual Funds & ETFs

    Should Investors Take a BITE Out of This New ETF?

    ETF BITE offers a full menu of restaurants. Is now the right time to invest?
  4. Financial Advisors

    5 Things All Financial Advisors Should Know About ETFs

    Discover five things all financial advisors should know about ETFs, including when ETFs may be a better choice for your clients than mutual funds.
  5. Stock Analysis

    The Top 5 ETFs to Track the Nasdaq in 2016

    Check out five ETFs tracking the NASDAQ that investors should consider heading into 2016, including the famous PowerShares QQQ Trust.
  6. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  7. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  8. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  9. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  10. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>

You May Also Like

Trading Center