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

    ETF Analysis: iShares US Basic Materials

    Learn about the iShares US Basic Materials exchange-traded fund, which invests in the equities of chemicals, metals and industrial gas companies.
  2. Mutual Funds & ETFs

    ETF Analysis: Ultra Oil & Gas

    Find out more about the ProShares Ultra Oil & Gas exchange-traded fund, the characteristics of the ETF and the suitability and recommendations for the fund.
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares DB Commodity Tracking

    Find out about the PowerShares DB Commodity Tracking ETF, and explore a detailed analysis of the fund that tracks 14 distinct commodities using futures contracts.
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  5. Mutual Funds & ETFs

    Comparing ETFs Vs. Mutual Funds For Tax Efficiency

    Explore a comparison of mutual funds and exchange-traded funds, or ETFs, and learn what makes ETFs a significantly more tax-efficient investment.
  6. Mutual Funds & ETFs

    ETF Analysis: Vanguard Small-Cap Value

    Find out about the Vanguard Small-Cap Value ETF, and explore detailed analysis of its characteristics, suitability, recommendations and historical statistics.
  7. Mutual Funds & ETFs

    ETF Analysis: Vanguard Intermediate-Term Corp Bd

    Learn about the Vanguard Intermediate-Term Corporate Bond ETF, and explore detailed analysis of the fund's characteristics, risks and historical statistics.
  8. Insurance

    Whole or Term Life Insurance: Which Is Better?

    Learn the difference between term life insurance and whole life insurance. Understand when it is beneficial to buy each type of life insurance.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares 10-20 Year Treasury Bond

    Learn about the iShares 1-20 Year Treasury Bond ETF and its holdings, and understand why investors may be better served to look at other bond funds.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares Global Telecom

    Learn about the iShares Global Telecom exchange-traded fund, which invests in U.S. and foreign telecommunication companies with high dividend yields.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  6. Lion economies

    A nickname given to Africa's growing economies.
RELATED FAQS
  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. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  5. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  6. 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 >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!