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Homebuilders rise as market continues recovery

NEW YORK -- Shares of homebuilders climbed on Wednesday as recent data continues to point to signs that the housing market is making a sustained comeback.

Sales of new homes remained near a two-year high in August, the government said last week. And home prices rose nationwide in July compared with a year ago, according to the Standard & Poor's/Case-Shiller index. That was the second straight year-over-year gain.

Builder confidence is at a six-year high, and construction of single-family homes rose in August to the fastest annual rate in more than two years.

Home sales have been boosted by ultra-low mortgage rates. A limited supply of homes for sale also has helped drive prices up. Higher prices could entice more people to list their homes.

Will Randow of Citi Investment Research said in a client note that his private homebuilder survey shows that prices on new homes are beginning to rise, while incentives are on the decline. Still, the analyst said that price hikes and incentive reductions appeared to be modest in September.

"This month's survey shows continued gradual momentum in September despite the normal slowdown, which supports our view that 2011 was a trough period for new home sales and that we will gradually recover to mid-cycle new home sales levels in the coming years," Randow wrote.

In a separate note, the analyst lifted his price target for D.R. Horton to $25 from $19, saying the company has better operating leverage than its competitors, which puts it in a good position to generate above-average profit margins in a housing recovery.

Randow says D.R. Horton's cost control efforts will also help out the company once new home sales and prices return to normal and provide a good cushion in the event new housing activity starts to decline.

Randow kept a "Buy" rating for D.R. Horton Inc.

The company's stock gained $1.09, or 5.3 percent, to $21.80 in afternoon trading.

Elsewhere in the sector:

Lennar Corp. added $2.37, or 6.8 percent, to $37.36.

KB Home rose 86 cents, or 5.9 percent, to $15.35.

Toll Brothers Inc. climbed $1.45, or 4.3 percent, to $34.89.

Beazer Homes USA Inc. increased 21 cents, or 5.9 percent, to $3.75.

Hovnanian Enterprises Inc. added 29 cents, or 8.5 percent, to $3.72.

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