SAN FRANCISCO (MarketWatch) � There was a burst of enthusiasm for home-builder stocks Wednesday, unleashed by a burst of optimism from within the hard-pressed industry itself.
The National Association of Home Builders/Wells Fargo housing market index surged 4 points to 22 this month. Read about the January home-builder index.
While still pathetically low, the index hasn�t been this high since 2007. It�s also its fourth straight monthly advance, which has folks wondering whether the sector is finally on the mend.
/quotes/zigman/232035/quotes/nls/len LEN 26.04, -0.25, -0.95% Lennar stock on a roll.
Given the industry�s near-death experience during the 2008 mortgage crisis, anything more than a faint pulse looks like major progress. So today�s report got lots of attention. Shares of industry stalwart Lennar Corp. LEN � shares rose 4% on the report. PulteGroup Inc. PHM � shares jumped nearly 6%.
These moves are not a one-time reflexive twitch. Since the start of the year, Lennar shares are up 17%. Pulte�s are up 26%.
There�s plenty of data stoking home-builder stocks. Consumer confidence is up. See story on consumer sentiment.
Banks are lending money again.
Interest rates remain near historic lows. See story on mortgage rates.
And after several years of taking in out-of-work kids and foreclosed-upon relatives, there�s a lot of pent up demand for new homes.
Even the weather seems to be cooperating, with one of the mildest winters in years allowing construction crews to work right through the holidays.
But before hopping on a runaway bandwagon, investors should temper their expectations. Jobs remains stubbornly absent from an improving economy. That keeps a tight ceiling on consumer confidence.
At the same time, a huge inventory of unsold homes continues to weigh on the market. Even with a thriving economy, it will likely take several more years to repopulate all the homes vacated by foreclosure.
Meanwhile, those looking to buy a new home are often hamstrung by the difference between what they think they should be paid for their old home and what buyers, with so many properties to choose from, think it�s worth.
For home-builders� stock to extend recent gains, they need to build a lot more homes. That�s not going to happen until the supply-demand and buyer-seller gaps narrow significantly.
As for the steep rebound in their stock, figure it includes a flock of value vultures who have positioned themselves for a bounce that may already have seen its best days.
� Jim Jelter
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