Homebuilders Starting to Stabilize

Homebuilders saw a surge in sales over the summer as consumers took advantage of low mortgage rates, discounted home prices, and the first time home-buying credit. Lately, there has been talk of further depressed homebuilding returns for another several months. I do not think that homebuilders will see the returns they saw over the summer anytime soon; however, I do think that homebuilders will stabilize.

Construction has been cut back to get supply closer to demand. As a result, homebuilders can be a little more flexible with pricing. Instead of upping the price, they have been smart and kept the average price the same as a year ago. This has helped sales reach their highest level in over a year.

In addition, we cannot forget about mortgage rates. These have fallen to around 4.7%. This is probably the lowest they will be for a long, long time. With the extension of the housing credit, we can expect sales to remain stable as first time homeowners continue to combine this tax credit with abnormally low rates. I think this will be sufficient to keep homebuilders stable until the economy gets closer to strengthening. For the long term, there is cash money to be made in homebuilders. This will take a lot of patience as volatility is higher in this industry. The returns could be worth the wait.