Take Profits On Homebuilder Stocks Now

Homebuilder stocks DR Horton, KB Home, Lennar, PulteGroup and Toll Brothers are not cheap. These stocks are up between 172% and 22% since mid-March lows. DR Horton and Lennar set all-time intraday highs on Tuesday, August 18.

You can be long homebuilders when their P/E ratios are 8 and lower. Today the P/E ratios are between 11.16 and 13.68.

Key Housing Statistics  

The National Association of Home Builders (NAHB) Housing Market Index (HMI) has been extremely volatile since April. In April, the index plunged by a record 42 points to 30, down from 72 in March. This reading then rose to 37 in May then to 72 in July. In August, the index rose six points to 78, the highest in its 35 years of being calculated.

Single-family housing starts rose by 8.2% in July to 940,000 seasonally adjusted. This reading was 679,000 in April, 709,000 in May and 831,000 in June. The April low was down 34% from the February peak.

Home construction is on the rise given a suburban shift from urban locations to the suburbs and rural markets. These homes are larger and cheaper to buy.  

The Graph of the NAHB HMI versus Single-Family Starts

The scale on the left is the Housing Market Index, which is the blue line across the graph. The scale on the right is Single-Family Starts in red on the chart. At the right side of the graph and you will see the 42-point drop to 30 for HMI in April, and the rebound to 78 in August. The Single-Family Starts level is the 831,000 for June.

The S&P CoreLogic Case-Shiller 20-City Composite

Home prices continue to be in a reinflating bubble. The latest reading from the S&P CoreLogic Case-Shiller 20-City Composite is for April.

The 20-City Composite first peaked in July 2006. The trough occurred in March 2012. The decline totaled 35.1%. The current reading for April is 67.1% above the March 2012 low and is 8.5% above the 2006 high.

With mortgage rates at record lows, home prices remain elevated.

Higher lumber prices are adding $14,000 to the cost of the median home price.

Here is a Scorecard for the Five Major Homebuilders

DR Horton (DHI): ($73.54) has a positive but overbought weekly chart as the stock trades to an all-time intraday high of $74.34 on August 18. The stock has a P/E ratio of 13.68. The stock is up 188.3% from its March 18 low of $25.51. Its annual pivot is $58.05 with a weekly risky level at $81.79.

KB Home (KBH): ($37.59) has a positive weekly chart. It has a P/E ratio of 11.48 and is up 282.8% from its March 19 low of $9.82. Its monthly and quarterly value levels are $27.60 and $26.24 with annual and semiannual risky levels at $37.36 and $38.00. This week’s high of $38.50 was an opportunity to reduce holdings on strength to the risky levels.

Lennar (LEN): ($77.17) has a positive but overbought weekly chart as the stock traded to an all-time intraday high of $78.59 on August 18. The stock has a P/E ratio of 11.61. LEN is up 203.6% from its March 18 low of $25.42. Its 12-week stochastic reading is above 90.00 on a scale of 00.00 to 100.00, which puts the stock in an inflating parabolic bubble formation. Its monthly and quarterly value levels are $59.80 and $48.94 with semiannual and annual pivots at $60.68 and $75.17.

PulteGroup (PHM): ($46.61) has a positive but overbought weekly chart as the stock is approaching its all-time intraday high of $48.22 set back in July 2005. The stock has a P/E ratio of 11.16 and is up 172.3% from its March 23 low of $17.12. Monthly and quarterly value levels are $33.56 and $32.60 with semiannual and annual pivots at $40.37 and $45.47.

Toll Brothers (TOL): ($42.79) has a positive but overbought weekly chart. The stock has a P/E ratio of 12.36. It’s still 27.1% below its July 2005 high of $58.67. The stock is up 222.2% since trading as low as $13.28 on March 18. Quarterly and monthly value levels are $30.51 and $27.71 with semiannual and annual risky levels at $46.37 and $52.44.