Lennar (LEN) reported a nice quarter this morning. CEO Stuart Miller stated, "The homebuilding market continued its slow and steady recovery sustained by low interest rates, modest wage growth, positive consumer confidence and low unemployment levels combined with tight inventory."
In addition, the company reported earnings results comparable to the second quarter of 2006, when single-family housing starts where heating up in a big way. A major sea change in earnings structure for the quality builders resulted. Starts are nowhere near where they were a decade hence.
Overall, I've never been a very good homebuilder investor, though. Especially since we have so many other very interesting companies tied to the same trend, in addition to after-market, repair/replacement and commercial retrofit traits that enable us to enjoy less cyclical earnings stability.
Companies like Lennar and Toll Brothers (TOL) use products made by Whirlpool (WHR), Masco (MAS), Quanex Building Products (NX), Sherwin Williams (SHW) and Mohawk (MHK) to build, coat and furnish their new stock of homes and apartments. These companies, among many others, are also dominant in providing replacement attributes to the consumers who are updating the decade-old housing stock with more relevant and contemporary tastes.
Stick with the suppliers. While valuations do not appear traditionally "cheap," they are currently mid-range relative to the most likely stable earnings stream that we can expect from the housing complex over the next two or three years.
Trends in household formation and tight inventory are likely to continue apace. Lennar just gave us a green light to proceed.