The homebuilder spring selling season just started, but reports from the field confirm that sales activity in communities are materializing in a way not seen in years, Barclays Capital said.
"We believe the spring selling season has arrived strongly enough to kick-start a positive feedback loop in housing for the first time since 2005," BarCap analysts said after discussions with executives of some of the largest companies in the industry.
As a result of the newly inspired optimism, Barclays upgraded four homebuilder stocks, including PulteGroup (PHM) and debt-ridden KB Home (KBH), from hold to buy — six weeks after calling for the homebuilder industry to "take a breather."
"With early readings from the spring selling season now coming in as strongly as we had originally hoped back in October, we think it is time to dive back in," analysts at Barclays said, referring to homebuilder stocks.
Homebuilder stock prices began a surge in October based on fading fears of a double-dip recession and signs of a resuscitation of the housing market. The sharp rise, which has leveled off since February, analysts say, is partially due to a market correction of exaggerated concerns toward the industry.
Barclays analysts expect 1 million housing starts by 2013 and a return to the historical norm of 1.7 million by 2015, while predicting that prices will rise 1% to 3% annually during that period. Most housing analysts expect starts to return to historical trends between 2015 and 2017.
On a seasonally adjusted basis, starts increased to 699,000 in January, up from 636,000 a year earlier and 689,000 in December. Bank of America (BAC) forecasts 2012 starts to total 713,00 after 607,000 in 2011.
Some builders are implementing modest price increases, say Barclays analysts, who learned that two of the three largest builders in the market are beginning to implement price increases of $1,000 to $3,000. "Not opportunistically from community to community, but across the entire metro market," they say.
Barclays estimates that every 100,000 housing starts generate almost 250,000 jobs. "As such, we expect U.S. residential housing to transition from being a headwind to a tailwind for the economy by this time next year," they say.
Over the past 12 months, nearly 2 million jobs, or 165,000 per month, were created. And the unemployment rate dropped from 9.1% in August to the current rate of 8.3%.
"Job creation has been considerably better this fall than it was last year, which we believe will lead to a stronger, more sustained spring selling season," analysts say.