Earnings Will Drive This Industry Higher

I am intrigued by real estate and intend to pursue my real estate license within the next few months. That said, homebuilders tend to make good investments only when the housing market is booming, much like it did before the 2007 housing collapse. Foreclosures have led to a glut of properties on the market, driving down prices nationwide and limiting homebuilders' ability to build new homes. But changes to the industry may be coming.

Recent results are promising
Third-place home builder Lennar's (NYSE: LEN  ) recent earnings report helped push others in the industry up this week. Lennar showed revenues equal to fiscal year 2010, despite delivering fewer homes in 2011. Even though the company slightly missed earnings estimates, it was still able to post a profit for the seventh quarter in a row.

Housing numbers released in November point to a small recovery in housing. Single-family construction was up 1.5% in November over the previous year, with the number of contracts signed to purchase homes at an 18-month high. Foreclosure filings also hit a four-year low last year, reducing the number of foreclosure properties on the market and giving the homebuilders room in the market to build homes.

Future results will complete the picture
First-place builder D.R. Horton (NYSE: DHI  ) will be releasing earnings later this month, with second-place PulteGroup (NYSE: PHM  ) doing the same a week later. D.R. Horton has been profitable for the last three quarters, while Pulte has been struggling for a few years. However, any departure from the recent status quo would help point to a further housing recovery.

Future looks bright
While I don't expect Lennar and its ilk to return to housing-boom construction levels, I am very bullish on the prospects of the third-place home builder going forward. In fact, I'll be making a CAPS call as soon as this article is published, and you'll be able to track my progress here. You can also add these leading housing builders to your Watchlist to track the recovery of the housing industry during the next year and beyond.

Fool contributor Robert Eberhard holds no position in any company mentioned. Follow him on Twitter @GuruEbby. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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