There are two things that homebuilder stock investors need to know. The first is that if or when the sector does crash, it will crash hard. The second is that that time isn't coming anytime soon.
Meritage Homes (NYSE: MTH) raised its March quarter earnings outlook last night and reported a huge 72% surge in the backlog of new homes to be delivered. In other words, the company is due to have solid results for at least a few more quarters.
Before a debt-buyback charge, the company is now looking for earnings to come in between $1.20 and $1.25 a share. Its original forecast was a dime lower. It's been that way pretty much all over the homebuilder sector, as higher borrowing costs haven't had the expected impact of knocking down buoyant home sale prices.
Sure, higher rates have cut down on those looking to refinance their homes, but that hasn't slowed the sales of new homes. Meritage had a 20% spike in new home orders for the quarter.
Around the same time that Meritage was raising the bar, some of its peers were also chiming in with good news. Dominion Homes (Nasdaq: DHOM), which in February warned the market about the possibility of a loss for its March quarter, announced that the past month has been strong and that the company will close out the period in the black. KB Home (NYSE: KBH) also announced a 2-for-1 stock split. Sure, stock splits are zero-sum games, but it shows the confidence of one of the industry's biggest players that it thinks it can sustain its stock even at half the price.
Since the housing market got rocked in 1999, things have fared nicely in recent years. Just pull up three-year charts on leading homebuilders like Lennar (NYSE: LEN), D.R. Horton (NYSE: DHI), and Pulte (NYSE: PHM), and you'll swear that you're staring at the arched slope of a well-built cathedral ceiling.
Yes, the industry is doing well -- and should the cyclical tides turn, there are a few indications that these companies will simply give up all of those gains and return to their lackluster ways -- but keep watching all of the key players. If one slips, be worried.
Some building blocks of information for your next edifice:
Longtime Fool contributor Rick Munarriz has been living in the same home since 1999. Real estate agents tell him it's worth a mint now -- but so are the other homes in the area that his family would consider buying. He does not own shares in any companies mentioned in this story.
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