How this for objective analysis?
NEW YORK — Shares of four home builders rose in premarket electronic trading Tuesday after an upgrade from a Banc of America analyst, who said the stocks will rise because lower home prices will lead to increased demand.
Daniel Oppenheim upgraded shares of KB Home, MDC Holdings Inc. and Pulte Homes Inc. to "Buy" from "Neutral," and raised Toll Brothers Inc. stock to "Neutral" from "Sell." He said he thinks the stocks will rise by an average of 20 percent as demand for homes gradually rises through the rest of the year.
Oppenheim, who named KB Home and MDC as his top picks in the sector, said home sales have declined because prices were too high for buyers.
I would argue that not only were prices too high, but the market was saturated as speculators had their fill and homeownership levels reached unsustainable heights. Therefore, lower prices would be insufficient for a serious increase in demand.
Oppenheim’s explanation for why these stocks will rise?
"Recent declines in mortgage rates and home prices have resulted in affordability levels better than the average from ‘91-’07," he said. He added that a decrease in construction will leave the home builders with lower inventory levels, and real estate agents are showing more homes, which means sales are going to rise.
"Better than the average from ‘91-’07"? Interesting period to compare to, don’t you think? Who uses a 16 year average for these comparisons? While prices have come down, they remain high in comparison with historical norms, and housing is not yet "affordable" for most people, who are currently nervous about their jobs and the economy. In addition, builders may be building more slowly, but they continue to build. There will be no serious dent in the inventory this year.
