Sector Snap: Homebuilders gain as Toll orders jump

NEW YORK

Toll Brothers Inc.'s jump in orders signaled that Americans' demand for new homes is increasing, sending shares of big U.S. homebuilders sharply higher Wednesday.

On Tuesday, Los Angeles-based Toll said contracts for new homes rose 42 percent in its fiscal fourth quarter, even though the luxury builder had fewer communities than in the same period last year. Stable home prices and a decline in the backlog of unsold homes on the market suggest an uptick in demand for new homes, Toll's CEO Robert Toll said.

Stifel Nicolaus analyst Michael Widner cautioned investors, however. He said that Toll's orders were strong, but he doesn't expect results for homebuilders to fully recover from the housing crash until at least 2012 or 2013.

Record-high housing vacancy rates are going to pressure profits, Widner said, and the boost from the federal tax credit for first-time homebuyers will likely fade after December, he said.

The credit, originally slated to expire in November, has been extended through April 30.

Meanwhile, he expects mortgage rates to rise as the Federal Reserve ends its buying of mortgage-backed securities. He rates Toll "sell."

On Tuesday, the National Association of Realtors said home sales rose in the third quarter from the previous three months and from a year ago. Sales prices dropped in 123 of 153 metropolitan areas, but the association said the decline was moderating.

In afternoon trading, shares of Toll Brothers rose $2.81, or 15.3 percent, to $21.20; Beazer Homes USA Inc. added 43 cents, or 8.4 percent, to $5.53; Hovnanian Enterprises Inc. jumped 34 cents, or 8.4 percent, to $4.38.

DR Horton Inc. climbed 60 cents, or 5 percent, to $12.29; KB Home gained 96 cents, or 6.5 percent, to $15.64; Lennar Corp. rose 89 cents, or 6.2 percent, to $15.19; Pulte Homes Inc. popped 61 cents, or 6.5 percent, to $10.07; Ryland Group Inc. rose 95 cents, or 5 percent, to $20.01; and Meritage Homes Corp. traded up 86 cents, or 4.4 percent, to $20.29.