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PulteGroupand Lennarhit new 52-week highs on Tuesday, as homebuilders showed signs of strength.
“The housing recovery back-to-normalization trade is finally here,” Nishu Sood, Deutsche Bank homebuilder analyst, told CNBC. But he cautioned that the housing recovery is not immune to macro-turmoil.
Here’s what to watch in the second half of 2012.
“Homebuilders long-term are a great play on housing recovery over a multiyear period,” Sood said. “The strength so far this year has been surprisingly strong. We’ve been bullish and it’s even been above what we’ve expected.”
Although Sood is confident, he explained that job growth is essential to sustain the recent strength of the housing market. If the U.S. loses jobs in the second half of the year, Sood anticipates the momentum of the recovery to take a hit.
So how much job growth is needed to maintain the housing recovery? Sood put the over-under job growth rate around 100,000 to 125,000 a month. He explained that a “muddle-through” rate is all that is needed to continue the recovery.
As the housing market makes a comeback, it could be ripe for investment.
Sood placed “holds” on KB Home,Lennar , and PulteGroup , while his top picks are Toll Brothers and D.R. Horton.
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