Housing Prices Are Way Up, But Experts Disagree on Why

Photo courtesy of thejewishdenver.com

Photo courtesy of thejewishdenver.com

What is driving the recent rapid rise in housing prices? And is this a sign of a sustained economic recovery? Those were among the questions during a segment covering U.S. housing on CNBC May 28 (http://www.cnbc.com/id/100769361). Home prices during the first quarter of 2013 were up by 10.2 percent nationally, according to the S&P/Case-Shiller Index, the highest since 2007. Phoenix and Las Vegas, two of the regions hit hardest by the recession, were up the most.

Experts point to the very low mortgage rates (held artificially low by the Fed) and the low inventory of houses as among the reasons for the increase. Very few new houses are being built so sales are cutting into the inventory, increasing demand for the few left for sale.

Those who believe the housing market will continue to prosper say population growth will be a driver: One million new households a year are being created. Naysayers, who believe the price increases are not sustainable, say the market is being driven by investors who are buying and renting. They also point to still low construction employment numbers and the fact that college graduates, who should be a major factor in first time homebuyers, are not getting jobs and are shackled with $1 trillion in student loan debt.

While there is little doubt that houses are being appraised at higher prices, the small cap home builders, who had been on a tear since last summer, have seen their valuations flatten out. Here is an update on the home builders we have been following for the past year:

Red Bank, NJ-based Hovnanian Enterprises (NYSE: HOV, http://www.khov.com/) specializes in single-family detached homes, condominiums and town homes and operates in two segments: homebuilding and financial services.  As recently as October 2011 HOV was trading for $0.89. But since March HOV has been hovering around the $6 mark. HOV closed May 28 at $6.15, up 11 cents for the day with a market cap of $856 million. Its 52-week trading range is $1.52-$7.43.

Los Angeles-based KB Home (NYSE: KBH, http://www.kbhome.com/) is a home building and financial services company catering in large part to first time buyers. KB is an old Southern California home builder, founded in 1957 and formerly called Kaufman and Broad. As recently as last Aug. 31 KBH traded for $11.04 with a market cap of $851 million. It closed May 28 at $23.16, up 5 cents for the day with a market cap of $1.9 billion. Its 52-week trading range is $6.46-$25.14.

Columbus, OH-based M/I Homes Inc. (NYSE: MHO, http://www.mihomes.com/) builds single family homes primarily in the Midwest, Mid-Atlantic and southern parts of the U.S. The  company was founded in 1973 and, like most of the other builders, has homebuilding and financial services divisions. It also had a run up into March and closed March 20 at $26.03 with a market cap of $584 million. MHO closed May 28 at $26.47, up 29 cents for the day. Its 52-week trading range is $12.24-$29.07.

Atlanta-based Beazer Homes USA (NYSE: BZH, http://www.beazer.com/) builds and sells single-family and multiple-family homes in 16 states in the U.S. It also acquires, improves and rents homes. The company operates through commissioned home sales counselors and independent brokers. Back in mid-September BZH was trading for $3.77. It closed March 20 at $16.86 with a market cap of $410 million. On May 28, BZH closed at $21.79, up 44 cents for the day, with a market cap of $547 million. Its 52-week trading range is $3.46-$23.29.

Irvine, CA-based Standard Pacific (NYSE: SPF, http://www.standardpacifichomes.com/) builds single family and detached homes and targets a wide range of homebuyers. It also provides mortage financing services through its mortage finance subsidiary, Standard Pacific Mortgage. SPF closed March 20 at $9.07 with a market cap of $1.9 billion. It closed May 28 at $9.52 down 16 cents with a market cap of $2.1 billion. Its 52-week range is $4.39-$9.97.

Westlake Village, CA-based The Ryland Group (NYSE: RYL, http://www.ryland.com/) is a homebuilder and mortage finance company. RYL covers many aspects of the home buying process including design, construction, title insurance and escrow. RYL closed March 20 at $42.16 with a market cap of $1.9 billion. It closed May 28 at $47.60, down 86 cents, with a market cap of $2.2 billion. Its 52-week trading range is $19.25-$50.42.


Muddy Waters Makes Big Splash in Chinese Private Education Stocks

Muddy Waters made headlines this month. Not the revered blues guitarist and singer, who died in 1983. We’re talking about Muddy Waters Research, a firm that apparently has “developed the knowledge and contacts to navigate China’s muddy waters,” according to its website.

Muddy Waters made its big splash by taking on Beijing-based New Oriental Education & Technology Group (NYSE: EDU, http://www.english.neworiental.org), the largest provider of private education services in China, according to Forbes.com, which covered this story (http://www.forbes.com/sites/hengshao/2012/07/18/chinese-education-firm-dragged-into-muddy-waters/). In a report issued July 18, Muddy Waters suggested New Oriental was fudging its numbers and its store growth. That report, and the company’s announement of an SEC investigation of its financial statements, caused EDU to crater to $9.50, a drop of 57 percent in only two days, according to Forbes. A week later, EDU had rebounded and closed trading July 27 at $11.96, up 23 cents for the day. Its market cap has ballooned to $1.85 billion.

For investors willing to wade into the perhaps shark-infested waters of Chinese private education stocks, most of them like New Oriental trade as ADRs on the NYSE, there are lots of small caps to choose from. They include:

Beijing-based Xueda Education Group (NYSE: XUE, http://www.xueda.com) is a holding company that provides tutorial services for primary and secondary students in China with an emphasis on personal services and one-on-one tutoring. The company has built a network of 273 learning centers throughout China. XUE has a market cap of about $191 million and a 52-week trading range of $2.41-$9.12. It closed July 27 at $ 2.88, no change for the day.

Beijing-based TAL Education Group (NYSE: XRS, http://www.xueersi.com) provides after-school tutoring of core academic subjects including math, biology, English, physics and chemistry to K-12 students in China. XRS just announced earnings on July 24, beating analysts earnings per share estimates by 1 cent ($0.06). Revenue for the quarter was up 48.5 percent on a year-over-year basis. Market cap is about $594 million and 52-week trading range is $7.15-$13.75). XRS closed July 27 at $7.67, up 11 cents for the day.

Beijing-based Ambow Educational Holdings (NYSE: AMBO, http://www.ambow.com.cn) offers education and career enhancement services through an online and offline delivery model. Its targets include students seeking to be admitted to secondary and post-secondary schools. At recent count, AMBO had 131 centers and schools including 107 tutoring centers, five k-12 schools, 17 career enhancement centers and two colleges. Its market cap is $189 million and 52-week trading range is $2.12-$8.15. It closed July 27 at $2.61, up 21 cents for the day.