Despite low housing starts, homebuilders' stock is on rise

March 17, 1991|By Floyd Norris | Floyd Norris,New York Times News Service

NEW YORK -- Housing starts are at their lowest levels since 1982, and homebuilders are suffering, with bankruptcies expected among the weakest of them. There is talk of a real estate bust that in magnitude will rival the post-World War II boom.

But, in the face of that stream of bad news, the stock prices of homebuilders, including Columbia-based Ryland Group, are rising sharply. In the last month, an index of shares of homebuilding companies has climbed 28 percent.

Many investors, it would appear, do not believe the gloomiest of the forecasts.

The rise in prices has an obvious explanation. Interest rates are coming down, as the Federal Reserve tries to end the recession that most economists say began some time this year.

Lower interest rates traditionally presage a revival both in building and in buying, but housing starts have lagged and the general consensus is that they will continue to do so, as prices fall and scared banks hold off from making mortgage loans.

"Quarterly earnings will be awful," said Barbara Allen, the housing analyst at Kidder, Peabody, referring to profits for both the current quarter and for the first three months of 1991.

She added that some privately held builders were likely to be forced into bankruptcy.

But she said that by spring, home buying is likely to rise, and the stock prices of the leading public companies will take off. She is recommending every homebuilder she follows.

The prices of most housing stocks bottomed at the end of October and did not start to rally rapidly until a month later.

LTC The upturn has been led by some of the largest homebuilders, especially those with solid balance sheets.

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