LOS ANGELES (AP) — Homebuilder stocks traded higher on Wednesday, buoyed by a report showing the number of buyers who signed contracts to purchase a home jumped in October to the highest level in a year.
The sector also got a lift from a Raymond James analyst, who said select builder stocks are likely to gain in advance of next year's spring home-selling season.
The National Association of Realtors reported Wednesday that its index of sales agreements climbed 10.4 percent last month to a reading of 93.3. A reading of 100 is considered healthy.
The last time it was that high was in April 2010, the last month that homebuyers could qualify for temporary federal tax credits aimed at spurring home sales.
Contract signings usually indicate where the housing market is headed. There's typically a one- to two-month lag between a signed contract and a completed deal.
Despite last month's increase, contracts to buy homes remain roughly at the same level they were before the tax credits expired.
Still, the increase is good news for homebuilders as they look ahead to next year's spring home-selling season, traditionally the peak period for home sales.
The anticipation of better sales this spring could help lift the shares of some of the major homebuilders over the next couple of months, said Raymond James analyst Buck Horne in a client note.
Homebuilding stocks have outperformed the S&P 500 each of the past seven years by an average of 11 percentage points between mid-November and the end of January, he said.
"Even though December and January are among the seasonally slowest months for new home sales, this window of time has proven to be a great time to own homebuilding equities in recent years," Horne wrote.
Horne highlighted builders Lennar Corp., Toll Brothers Inc. and D.R. Horton Inc., upgrading them to "Outperform." Lennar shares rose $1.15, or 6.8 percent, to $18.17 in afternoon trading; Toll shares added 90 cents, or 4.7 percent, to $19.89; and D.R. Horton stock gained 70 cents, or 6.2 percent, to $11.95.
Broader stock markets were also sharply higher, with the Dow Jones industrial average rising 3.5 percent after the world's major central banks acted together to make it easier for banks to borrow dollars, helping assuage fears of a global credit crisis.
The housing market has been troubled for years. Sales of new homes were lackluster in spring 2011 and slowed this summer. As a result, sales of new homes are headed for the worst year on records dating to 1963.
Many homebuyers continue to put off purchases amid high unemployment, weak job growth and tougher mortgage lending standards.
In recent weeks, several homebuilders reported annual increases in sales for the third quarter. But the sales figures improved against soft numbers a year earlier, when demand for new homes sank in the absence of the homebuyer tax credits.
While the anticipation of spring home sales may lift homebuilding stocks, Horne says he still sees potential obstacles that could limit significant improvement in new home sales next year. Among them: The potential for a European financial crisis or recession that could spread to the U.S. and disrupt mortgage lending.
Hovnanian Enterprises Inc. was leading the sector increase Wednesday afternoon. The stock was up 12 cents, or 9.5 percent, to $1.39.
Among other homebuilders, Beazer Homes USA Inc. rose 18 cents, or 8.9 percent, to $2.13; PulteGroup Inc. rose 30 cents, or 5.3 percent, to $5.96; KB Home added 53 cents, or 7.8 percent, to $7.36; Ryland Group Inc. gained 88 cents, or 6.2 percent, to $15.06; MDC Holdings Inc. added 65 cents, or 3.8 percent, to $17.65; Standard Pacific Corp. rose 5 cents to $3.07; and Meritage Homes Corp. added $1.37, or 6.8 percent, to $21.43.