Low interest rates are bringing first-time home buyers into the market and many of them will be buying less expensive homes. Among homebuilders serving this market, Lennar and Centex are regarded as solid companies with talented management and strong balance sheets.
Lennar recently was trading at just eight times this year’s profit forecasts while Centex, the nation’s No. 1 homebuilder, was trading at 7.5 times expected earnings. The overall Standard & Poor’s 500 Index was then trading at 17.4 times anticipated profits so housing stocks may be well-valued.
One prominent investor also is eyeing a homebuilder: Warren Buffett’s Berkshire Hathaway holding company recently made a $1.7 billion offer to buy Clayton Homes, a producer of manufactured housing. This sector of the industry has been depressed, in part because some potential customers haven’t been able to qualify for mortgage loans. Stocks of manufactured-housing companies have been beaten down, creating interest in such companies as Clayton Homes, Champion Enterprises, and Fleetwood Enterprises.
