Is It Time to Buy These Homebuilders? – Lennar Corporation (LEN), D.R. Horton, Inc. (DHI), PulteGroup, Inc. (PHM)

D.R. Horton, Inc. (NYSE:DHI) has used similar strategies as Lennar to return to profitability, also turning a profit since 2010. They tend to target first-time homebuyers, who generally have an easier time getting financing through various programs and can afford more as a result of the current low interest rates. D.R. Horton, Inc. (NYSE:DHI) also has a good balance sheet, perhaps even better than Lennar with over $1.3 billion in cash and $2.1 billion in long-term debt (Lennar has $4.6 billion in debt).

PulteGroup, Inc. (NYSE:PHM) is not in quite as good shape as the previous two companies, however they did earn a profit in 2012. One of the reasons I’m not very bullish on Pulte is that they tend to sell higher-priced houses which don’t work quite so well as lower-end constructions; however, they have shifted their efforts lately toward more affordable housing. PulteGroup, Inc. (NYSE:PHM)’s average home price in 2012 was $276,000, compared to $258,000 for Lennar and $249,900 for D.R. Horton.

This is by no means an exhaustive list; however, I feel it is a good overview of the different states of the homebuilders right now. Other companies such as Toll Brothers Inc (NYSE:TOL), Beazer Homes USA, Inc. (NYSE:BZH), and The Ryland Group, Inc. (NYSE:RYL) may also be worthy of further research if you are bullish on housing.

While some companies such as D.R. Horton and Lennar do seem like reasonably attractive investments, I think that the rally in homebuilders over the past year or so is overblown. First, even with a housing recovery, I’m hesitant to invest in new home builders until the backlog of foreclosures, short sales, and existing homes on the market work themselves out. Running a search on existing homes where I’m looking to buy reveals that 6 of the first 10 choices listed have been on the market for over 6 months.

Next, the labor market needs to show serious, sustained improvement. Not only must unemployment be brought under control, but we need to create jobs with good wages and benefits before a true housing recovery will be able to occur.

While some of the homebuilders show promise, they have simply come too far too fast and need to take a breather before I would consider any of them as an investment.

The article Is It Time to Buy These Homebuilders? originally appeared on Fool.com and is written by Matthew Frankel.

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