Home builders rally on comment

Home builders including KB Home and Ryland Group rallied Thursday after Meritage Homes Corp. said the housing market might be improving.

A Standard & Poor’s measure of home construction companies rose 4%, the biggest gain since January. It is down 22% over the last year. Meritage jumped 13%, its biggest gain since 2001.

Meritage Chief Executive Steven Hilton said in a statement late Wednesday that “we are encouraged by some early signs of stabilization.” Although Meritage reported an 81% drop in profit in the first quarter amid weak demand, the Scottsdale, Ariz.-based company forecast 2007 profit that exceeded analysts’ estimates and said its cancellation rate had improved.

“Meritage is kind of catalyzing them,” said Josh Spencer, an analyst at T. Rowe Price Group Inc. “They were a little more upbeat in terms of their future outlook.”

Shares of Meritage rose $4.38 to $36.94. Los Angeles-based KB Home gained $1.49 to $45.56 and Calabasas-based Ryland rose $1.99 to $47.79.