The landmark $25-billion settlement of foreclosure abuses is pushing homebuilder stocks to their highest levels in almost a year.
Investors are betting that the government’s deal with the nation’s five largest mortgage servicers could help stabilize the troubled housing market, eventually clearing the way for companies such as KB Home and Toll Brothers to ramp up building activity.
Homebuilder stocks have jumped over the past two weeks as expectation of the deal spread. An index of large homebuilding stocks is up 10.3% this month, and some companies have risen much more than that. KB Home has jumped 33%, PulteGroup Inc. is up 19% and Hovnanaian Enterprises Inc. has leapt 35%.
Beyond addressing foreclosure-related abuses such as robo-signing, the government crafted the deal to give a lift to the housing and mortgage markets. Anything that could prevent another wave of foreclosed homes from flooding the market should increase demand for new units.
"Anything that helps resolve the issue is bullish for homebuilder stocks," said Thomas A. Lawler, founder of research firm Lawler Economic and Housing Consulting. "It’s good for builders that are well-capitalized and don’t need to go to the bank to get a loan, and those are basically the publicly traded builders."
The gains add momentum to a rally that began in October when the broad stock market started its latest advance. Housing stocks have been helped by recent data suggesting the U.S. economy is growing slowly but steadily.