Sector Snap: Homebuilders surge on housing starts

LOS ANGELES (AP) -- Shares of homebuilders and home construction supply companies got a lift Tuesday from a report that builders started construction last month on the most homes and apartments since July 2008.

The data from the Commerce Department followed two other positive housing reports on Monday, providing further evidence that the housing recovery is gaining strength.

Persistently low mortgage interest rates and a limited supply of homes in many markets have helped drive sales of new and previously occupied homes on pace to eclipse last year's sales, which sank to the lowest level in decades.

The increased demand for homes has helped fuel new home construction, benefiting homebuilders and the companies that supply everything from lumber to drywall and flooring.

On Tuesday, the Commerce Department said that builders broke ground on homes in October at a seasonally adjusted annual rate of 894,000. That 3.6 percent gain from September was driven by a 10 percent increase in apartment construction.

Single-family home construction dipped 0.2 percent to an annual rate of 594,000, down from a four-year high in the previous month.

Still, permit applications to build single-family homes rose to their highest level since July 2008.

On Monday, the National Association of Home Builders/Wells Fargo builder sentiment index rose to 46, from 41 in October.

The index, which measures builders' confidence in the housing market, has been moving higher since October 2011, when it stood at 17. Readings below 50 suggest negative sentiment about the housing market.

Also on Monday, the National Association of Realtors said that U.S. sales of previously occupied homes rose 2.1 percent last month to a seasonally adjusted annual rate of 4.79 million.

In a research note published Tuesday, KeyBanc Capital Markets analyst Kenneth Zener said that when housing demand normalizes, the building products and construction materials sector will offer investors an attractive risk-to-reward ratio, even at the stocks' current prices.

He highlighted Owens Corning and Whirlpool Corp. as his top picks among building products companies. Owens Corning shares were up 35 cents to $33.04 in afternoon trading Tuesday. Shares in Whirlpool gained $2.19, or 2.2 percent, to $100.31.

Among homebuilders, Zener favors Lennar Corp., citing the company's aggressive and profitable approach to adding land parcels, and Toll Brothers Inc., which primarily builds luxury homes and also has a healthy land stockpile.

Lennar shares were up $1.03, or 2.8 percent, to $37.84, while shares of Toll Brothers added 79 cents, or 2.4 percent, to $31.91.

Here's how some other homebuilders and building products companies were trading Tuesday afternoon:

KB Home rose 36 cents, or 2.6 percent, to $14.44.

PulteGroup Inc. gained 77 cents, or 4.8 percent, to $16.67.

Hovnanian Enterprises Inc. added 24 cents, or 4.9 percent, to $5.19.

D.R. Horton Inc. climbed 30 cents, or 1.6 percent, to $19.32.

Beazer Homes USA Inc. slipped 7 cents to $14.75.

Ryland Group Inc. rose $2.03, or 6.3 percent, to $34.39.

Standard Pacific Corp. gained 33 cents, or 5.1 percent, to $6.78.

Masco Corp. added 66 cents, or 4.3 percent, to $16.10.

Vulcan Materials Co. slipped 36 cents to $47.89.