Goldman Sachs Upgrades Homebuilders to Attractive

Goldman Sachs upgraded the Homebuilders sector from Neutral to Attractive. "We acknowledge the ytd price performance, but see this as the beginning of a longer positive trend in housing-related equities," the firm said.

Rising home prices will propel 20-30% CAGR in U.S. starts over the next four years. They see 1 million housing starts in 2013, above the 875,000 they believe the market is expecting.

"We think investors should take advantage of the likely volatility in the space given US Homebuilders' strong correlation with the still depressed levels of new home sales."

Goldman sees a number of positives in the sector: (1) renewed home price appreciation; (2) 2011-1H12 job growth supports 200,000 more new home sales without further job adds; (3) shadow supply has declined significantly, lowering the risk of another price shock; and (4) housing policy has been supportive since August 2011 and should remain so.

The firm add MDC (NYSE: MDC) to the Conviction Buy List, upgrade KB Home (NYSE: KBH) to Buy from Neutral, raise Ryland (NYSE: RYL) to Neutral and lower NVR (NYSE: NVR) to Sell.

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