Will Printing More Green Cards Be Good for Homebuilders?

Arturo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

There’s a looming major policy shift on U.S. citizenship for undocumented immigrants as provided in the Border Security, Economic Opportunity, and Immigration Modernization Act passed by the Senate recently. This can bring a new fillip to the rebound in the home market, and another breakout for housing equities can't be discounted. Notably, the Senate’s vote on this Obama-backed bipartisan measure was a decisive 68-32.

If passed in toto at the House, this legislation would open American citizenship to 11 million undocumented immigrants in the U.S. The measure also seeks to overhaul the U.S. visa system so that American farmers and high-tech companies will have easier access to foreign labor. Viewing immigration as an economic growth driver, President Obama is encouraging business leaders to press for the bill’s approval in the House.

Boom akin to fireworks on the 4th of July seen

Quite apropos, the Senate vote came on the heels of this year’s 4th of July week, a celebration wherein among the oft-cited rhetoric was on immigration being one of the building blocks of the country’s nationhood more than two centuries ago. On a more contemporary note, the data is more definitive.

According to the Americas Society/Council of the Americas and the Partnership for a New American Economy, immigrants totaling 40 million have boosted the U.S. home market by $3.7 trillion from 2000 to 2010. Separately, a study by the National Association of Hispanic Real Estate Professionals (NAHREP) estimates that the passage of the comprehensive immigration reform bill shall create a new pool of 3 million home buyers. This, in turn, shall potentially generate $500 billion in real-estate related transactions and an additional $233 billion in origination fees and real estate commissions, plus household spending.

A fresh look at homebuilders

The NAHREP reading eventually panning out even by just half should help fuel another breakout for PulteGroup (NYSE: PHM)which traded for the most part of June at about 20% below its 52-week high of $24.47 set this May 15. This company started strong this year with its first-quarter net income’s significant improvement to $82 million, or $0.21 per share, from a $12 million net loss, or $0.03 per share, in the 2012 quarter.

In particular, the Centex unit of the PulteGroup stands to gain from a final imprimatur on the comprehensive immigration bill. Starter homes at base prices pegged from below the $100s upward to the $400s are the focus of Centex real estate developments. Centex has 122 communities across the U.S., some of which are flourishing in the most affordable housing markets identified in the recent reading of the National Association of Home Builders/Wells Fargo Housing Opportunity Index.

A large-cap homebuilder like Pulte, D.R. Horton (NYSE: DHI) ,likewise, looks a ripe pick for a rally should the U.S. House give the comprehensive immigration reform bill its nod. It has communities in 29 states and offers various home types from triplex to luxury homes in master-planned communities.

The blessings of the recent upsurge in the home market were evident in the company’s fiscal 2013 second-quarter earnings. For this period, its pre-tax income rose 236% to $142.1 million, while net income was up 173% to $111 million, or $0.32 per diluted share. Net sales orders gained 34% year over year to 7,879, and by 52% to $2 billion in terms of value. A position in D.R. Horton shares, as in Pulte’s, also appears inviting at its current price level is about 30% below the 52-week high of $27.75.

Mouse clicks may also deliver

Further activity in the home resale market can also be expected with the U.S. Congress approval of the comprehensive immigration reform bill. This, in turn, can extend possible investor gains to the online real estate search portal Zillow (NASDAQ: Z).

The company boasts of over 50 million unique users monthly and has added mobile apps to its web-based facilities to provide searches not only on homes for sale, but also residential rental properties. This June, the company launched its first-ever national TV ad campaign to further attract more users of its facilities which include home buyers as well as real estate agents.

Zillow has also captured much of the benefits of the housing recovery, with its revenue jumping 71% year over year to a record $39 million in the 2013 first quarter. The company had $3.7 million GAAP net loss for this year’s first quarter, as a result of higher operating and marketing costs following an acquisition at the end of 2012. Nonetheless, it raised its full year 2013 revenue outlook to a range of $178 million to $182 million.

Value investors, however, may find Zillow less attractive as it is trading 98.3 times its projected 2014 earnings. In comparison, D.R. Horton has a one-year forward P/E of 12.52, while the same metric is at 11.57 for PulteGroup.

Congress vigil may pay

As a parting shot, the market may not have seen the plateau in the housing space, yet. The debates in the halls of Congress in the ensuing weeks can provide some ominous signs for another bull run in this sector and its allied equities.

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Arturo Cuevas has no position in any stocks mentioned. The Motley Fool recommends Zillow. The Motley Fool owns shares of Zillow. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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