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Why PulteGroup, DR Horton and Lennar Are Good Buys Now

Housing data have been a bit schizophrenic in recent months, but understanding the reason behind the confusion will reveal that home-building stocks are actually good buys right now. Three to look at are PulteGroup Inc. (NYSE: PHM), D.R. Horton Inc. (NYSE: DHI) and Lennar Corp. (NYSE: LEN).

While the Case-Shiller 20-City Home Price Composite Index rose a healthy 5.1% year over year through August, meeting expectations, at the same time new home sales measured by the Commerce Department tumbled 11.5% from August to September. In other words, while housing prices are rising, actual home sales are falling. What are we to believe then? Is the housing market improving or not?

The answer is it is improving, and the mixed signals are due to a combination of varying degrees of time-lag and money supply fluctuations. From late June to late July this year, the M2 money...