Home Builder IPO Starts Low, Ends Higher

California home builder New Home Co. did well Friday on its first day of trading on the New York Stock Exchange as its stock closed at $12.20, up 10.9% from its offering price.

The New Home Co. A home in Larkspur, Calif., built by the New Home Co.

The downside, though, is that New Home's stock price was set Friday at just $11 a share, well below its expected range of $15 to $17 per share. That follows the path set last November by home-building peer LGI Homes Inc.(LGIH), which was expecting an initial stock price between $13 and $15, but was actually set at $11, then traded higher.

"We had a lot of demand, but we came in lower than we originally planned," said H. Lawrence Webb, New Home's chief executive, in an interview Friday. "We wanted to give our investors good value. I think we could have priced higher, but it was very important to all of us that we get off on the right foot."

Home-builder initial public offerings have delivered mixed results in the past year. Three are trading below their offering prices: Taylor Morrison Home Corp.(TMHC) is down 3.9% from its IPO price at $21.15. William Lyon Homes is down 3.7% at $24.07. UPC Inc. is down 2.9% at $14.57.

Meanwhile, another three are trading above their IPO prices. WCI Communities Inc. is 24.8% above its IPO price at $18.72. TRI Pointe Homes Inc. is up 3.8% at $17.64. And LGI now is up 58.4% at $17.42.

What gives? "In most of the past year, there has been some investor hesitance toward home-builder IPOs," said Nick Einhorn, an analyst at IPO research and investment firm Renaissance Capital LLC in Greenwich, Conn. "Part of that is the pace of the recovery has slowed a bit, particularly since (interest) rates rose. Of the six home builders that went public last year, most didn't do all that well."

In addition, New Home, based in Aliso Viejo, Calif., is a relatively small home builder that doesn't really stand apart from the rest. In the first nine months of last year, it closed on sales of 59 houses for $24.7 million in revenue.

Founded in 2009 by veterans of John Laing Homes, which was sold in 2006 to Dubai's Emaar Properties, New Home builds homes priced from $300,000 to $3.2 million and measuring 800 to 5,300 square feet in both southern and northern California.

"California is a good place to be a builder," Mr. Webb said. "I would be very happy if we just had steady growth (this year). We don't need 25% improvement. What we just need is overall job growth, good market conditions and we'll do fine. If the market stays exactly as it is, we're going to do very well."