Housing Improves According To Q3 Earnings Call Transcripts

by: David Sims

With the 2012 3rd Quarter firmly in the past, it may be an interesting exercise to review some recent earnings call transcripts for information related to the housing market, which is widely believed to be finally recovering. This type of review can show the ramifications of a full-blown housing recovery and how a healthy housing market may affect the economy and many different industries.

On November 1, American Capital Mortgage Investment Corp. (NASDAQ:MTGE) made mention of home prices in its earnings call. American Capital Mortgage Investment is a mortgage real estate investment trust (mREIT).

Home prices also showed improvement and the housing market feels like it has some positive momentum. Against this backdrop,... non-agency RMBS prices were up strongly during the quarter.

The non-agency RMBS market refers to mortgage securities issued by companies that don't have government backing. Because these securities do not carry a government guarantee, their pricing is more dependent on the health of the overall housing market. Strong demand is a signal that the future outlook for private label financing is getting brighter.

On November 6, Zillow, Inc. (NASDAQ:Z) made reference to a housing bottom and reduced inventory in their earnings call. Zillow runs a popular residential real estate website by the same name.

Our recent research has shown that despite a housing bottom nationwide inventory has dropped by 20% over the past year, leading to tight inventory and bidding wars in many popular areas. Buyers want to buy, but there simply are not enough homes for sale.

As any junior economist will tell you, when demand outstrips supply, you have price appreciation. What is unclear is whether any shadow inventory overhang may be released to fill increased demand. At this time, many of the largest holders of REO are doing bulk sales, or converting homes in rental properties.

Emerson Electric (NYSE:EMR) had its Q4 2012 earnings call on November 6. This St. Louis-based company is considered an industrial manufacturer and their products include some devices used by consumers in their homes.

So at this point in time, we would expect the industry to stay very tight, be very lean, and then come the typical recovery period which will be more March, April time period, I'm anticipating that the housing market continues to solidify and we'll start seeing some recovery in our Climate Technology business in the second half of the year.

As it states, it expects to see the housing market continue to solidify and help a struggling area of its business.

Also on November 6, LSB Industries Inc. (NYSE:LXU) had its Q3 2012 earnings call. The company manufactures geothermal and water source heat pumps and has revenue of almost $800 million per year.

McGraw Hill's currently forecasting that housing starts will increase from about 413,000 in 2011 to 490,000 in this year of 2012 to 610,000 in 2013, and to over 1 million per year in 2015.

If this future growth occurs, it should benefit our residential geothermal business. However, much of the benefit remains uncertain and we believe it depends to a certain extent upon the cost of energy.

This company would certainly benefit from a 242% increase in production if housing starts ramp up to normal levels in 2015. This of course depends on whether Congress will continue to allow the energy tax credits to continue with the impending Fiscal Cliff issue on the horizon.

Great Plains Energy Incorporated (NYSE:GXP) had its Q3 2012 earnings call on November 9th. This public utility distributes electricity in western Missouri and eastern Kansas.

Although demand results were challenging for the quarter, we continue to see positive longer-term developments in our service territory, including ongoing improvements in housing starts and a reduction in the unemployment rate to 6%.

Expansion of overall housing units means the expansion of its customer base. This just goes to show that housing improvement will benefit large swathes of varying industries.

AG Mortgage Investment Trust Inc. (NYSE:MITT) held its Q3 2012 earnings call on November 8. This company is also a mREIT, with a focus on residential mortgages and other types of financial assets.

The one area that we are consistently favorable on is housing and commercial real estate, it's showing signs of strength and stability in many areas across the country. Improving sales volume and falling distress inventories have created some optimism and the marketplace is gradually becoming much more constructive.

Home prices have posted their largest increase since 2007 and this positive trend seems to be firming up more than the experience in 2010. While we are more optimistic on housing than any other sector of the domestic economy we're still not calling for a sharp short-term recovery in home prices and we remain mindful of the potential land mines in the form of the fiscal cliff and the European debt crisis and the continuing pressure on wages in the United States.

It shouldn't be surprising to hear an executive say that he or she is optimistic about his or her own business, but it does carry some weight to say that the executive is more optimistic about housing than any other sector of the domestic economy.

Vulcan Materials (NYSE:VMC) had its Q3 2012 earnings call on November 8, 2012. The company is in the aggregates, asphalt, concrete and cement business. Their earnings call gives us a glimpse into one of the hardest hit regions of the United States.

Private construction led by housing is recovering sharply in Florida. There, ready-mix Concrete volumes are up more than 20% and Concrete block, albeit a smaller part of the Concrete segment, are up almost 30% through the first 9 months of 2012.

We expect private construction demand to grow again in 2013 as housing starts and contract awards for private nonresidential buildings continue to improve.

Again, the theme of continued improvement in housing is reiterated.

Two Harbors Investment (NYSE:TWO) had its Q3 2012 earnings call on November 7. The company is also a real estate investment trust specializing in residential mortgage backed securities.

We are continuing to see signs of stabilization and some improvement in housing prices, which is certainly encouraging. According to CoreLogic, home prices increased 6.1% as of October 1 on a rolling 12-month basis.

Later, in response to a question posed by Bose George of Keefe, Bruyette, & Woods, William Meyer Roth, Co-CIO and VP, said that he believes that the Obama administration will continue to provide support to homeowners through the existing HAMP and HARP programs.

Brookfield Infrastructure Partners L.P. (NYSE:BIP) had its Q3 2012 earnings call on November 7. The company engages in the electric utility, energy and timber business. Regarding the timber business, it remarked:

For the quarter exports fell to 36% of total log sales, which is a level that we expect to maintain as demand in the domestic market continues to strengthen with the early stages of recovery in the housing market.

The housing market appears to be driving a higher demand for timber, which of course is used when building new homes.

CBL & Associates Properties, Inc. (NYSE:CBL) had the Q3 2012 earnings call November 7. This company is a real estate investment trust that manages commercial properties, including open-air and enclosed shopping malls.

As we look towards the fast approaching holiday season, we are encouraged by the recent strong gains in consumer confidence as lower gas prices, recovering housing market and improved jobs reports resonate with the shopper. While some or pleased with the outcome of the election and others are disappointed, we are confident that the economy is headed in the right direction and that our malls will benefit going forward.

CBL makes the leap to say that improved housing prices boosts consumer confidence. Perhaps, this piece of wisdom will pop up again in the future. Specifically, if housing prices move high enough, could it be enough to boost consumer demand again to create a new economic boom. With the loose monetary policy we've seen in the past few years, it may set off a chain reaction of inflation, which in turn, would also boost housing prices.

Georgia Gulf (GGC) had its Q3 2012 earnings call on November 7. This Atlanta-based company manufactures chemicals and building products.

Our Building Products adjusted EBITDA improved in the quarter and year-to-date period on slightly lower volume. We expect ongoing improvement as the North American housing market continues to show signs of recovery.

The key here is that the company expects to see on-going improvement. Signs of recovery could be fleeting, but expectations of improvement indicate that there is something more here.

Apollo Residential Mortgage, Inc. (NYSE:AMTG) has its Q3 2012 earnings call on November 7th. Apollo also falls into the residential mortgage REIT category.

Home prices appear to have stabilized in most major markets. S&P's Case-Shiller Index shows an annual gain of 1.2% in home prices across 20 cities in July. And consistent with our investment thesis and launching our hybrid REIT last year, we believe that the housing market is finally finding a bottom.

It's been many years since housing was considered a strong industry. So, if it is finally hitting a bottom, should we belief that the road forward is paved with gold for many years to come?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.