New Data On Inventory And Median Asking-Prices [View article]
Credit Suisse's Monthly Survey of Real Estate Agents - January, 2013 - has just been released. This is an excellent view of the major metro areas spread through the US real estate market. It includes graphs, charts, and specific monthly data points gathered from dozens of real estate agents across the US. (regarding their local markets). Published by the highly-regarded housing analyst, Dan Oppenheim, Credit Suisse.
New Data On Inventory And Median Asking-Prices [View article]
The fed is committed to doing this until both employment and GDP are stable. Thus QE through MBS could last for at least two more years; if not the decade. That's a long time in today's investment world.
New Data On Inventory And Median Asking-Prices [View article]
Thank you for your comments. For decades American home-building and home-owning was a sleepy plain vanilla industry based on common sense. You bought what you could afford; banks loaned to people who they knew could repay those loans; and default rates were normal.
Then in the 1980s, Wall Street moved into real estate by securitizing and bundling home loans into mortgage back securities (MBS), and in the 1990s, innovative ways of selling the "risk" inherent in owning those assets (CDS). Banks embraced the novel idea of keeping the asset but selling the risk, thus allowing them a safety cushion (in their minds) to take on more leverage. Someone "else" would deal with the defaults because the banks were insured (CDS) against losses.
The rest is history. The industry became hyperventilated with leverage as billions of investment dollars streamed into this small niche market and prices skyrocketed. Houses and home-building became a paper game of numbers as the fantasy drifted ever-farther from the reality. This process is exquisitely captured in the FrontLine special, "Money, Power and Wall Street. Take No Prisoners" (http://to.pbs.org/UDbWCZ)."
The result - as illustrated in John Chiem;s article (referenced above) - is a severe supply/demand imbalance that will take years to rectify. Added to this, 6 years have now gone by; half the industry is gone; millions of construction workers have left for other lines of work, and you have to be Mother Teresa to get a loan.
Because I live in the SF Bay Area, I haven't seen anything like what's happening now, not even in 2006. Home prices rising 69% in Sacramento in a single year, and over 40% in San Diego, San Francisco, Orange county? That's unheard of. Even the lowly foreclosure kingdom - Riverside, CA - clocked in at 44% for the year. KB Home is pulling communities out of mothball status and selling them.
So no, I don't think that LEVEL of demand is priced into KB Home at this juncture. I believe the company will continue to add cash to its balance sheet- maybe a $100ML a quarter - and will gather over a billion in cash by 2015 to refinance and reduce their leverage till it's closer to a more normalized 3:2 or 2:1. The average sales price of homes delivered in the fourth quarter of 2012 ($271,000) is almost identical to the fourth quarter in 2006 ($273,000). See link: http://bit.ly/UObkfs
They had 444 communities back then, SG&A was 12.7%; the backlog was over 17,000 homes and their LT debt to capital was 2:1. And this was after dramatic reductions in community count for 2006; earnings per share had fallen by almost half of 2005 to $5.82 for the year; and the company paid off $1.2 BL long term debt.
Today, roughly the same management team is in place, and as they have said in their conference calls, they are now "going on offense". I think the meat of stock appreciation will be in 1H2013 as the company hits on all cylinders and begins to enhance operating and net margins.
At the beginning of the last real estate cycle in 1991, all the major builders went 4 to 1 or 5 to 1 off the lows of 1990 before consolidating. Because of the hard-hit CA economy, KB home was late to the game back then and I think the same thing applies today.
I am looking for an initial target of $20 with an eventual rise to $30+.
Picking Homebuilder Stocks For 2013 [View article]
KBH pulled back almost 18% from its recent highs after the last earnings announcement in December. I picked up more at $15. BRP dropped 25% to $14.08 after its earnings announcement (because they floated a large secondary) and I added more there. (I am surprised you never mention BRP. It is an emerging small cap monster for homebuilding/lot development. Maybe check it out?)
All's it will take for a nice buying opportunity to emerge is for any home-builder to offer a secondary. A political disaster in congress would help too. I am doing just like you - I have about 25% of my buying power set aside, waiting for the next sell-off in something good.
Markos - take a look at Credit Suisse's Monthly Survey of Real Estate Agents for November for "man on the street" foot traffic data. I think you will find it a little more bullish than the 36 you mentioned above. I kinda think what's happening now is the holiday season, winter snow on the ground, visiting relatives - things like that. Not looking at houses. I believe that will change dramatically as we move towards Feb/March. I employment improves, so will mobility. Inventory is still falling, interest rates will remain low (per the Fed's promise), buyers prefer new homes (no fixing up) and these homes come with better energy efficiency.
BTW...my favorite builder - KB Home (http://bit.ly/Ws2zLQ) - is snatching up finished lots in Austin, San Antonio, Raleigh and coastal CA. I expect these geographies will outperform the remainder of the U.S. in 2013. I don't see the dire demographics on the horizon that you do. Rather, I believe that 2H2013 will the time when we emerge from this long period of stagnation.
Look Beyond November Housing Starts For Upside [View article]
You hit the nail on the head, Plus there is a back and forth push-me pull-you between permits and starts. The rising trend is the important thing. It will catch up with the builder sentiment by summer.
The big game begins on January 1 when the new Spring selling season - that all the builders have been frantically preparing for - goes into full swing.The biggest indicator is inventory, which continues to go straight down. I expect it to bottom in the very low 4s this coming summer.
3 Stocks To Short In The Housing Sector [View article]
Goldman Sach's chief economist says we have about 6 more months of this fiscal cliff soup in 1H'2013; and after that, a 3 year recovery of 3%+GDP led by the residential housing market.
I simply add to my builders each month. And Danstv simply writes from his experience. And BTW...his experience is very valid, because he got his real estate license when the housing market was at ground zero.
Out here in the SF Bay Area, you blink and a new listing is gone. A neighbor of mine needed to move - wanted to sell his house at a reasonable rate - the going rate - nothing special. He listed it on a Monday and was moving out 10 days later. It's in escrow. Last year in 2011 he might have waited 8 weeks and sold at a discount. 14 days is a long time now for a home to be on the market. Multiple offers are common, and this is the sleepy winter-time.
The housing starts for this winter are beginning to go parabolic just as the stocks are consolidating. I think there's another push coming in January.
Something is different now; a turn has occurred. Maybe it shouldn't have, and maybe it doesn't make sense, but the real estate agents I read say it's the best seller's market in 5 years.
Are Housing Stocks Priced To Perfection? [View article]
Nice article. Nice charts. I especially liked George's chart of KB home's capitalization ratio to historical levels. It's one of the big reasons I am in the stock.
I was also not aware that personal debt service had come down so much. I knew people were de-leveraging, but his chart shows a drop from all-time highs of debt in 2008 to normative levels of the 1980s and 90s in just 4 short years. A 25% drop. Brutal; but effective. That's a credit to the resiliency of the American people. We ain't no Europe.
The chart on median prices of new homes sold was also a shocker. This is the Fed's charts mind you. An 18.6% rise since in one year from $215K to $255K. A million new homes constructed in the next year would yield a $255BL boost to the construction industry and the overall economy.
KB Home Shines Again But Keep An Eye On California's Recovering Housing Market [View article]
BTW...short interest in KBH increased 2ML last month, so now it is up to 56% of the float. I am beginning to think that the high short position is not indicative of the fundamentals, but traders' attraction to the excessively-high beta and volatility. KB Home can lose $2/share (15%) just as quickly as gain it, and it seems to do this every three or four trading days.
KB Home Shines Again But Keep An Eye On California's Recovering Housing Market [View article]
Beacon Economics forecast of a 100% increase in new construction in CA in 2013 could be significant for KB Home.
KBH built close to a 1,000 homes in CA in 2011. This year they are probably on track to build 1,500 houses there. If they double that to 3,000 in 2013 (remember - all their 2013 "land for development" has been secured and paid for) their revenues should explode. The fundamentals for 2013 include rising starts, rising profit margins, and rising ASPs. I just read in a flyer announcement that Nationstar, their in-house mortgage broker, is offering free closing costs on SF Bay Area homes (KB's largest concentration of communities)
I think there is a significant series of earnings-beats and estimate upgrades coming for KBH between now and next summer - as the reality of what the company is doing hits the share price.
The bulk of their homes sell in CA sell in the $400 - $700K range in CA. So let's be conservative about what kind of CA numbers KB home could produce in 2013: say 18% operating profit margins on 2,500 CA homes at an average price of $400K. That's a billion in building revenues in 2013, with maybe $180,000,000 in profits, or $2.33/share - just from their CA communities. That's 16x what analysts are predicting for the entire company in 2013 (14 cents).
KB Home Shines Again But Keep An Eye On California's Recovering Housing Market [View article]
Beacon Economics expects a 5% rise in home prices in CA for 2013; and a 100% Year over Year rise in residential units from 40,000 in 2012 to 85,000 units in 2013. See pages 19-20 at link: http://bit.ly/Wnenwt
I have been closely monitoring the agent interviews in the Credit Suisse Monthly Survey of Real Estate agents, specifically the CA, TX, AZ, CO, and FL markets. Foot traffic has leveled off for the winter, but there is a noted sense of urgency by buyers as inventory has continued to drop and house prices rise. A very real housing shortage is developing in the land-constrained communities that KB Home serves. See Link: http://bit.ly/SXLktX
One of the things that Beacon Economics does is monitor "migration" statistics into/out of CA. The migration statistics in CA turn for the better just before employment improves. This happened in late 2011 just as the housing recovery began, and is still continuing. Also, AZ's restrictive immigration laws could become an unsuspected boon for Latino migration back to CA for the upcoming ramp in construction activity.
I think 2013 will continue to surprise to the upside as excessively tight inventory, improvements in employment, and record low interest rates drive an increase in permits and starts in housing-constrained CA. See link: http://bit.ly/RtfJ4u
Michigan sentiment came in very high today at 83. Next week is housing starts, building permits, and the NAHB (builders index). I suspect housing will re-ignite again around the economic indicators.
Google search - "CREDIT SUISSE Limited Inventory and Tremendous Affordability Drive Prices Higher" and you'll find the report on Walter Unger's site. Very nice service CS and Dan Oppenheim - the highly respected analyst - are offering investors.
Basically, foot traffic is beginning to back off while inventory is plummeting and prices are rising for the 9th consecutive month. Agents are remarking about the affordability, the mortgage rates, the lack of inventory, and one single word - Urgency - on the part of buyers to buy. The pullback in traffic is understandable. It's winter coming. October is the peak month for Fall sales. Limited inventory has created a spike in prices.
6 months ago the market had a 100 buyers looking at 40 homes for sale. Today there are 80 buyers looking at 10 homes for sale. If the builders aren't feverishly putting up spec homes this winter there will be nothing on the menu come Spring. This is dire folks. The builders are the only game in time right now. They need to put up stick builds, fast. The builders with the biggest crews and the fastest nail guns will be the champs in 2013.
One of the questions Bob Wetenhall of RBC asked KB Home CEO Mezger at the last CC was he purposely holding back on sales to boost price? Mezger said "No", but it was one of the longest, most roundabout ways I have heard No said in a long time. In other words, probably a non-denial denial. It looks like KBH is going to play "small ball" with their juicy geographic locations and only build when they see the "$ $ in their eyes" (higher margins). In other words, not blow through their inventory too quickly for the sake of sales. Lennar is going to do the opposite. They will be building fast and furious.
Maybe KBH won't be building numerically and as dramatically as LEN, but they will be making top dollar (higher margins) on every house they build. Smaller, wiser, better? Remember, they have already locked up ALL their land for development for the next 7 quarters. We won't know the real scope of their plans until they make some noises about retiring some long-term debt.
According to Credit Suisse, in KB's focus areas: CA (all), TX (all), FL (all), Phoenix, AZ and Denver, CO - Prices continue to rise and inventory continues to drop. Like I said awhile back, the public builders are like cats chasing mice on a square mile of white linoleum in these geographies. Easy pickings.
From 10-Q, "We ended the third quarter of 2012 with $466.5 million of cash and cash equivalents and restricted cash; our balance of unrestricted cash was $420.4 million. Our debt balance was $1.73 billion at August 31, 2012, compared to $1.58 billion at November 30, 2011".
The book value I arrived at was identical to the one Rob Wetenhall (RBC) came up with on August 3, 2012.
I really don't understand the spirit of accusation I've received in some of these comments, but it's instructive and maybe my own Karma for a big mouth in the past. My investment thus far has yielded a 100% return since January 1st, and almost 150% since June 1st. I was very late in coming to the builders in early 2012 and bought KBH as a way of catching up.
I suffered a 50% loss in April, 2012, but I hung in there, bought more, and now am glad of it. Almost all my research is done by observing industry sales data, reading interviews, and listening to conference calls. I also have premium subscriptions to economic and technical forecasters (employment, etc) whom I have learned to trust. I feel confident the story will continue to unfold as I have outlined. This is my 3rd real estate cycle.
I have switched about half of my investing capital to Gafisa (http://bit.ly/SRy93X) a Brazilian builder, and the story there reminds me of the American builders 18 months ago. That position has risen 8% from the lows of last week.
This will be my last comment on this particular article. At the end of the day my sole purpose in writing is to understand the stocks I own and make some money. I'm not interested in winning arguments with armchair quarterbacks. It's always been easier to throw rocks from the sidelines and the sofa. Safer, too, because there's no commitment and a lot of echo.
I only write about stocks I own because I have skin in the game. There is something to be said for that.
You are from San Francisco? Look at housingtracker, Credit Suisse's Monthly Survey of Real Estate Agents, or Beacon Economics (CA) - and read their monthly or quarterly data for CA communities for 2012. RedFin in the News is another good source of anecdotal material for the SF Bay Area. Then look at this chart (below) and ask yourself where KB's business prospects are headed.
New Data On Inventory And Median Asking-Prices [View article]
See Link: http://bit.ly/11lrH8C
New Data On Inventory And Median Asking-Prices [View article]
New Data On Inventory And Median Asking-Prices [View article]
New Data On Inventory And Median Asking-Prices [View article]
Then in the 1980s, Wall Street moved into real estate by securitizing and bundling home loans into mortgage back securities (MBS), and in the 1990s, innovative ways of selling the "risk" inherent in owning those assets (CDS). Banks embraced the novel idea of keeping the asset but selling the risk, thus allowing them a safety cushion (in their minds) to take on more leverage. Someone "else" would deal with the defaults because the banks were insured (CDS) against losses.
The rest is history. The industry became hyperventilated with leverage as billions of investment dollars streamed into this small niche market and prices skyrocketed. Houses and home-building became a paper game of numbers as the fantasy drifted ever-farther from the reality. This process is exquisitely captured in the FrontLine special, "Money, Power and Wall Street. Take No Prisoners" (http://to.pbs.org/UDbWCZ)."
The result - as illustrated in John Chiem;s article (referenced above) - is a severe supply/demand imbalance that will take years to rectify. Added to this, 6 years have now gone by; half the industry is gone; millions of construction workers have left for other lines of work, and you have to be Mother Teresa to get a loan.
Because I live in the SF Bay Area, I haven't seen anything like what's happening now, not even in 2006. Home prices rising 69% in Sacramento in a single year, and over 40% in San Diego, San Francisco, Orange county? That's unheard of. Even the lowly foreclosure kingdom - Riverside, CA - clocked in at 44% for the year. KB Home is pulling communities out of mothball status and selling them.
So no, I don't think that LEVEL of demand is priced into KB Home at this juncture. I believe the company will continue to add cash to its balance sheet- maybe a $100ML a quarter - and will gather over a billion in cash by 2015 to refinance and reduce their leverage till it's closer to a more normalized 3:2 or 2:1. The average sales price of homes delivered in the fourth quarter of 2012 ($271,000) is almost identical to the fourth quarter in 2006 ($273,000). See link: http://bit.ly/UObkfs
They had 444 communities back then, SG&A was 12.7%; the backlog was over 17,000 homes and their LT debt to capital was 2:1. And this was after dramatic reductions in community count for 2006; earnings per share had fallen by almost half of 2005 to $5.82 for the year; and the company paid off $1.2 BL long term debt.
Today, roughly the same management team is in place, and as they have said in their conference calls, they are now "going on offense". I think the meat of stock appreciation will be in 1H2013 as the company hits on all cylinders and begins to enhance operating and net margins.
At the beginning of the last real estate cycle in 1991, all the major builders went 4 to 1 or 5 to 1 off the lows of 1990 before consolidating. Because of the hard-hit CA economy, KB home was late to the game back then and I think the same thing applies today.
I am looking for an initial target of $20 with an eventual rise to $30+.
Picking Homebuilder Stocks For 2013 [View article]
All's it will take for a nice buying opportunity to emerge is for any home-builder to offer a secondary. A political disaster in congress would help too. I am doing just like you - I have about 25% of my buying power set aside, waiting for the next sell-off in something good.
Homebuilder Tail Wags The Dog [View article]
BTW...my favorite builder - KB Home (http://bit.ly/Ws2zLQ) - is snatching up finished lots in Austin, San Antonio, Raleigh and coastal CA. I expect these geographies will outperform the remainder of the U.S. in 2013. I don't see the dire demographics on the horizon that you do. Rather, I believe that 2H2013 will the time when we emerge from this long period of stagnation.
Look Beyond November Housing Starts For Upside [View article]
The big game begins on January 1 when the new Spring selling season - that all the builders have been frantically preparing for - goes into full swing.The biggest indicator is inventory, which continues to go straight down. I expect it to bottom in the very low 4s this coming summer.
3 Stocks To Short In The Housing Sector [View article]
I simply add to my builders each month. And Danstv simply writes from his experience. And BTW...his experience is very valid, because he got his real estate license when the housing market was at ground zero.
Out here in the SF Bay Area, you blink and a new listing is gone. A neighbor of mine needed to move - wanted to sell his house at a reasonable rate - the going rate - nothing special. He listed it on a Monday and was moving out 10 days later. It's in escrow. Last year in 2011 he might have waited 8 weeks and sold at a discount. 14 days is a long time now for a home to be on the market. Multiple offers are common, and this is the sleepy winter-time.
The housing starts for this winter are beginning to go parabolic just as the stocks are consolidating. I think there's another push coming in January.
Something is different now; a turn has occurred. Maybe it shouldn't have, and maybe it doesn't make sense, but the real estate agents I read say it's the best seller's market in 5 years.
Take a look at this chart: http://bit.ly/RcPVyB
Are Housing Stocks Priced To Perfection? [View article]
I was also not aware that personal debt service had come down so much. I knew people were de-leveraging, but his chart shows a drop from all-time highs of debt in 2008 to normative levels of the 1980s and 90s in just 4 short years. A 25% drop. Brutal; but effective. That's a credit to the resiliency of the American people. We ain't no Europe.
The chart on median prices of new homes sold was also a shocker. This is the Fed's charts mind you. An 18.6% rise since in one year from $215K to $255K. A million new homes constructed in the next year would yield a $255BL boost to the construction industry and the overall economy.
I like those statistics!
KB Home Shines Again But Keep An Eye On California's Recovering Housing Market [View article]
KB Home Shines Again But Keep An Eye On California's Recovering Housing Market [View article]
KBH built close to a 1,000 homes in CA in 2011. This year they are probably on track to build 1,500 houses there. If they double that to 3,000 in 2013 (remember - all their 2013 "land for development" has been secured and paid for) their revenues should explode. The fundamentals for 2013 include rising starts, rising profit margins, and rising ASPs. I just read in a flyer announcement that Nationstar, their in-house mortgage broker, is offering free closing costs on SF Bay Area homes (KB's largest concentration of communities)
I think there is a significant series of earnings-beats and estimate upgrades coming for KBH between now and next summer - as the reality of what the company is doing hits the share price.
The bulk of their homes sell in CA sell in the $400 - $700K range in CA. So let's be conservative about what kind of CA numbers KB home could produce in 2013: say 18% operating profit margins on 2,500 CA homes at an average price of $400K. That's a billion in building revenues in 2013, with maybe $180,000,000 in profits, or $2.33/share - just from their CA communities. That's 16x what analysts are predicting for the entire company in 2013 (14 cents).
KB Home Shines Again But Keep An Eye On California's Recovering Housing Market [View article]
I have been closely monitoring the agent interviews in the Credit Suisse Monthly Survey of Real Estate agents, specifically the CA, TX, AZ, CO, and FL markets. Foot traffic has leveled off for the winter, but there is a noted sense of urgency by buyers as inventory has continued to drop and house prices rise. A very real housing shortage is developing in the land-constrained communities that KB Home serves. See Link: http://bit.ly/SXLktX
One of the things that Beacon Economics does is monitor "migration" statistics into/out of CA. The migration statistics in CA turn for the better just before employment improves. This happened in late 2011 just as the housing recovery began, and is still continuing. Also, AZ's restrictive immigration laws could become an unsuspected boon for Latino migration back to CA for the upcoming ramp in construction activity.
I think 2013 will continue to surprise to the upside as excessively tight inventory, improvements in employment, and record low interest rates drive an increase in permits and starts in housing-constrained CA. See link: http://bit.ly/RtfJ4u
KB Home As A Turnaround Play [View article]
Michigan sentiment came in very high today at 83. Next week is housing starts, building permits, and the NAHB (builders index). I suspect housing will re-ignite again around the economic indicators.
Google search - "CREDIT SUISSE Limited Inventory and Tremendous Affordability Drive Prices Higher" and you'll find the report on Walter Unger's site. Very nice service CS and Dan Oppenheim - the highly respected analyst - are offering investors.
Basically, foot traffic is beginning to back off while inventory is plummeting and prices are rising for the 9th consecutive month. Agents are remarking about the affordability, the mortgage rates, the lack of inventory, and one single word - Urgency - on the part of buyers to buy. The pullback in traffic is understandable. It's winter coming. October is the peak month for Fall sales. Limited inventory has created a spike in prices.
6 months ago the market had a 100 buyers looking at 40 homes for sale. Today there are 80 buyers looking at 10 homes for sale. If the builders aren't feverishly putting up spec homes this winter there will be nothing on the menu come Spring. This is dire folks. The builders are the only game in time right now. They need to put up stick builds, fast. The builders with the biggest crews and the fastest nail guns will be the champs in 2013.
One of the questions Bob Wetenhall of RBC asked KB Home CEO Mezger at the last CC was he purposely holding back on sales to boost price? Mezger said "No", but it was one of the longest, most roundabout ways I have heard No said in a long time. In other words, probably a non-denial denial. It looks like KBH is going to play "small ball" with their juicy geographic locations and only build when they see the "$ $ in their eyes" (higher margins). In other words, not blow through their inventory too quickly for the sake of sales. Lennar is going to do the opposite. They will be building fast and furious.
Maybe KBH won't be building numerically and as dramatically as LEN, but they will be making top dollar (higher margins) on every house they build. Smaller, wiser, better? Remember, they have already locked up ALL their land for development for the next 7 quarters. We won't know the real scope of their plans until they make some noises about retiring some long-term debt.
According to Credit Suisse, in KB's focus areas: CA (all), TX (all), FL (all), Phoenix, AZ and Denver, CO - Prices continue to rise and inventory continues to drop. Like I said awhile back, the public builders are like cats chasing mice on a square mile of white linoleum in these geographies. Easy pickings.
The Disputed Book Value Of KB Home [View article]
The book value I arrived at was identical to the one Rob Wetenhall (RBC) came up with on August 3, 2012.
I really don't understand the spirit of accusation I've received in some of these comments, but it's instructive and maybe my own Karma for a big mouth in the past. My investment thus far has yielded a 100% return since January 1st, and almost 150% since June 1st. I was very late in coming to the builders in early 2012 and bought KBH as a way of catching up.
I suffered a 50% loss in April, 2012, but I hung in there, bought more, and now am glad of it. Almost all my research is done by observing industry sales data, reading interviews, and listening to conference calls. I also have premium subscriptions to economic and technical forecasters (employment, etc) whom I have learned to trust. I feel confident the story will continue to unfold as I have outlined. This is my 3rd real estate cycle.
I have switched about half of my investing capital to Gafisa (http://bit.ly/SRy93X) a Brazilian builder, and the story there reminds me of the American builders 18 months ago. That position has risen 8% from the lows of last week.
This will be my last comment on this particular article. At the end of the day my sole purpose in writing is to understand the stocks I own and make some money. I'm not interested in winning arguments with armchair quarterbacks. It's always been easier to throw rocks from the sidelines and the sofa. Safer, too, because there's no commitment and a lot of echo.
I only write about stocks I own because I have skin in the game. There is something to be said for that.
The Disputed Book Value Of KB Home [View article]
http://bit.ly/HUzjHu