A Convergence Of Positive Momentum Continues Its (Quiet) March For Home Builders
- The iShares US Home Construction ETF is approaching a critical test of post-recession highs.
- Stock action, short interest, and housing data are all converging on what looks like an imminent breakout. The slow and quiet pace of these catalysts support a sustained move.
- A major analyst upgrade in the sector seemed to confirm as well as support the building momentum.
- New home sales hit a fresh post-recession high in September.
- Major revision downward of August sales still preserves the overall uptrend from the post-recession lows.
- This month's notably large move occurred in the under $150K segment of sales. The share of all sales in this segment had been trending downward for 2 years.
- The reaction to the data from iShares US Home Construction provides a potential sign that 2014's downtrend is finally reaching an end.
Tying Together Housing Sentiment, Starts, Sales, And Investment With iShares U.S. Home Construction
- August home builder sentiment surged to new post-recession highs.
- Housing starts continue positive year-over-year growth.
- This week, looking to new home sales and especially private residential fixed investment to confirm that iShares US Home Construction is overdue for a snapback rally.
Single-Family New Home Sales Jump 12%, Market Back In Balance
- July single-family new home sales print within recent range.
- Regional performance varied widely from a sinking Northeast to a strong South.
- Months of inventory has reached "balance" for the first time since the post-recession housing bottom.
- I am assuming home builders will slowly ramp production back down under current conditions and margins are likely capped for now (in aggregate).
The iShares U.S. Home Construction ETF Now Lags Encouraging Housing Data
- Defying June's bearishness, July housing starts surge to impressive post-recession levels.
- Regional performance is still volatile, underlining importance of looking past headline numbers for key drivers.
- The iShares US Home Construction ETF has not only responded with gains in the wake of good housing news, but it also has held these gains so far.
- Strong existing home sales numbers are reaching post-recession highs and adding to encouraging housing picture.
- Affordability and the prospect of higher rates remain important caveats.
No Need For Alarm Over Housing Starts Even As They Clash With Bullish Builder Sentiment
- iShares US Home Construction continues to get buffeted by a healthy mix of bullish and bearish indicators in the housing market.
- A recovery in home builder sentiment suggests that disappointing housing starts are more likely indicative of an on-going "bumping along" for the housing market.
- The Southern region greatly distorted the May to June housing start numbers just as it has throughout the housing recovery.
- Year-over-year changes in single-family housing starts are showing extremes in volatility that should further temper efforts to draw definitive conclusions.
- Home builder sentiment jumps in June and seems to confirm overall stabilization.
- 2014 is the third year in a row sentiment makes a spring recovery after a sharp drop in March.
- Sentiment remains supportive of investments in iShares US Home Construction.
Growing Stalemate: Housing Starts, Affordability And Sentiment Vs. Student Debt
- There are encouraging signs from strong April housing starts and forward-looking builder sentiment.
- Affordability increasing again, with cooling housing prices, lower rates, and rising median incomes.
- Potentially growing stalemate, as burden of student debt looming as next headwind for household formation.
- Overall, risks are to the upside, and warrant close monitoring of the iShares U.S. Home Construction ETF.
Residential Employment Plows Ahead As Housing Indicators Stabilize
- Residential employment prints 31st straight month of year-over-year growth.
- The Housing Market Index has stabilized the last 2 months with signs of life in April.
- Short interest in the iShares US Home Construction plunges to 9-month lows.
- Signs are adding up to a slightly more encouraging outlook for home builders.
Riding The U.S. Housing Recovery On The Back Of iShares U.S. Home Construction ETF
- Employment and mortgage rates are two most important drivers for housing recovery.
- Employment is recovering and QE exit has been fully priced in current mortgage rate.
- Fundamentals to support an organic housing recovery are in place.
- Recent ITB price correction presents a good buying opportunity.
Continued Momentum In Residential Construction Employment Doesn't Stop Slide In Home Builder Shares
- Employment in residential construction remains strong.
- ITB continues its dip anyway as TLT also takes a tumble and downgrades follow.
- Reversal in short interest could be confirming ITB's breakout.
There are no Transcripts on ITB.
Yesterday, 10:20 AM
- December new home sales coming in at a seasonally adjusted annualized rate of 481K was the strongest print since June 2008, notes the WSJ's Nick Timiraos, but the 2014 total of 435K only edged higher from 2013's 429K.
- In 2007, new home sales totaled 776K. At the bottom in 2011, they were 306K.
- ITB -1.2%, XHB -0.6%
- Previously: New home sales strong in December (Jan. 27)
Mon, Jan. 26, 10:49 AM
- D.R. Horton (DHI +7.4%) earlier reported FQ1 (ending Dec. 31) results which beat estimates and also said the sales pace has picked up in January.
- On the earnings call, management guides for 2015 gross margins of roughly 20% - earlier this month, both Lennar and KB Home warned on margins in 2015.
- ITB +1.7%, XHB +1.3%
- Lennar (LEN +2.7%), KB Home (KBH +1.7%), Toll Brothers (TOL +1.4%), Hovnanian (HOV +2.2%), PulteGroup (PHM +1.9%), Ryland (RYL +1.5%)
Wed, Jan. 21, 8:46 AM
- December housing starts of 1.089M were up 4.4% from November and 5.3% from a year earlier. Single-family starts of 728K gained 7.2% from November.
- Building permits of 1.032M actually fell 1.9% from November, but were 1% higher than a year ago. Single-family permits of 667K were up 4.5% from November, and multi-family permits fell 12.4%.
- Full report
- ETFs: ITB, XHB
Tue, Jan. 20, 9:43 AM
- Hovnanian (HOV -5%), M/I Homes (MHO -3.1%), and Taylor Morrison (TMHC -4.3%) are all cut at JMP Securities, with MHO and TMHC now Market Performs, and HOV now Underperform.
- Credit Suisse, meanwhile, also cuts Taylor Morrison. Alongside, the team downgrades Ryland Group (RYL -3.2%), Meritage Homes (MTH -3.4%), and PulteGroup (PHM -3.3%) to Underperform, noting margin declines (see KB Home and Lennar earnings) and a slowdown in Texas thanks to oil's plunge.
- There's one upgrade, and that's NVR (NVR), which is boosted to Neutral from Underperform at Credit Suisse.
- ETFs: ITB, XHB
- Previously: KB Home: "Work to be done" to meet goals; -12.6% (Jan. 13)
- Previously: Lennar leads homebuilders lower after earnings (Jan. 15)
Thu, Jan. 15, 11:31 AM
- The company earlier reported bottom-line results which beat estimates, but the top line slightly missed.
- FQ4 (ending Nov. 30) deliveries of 6,950 homes gained 23% from a year ago. New orders of 5,492 homes up 22%, up 24% in dollar terms. ASP of $329K vs. $307K a year ago. Incentives of 23.1K per home, or 6.6% of home sales revenue vs. $20.6K and 6.3% a year ago.
- Backlogs of 5,832 homes up 21%, up 22% in dollar terms.
- Gross margins of 25.6% fell 120 basis points from a year ago. Operating margin of 16% down 90 bps.
- Like KB Home earlier this week, Lennar (LEN -4%) warns of lower gross margins for fiscal 2015.
- ITB -2.9%, XHB -2.2%
- Toll Brothers (TOL -2.7%), Hovnanian (HOV -5.3%), D.R. Horton (DHI -4.9%), Ryland (RYL -4.7%), KB Home (KBH -5.5%), Pulte (PHM -4.3%) M.D.C. Holdings (MDC -5.9%), NVR (NVR -2.5%), Standard Pacific (SPF -3.2%)
- Previously: Lennar beats by $0.11, misses on revenue (Jan. 15)
Tue, Jan. 13, 12:03 PM
- Demand in some of its markets deteriorated as Q4 progressed, says KB Home (KBH -12.6%) management on the earnings call, and gross margins in Q1 are expected to be down "significantly" from the year-ago level.
- Pressed by analysts on the comments, management says it expects Q1 will be a low point for the year, with sequential improvement to follow. Not wanting to put too fine of a number on what it expects margins to be this year, management says achieving the 20% long-term target is unlikely.
- Webcast here
- Previously: Homebuilders whacked as KB Home starts earnings call (Jan. 13)
- ETFs: ITB -1.5%, XHB -0.3% - XHB's better performance reflects its higher focus on building suppliers, rather than homebuilders.
Tue, Jan. 13, 11:48 AM
- Up earlier after reporting a strong FQ4, KB Home (KBH -12.2%) goes into the tank as the earnings call begins and management warns on margins.
- Webcast here
- Some homebuilders are red, some are green, but all are well off session highs in sympathy: Hovnanian (HOV -2.7%), D.R. Horton (DHI -2.3%), Toll Brothers (TOL +0.3%), PulteGroup (PHM -0.6%), Ryland (RYL +0.2%)
- ETFs: ITB, XHB
- Previously: KB Home up 4.4% after strong FQ4 results (Jan. 13)
Wed, Jan. 7, 11:04 AM
- Bloomberg is reporting the president as set to announce a 50 basis point reduction in FHA fees to 0.85% at an event in Phoenix tomorrow. The news isn't good for private mortgage insurers who have been happily raking in market share gains at the expense of the government agency, but the homebuilders are a different story.
- Previously: Mortgage insurers tumble on report of cut in FHA premiums (Jan. 7)
- ETFs: ITB +3%, XHB +2.5%
- Toll Brothers (TOL +2.7%), Lennar (LEN +3.8%), D.R. Horton (DHI +4%), Ryland (RYL +2.9%), KB Home (KBH +2.5%), Hovnanian (HOV +3.6%), PulteGroup (PHM +3.9%).
Dec. 31, 2014, 8:43 AM
- Among the more interesting is the idea of North Korea hackers attacking the infrastructure of the NYSE and Nasdaq, precipitating a gigantic one-hour drop in stocks.
- Others include: 1) Significantly higher Apple (NASDAQ:AAPL) estimates, making it the first $1T market cap company, the best-performing large-cap in 2015, and a "must own." 2) Falling home prices in H2, making shorts of homebuilders (ITB, XHB) a good play 3) Bank stocks (NYSEARCA:XLF) have a hard time of it 4) Calling Twitter (NYSE:TWTR) his new Netflix, Carl Icahn amasses a sizable position, forcing a bidding war for the company between Google and Facebook 5) Google (NASDAQ:GOOG) becomes more shareholder friendly, cutting spending and launching a buyback program 6) Activists take aim at Cisco (NASDAQ:CSCO), forcing John Chambers out 7) Berkshire Hathaway (BRK.A, BRK.B) makes its largest-ever acquisition, and its not in consumer goods, but instead in energy, retail, or construction/equipment.
- The full piece is here.
Dec. 23, 2014, 10:15 AM
- November new home sales at a seasonally adjusted annual rate of 438K were off 1.6% from the previous month, and also lower by 1.6% from a year ago.
- A longer-term chart shows the current amount of new home sales to be at a level associated with the bottom of the deep recession of the early 1990s. There's also a pretty wide divergence between the confidence level of homebuilders (surging upward) and the path of new home sales.
- ITB +0.7%, XHB +0.9% on today's session.
- Previously: New home sales disappoint in November (Dec. 23)
- Full report
Dec. 10, 2014, 3:53 PM
- "Why 2014 was a pause and flat to 2013 and not improving has been a bit puzzling," says Toll Brothers (TOL -7.6%) management on the earnings call.
- Asked about the impact of tumbling energy prices on markets like Dallas and Houston, management says the company's exposure there is small, with Houston accounting for 3.7% of signed contracts.
- Overall, Toll expects the housing recovery to be "bumpy," and that demand will truly return when buyers no longer fear price drops.
- Previously: Toll Brothers slips on FQ4 miss (Dec. 10, 2014)
- It's a different story (at least for the stock price) with Hovanian (HOV +5.9%) after its earning report today. Management: "It's an understatement to say that the past 12 months have been choppy ... Given the gains we've seen in employment, we would have expected stronger home sales."
- Previously: Hovnanian pops as fiscal 2015 starts off strong (Dec. 10, 2014)
- Other builders today: Ryland (RYL -5.1%), Lennar (LEN -5.3%), Beazer (BZH -5.1%), Pulte (PHM -3.5%), KB Home (KBH -5.1%).
- ETFs: ITB -3.4%, XHB -2.5%
Dec. 8, 2014, 12:53 PM
- “There is a group of millennials that are waiting out there to jump into the market that do have the ability to repay,” say FHFA officials on a call announcing official approval of 97% LTV mortgages.
- Fannie Mae (OTCQB:FNMA -2%), which has more experience with the program, is already accepting applications, but Freddie Mac (OTCQB:FMCC -2.1%) - newer to the product - is waiting until late March for full implementation.
- Homebuilder ETFs: XHB, ITB
Nov. 19, 2014, 8:57 AM
- Single-family starts in October of 696K (the highest pace since Nov. 2013) were up 4.2% from September, while far-more-volatile multi-family starts fell 15.5%.
- Overall housing starts 1.01M were up 7.8% from a year ago.
- Full report
- Home construction ETFs: ITB, XHB
- Previously: Housing starts fall 2.8% in October
Nov. 18, 2014, 3:56 PM
- The IPO market remains hot - 344 companies have filed to go public so far this year, the most in a decade - but not so for homebuilders. After eight builders raised $1.77B issuing new shares in 2013 and 2014's first half - the first IPOs since 2004 - the momentum has faded as the pace of new home sales remains sluggish.
- “The public equity market right now is not an attractive place,” says Utah-based Woodside Homes chief Joel Shine. His company filed for an IPO in March, but instead decided to raise capital from existing investors and by issuing $50M of debt. The company in H1 posted sales roughly flat with that of a year ago.
- Of the eight builder stocks gone public sine 2013, five - TPH, CCS, WLH, UCP, TMHC - now trade for less than their IPO prices, while two - NWHM, WCIC - are modestly higher. Only one - LGI Homes (NASDAQ:LGIH) - has significantly outperformed the S&P 500.
- ETFs: ITB, XHB
Nov. 18, 2014, 10:13 AM
- “Growing confidence among consumers is what’s fueling this optimism among builders,” says NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, DE. “Members in many areas of the country continue to see increasing buyer traffic and signed contracts.”
- This month''s read of 58 is four points higher than October, and three points better than consensus estimates.
- The index of current sales conditions rose five points to 62, while the index for futures sales gained two points to 66. An index gauging prospective buyer traffic added four points to 45.
- ITB +0.5%, XHB +0.6%
- Previously: NAHB Housing Market Index
Nov. 10, 2014, 10:08 AM
- Releasing preliminary FQ4 results ahead of a conference presentation, Toll Brothers reported sizable year-over-year sales gains both in terms of units and dollars. The ASP of homes delivered of $747K was up 6.3% from a year ago. The ASP of signed contracts in FQ4 of $757K was up 5%.
- PulteGroup (PHM +2.6%) is also benefitting from an upgrade to Buy at BofA. Others: Lennar (LEN +2.7%), D.R. Horton (DHI +2.1%), Ryland (RYL +3.1%), Hovnanian (HOV +3.4%), KB Home (KBH +3.1%).
- ETFs: ITB, XHB
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