A far-faster-than-expected 15.7% gain in housing starts in July has the homebuilders sharply higher. Lenner (LEN +2.6%), Comstock (CHCI +5.8%), Ryland (RYL +2.4%), Hovnanian (HOV +3.2%), D.R. Horton (DHI +2.1%), Toll Bros. (TOL +1.4%), PulteGroup (PHM +1.1%), KB Home (KBH +1.9%).
Commenting on the number, Bill McBride notes starts in Q1 averaged 925K on a seasonally-adjusted annualized rate, 997K in Q2, and that Q3 appears to be off to a solid start (1.093M in July). By year's end, McBride expects 2014 housing starts to increase by a double-digit pace over a weak 2013.
The ITB is lower by 1.5% and the XHB by 0.7% with earlier earnings misses from Pulte (PHM -1.5%) and D.R. Horton (DHI -5%). and just-released disappointing new home sales data weighing. Also reporting this morning was M/I Homes (MHO -3.2%), and that company beat estimates.
June single-family new home sales of 406K fell 8.1% from May's rate of 442K (which was revised down from 504K). Expectations for June sales were 479K.
The supply of new homes rises to 5.8 months at June's sales pace from 5.2 months previously.
Other names: Lennar (LEN -1.6%), Ryland (RYL -2.3%), Standard Pacific (SPF -2%), Hovnanian (HOV -0.9%), Toll Brothers (TOL -2.2%).
There is a first-time homebuyer market "waiting to be activated" by access to mortgages, says Lennar (LEN +0.4%) CEO Stuart Miller, speaking on the earnings call. His company, he says, is considering building single-family homes for rent, and how Lennar proceeds will depend on what happens with mortgages.
Lennar also has a recently started-up multi-family segment and expects to have its first apartment community ready by Q3.
In other comments, the company is maintaining its goal of delivering 21K-22K homes this year, and management says its ability to raise prices is beginning to slow.
Lennar's (LEN) unsecured revolving credit facility is lifted to $1.5B from $950M previously, and the maturity is extended until June 2018. The interest rate will be a Eurodollar benchmark plus 1.75-2.25%, depending upon company leverage.
May's adjusted annual pace of 504K new home sales is the fastest print in six years. The number is 18.6% above April's pace and 16.9% higher than a year ago. The supply of new homes on the market at the current sales pace dropped to 4.5 months worth from 5.3 months in April.
Sales in the Northeast jumped to 34K from 22K in April, and those in the West to 130K from 97K.
The averages are nudging higher, but not the homebuilder names after Owens Corning cuts 2014 guidance on continued weakness in its roofing business.
Soft action in Q1 continued through April and May, says the company, which now sees H1 roofing volumes as much as 20% lower than 2013. Owens still expects H2 to be better, but is less confident of that forecast today than it was a few months ago.
Jay McCanless and Annie Worthman at Sterne Agee say without the benefit of a lower tax rate other non-operating boosts, Toll Brothers (TOL +2.1%) would have missed the team's EPS estimate of $0.31 per share. They continue to rate the stock an Underperform with $28 price target.
The bullish team at MKM Partners note Toll "essentially raised" guidance by boosting the low end of its average expected sale price this year to $690K from $675K. "Given the company’s long build cycle, we suspect that the higher guidance is likely more of a statement on the anticipated mix of closings rather than a signal that prices are being raised more aggressively."
The amount that lenders originated in mortgage loans plunged 58% on year Q1 to a 14-year low of $235B, almost entirely due to drop in refinancing. The figures are from industry newsletter Inside Mortgage Finance.
Loans for acquisitions were flat on year and lower than in Q4.
The trend is the latest indication that increasing interest rates are hampering the housing recovery. The average 30-year fixed-rate mortgage was 4.5% last week, up from 3.6% in May last year, when rates spiked after the Fed indicated it would scale back its QE program.
The iShares DJ U.S. Home Construction ETF (ITB +2.7%) gains as earnings roll in from D.R. Horton, PulteGroup, Ryland, and M/I Homes. While PulteGroup saw slowdowns in closings and new orders, but offsetting increases in prices, D.R. Horton reported sales, new orders, and prices all on the rise. DHI is ahead 8%, Pulte 3%, Ryland (RYL +2.2%), M/I Homes (MHO +5.9%).
The SPDR S&P Homebuilders ETF (XHB +1.2%) is more of a homebuilding supply play.
The seasonally adjusted new home sales pace of 384K in March is 14.5% below that of February and 13.3% lower than a year ago. It's the slowest pace since July, and 14.5% is the 3rd-largest decline in 20 years. The median sales price of $290K is up 12.6% Y/Y. The supply of new homes on the market is 6 months at the current sales pace, up from 5 months in February.
Lennar Corp is a homebuilder and a provider of financial services. Its homebuilding operations include the construction and sale of single-family attached and detached homes, and to a lesser extent multi-level residential buildings.