By David Urani
The market is trading flattish, and that also comes with little data to draw from, as there were no major economic releases today. That said, under the surface there remain a couple of issues yet to be resolved. One of course is Crimea, where there continues to be a lot of posturing from Ukraine and Russia over who owns it, but still no sign of a full-blown battle. The other will be revealed this afternoon when the Fed gives its latest policy decisions.
The expectation is for the Fed to continue its tapering course by cutting back on QE by another $10 billion per month. As Fed Chair Yellen has said before, she sees the draw-down in QE continuing unless something changes. With that said, there has certainly been some sign of softness in the economy in recent months. The thing is, as Yellen stated in her testimony last month, she seems to be just as in-the-dark about the weather factor as everyone else. Should the Fed decide that the economy is in fact softening and that it is not weather-driven, one could suspect that they would delay further tapering. That doesn't seem likely, but we'll see.
In earnings news, KB Home (NYSE:KBH) is giving homebuilders a lift on its fiscal Q1 report (quarter ending February). They beat by $0.02 on the bottom line, with revenues up 11% to $451 million versus a $439 million consensus. Some other stats:
- Gross margin +290bps to 17.7%; average price +12% to $305k
- Backlog +21% to $852m (+4% in units)
- New orders +18% to $507m (units +6%); dollar value up in all regions
- Southwest +45%, Central +18%, +63% Southeast, -12% west
- Community count +10%
- First 1Q profit since 2007
Naturally, there's been some hesitation surrounding the housing market of late given a swath of data that's been underwhelming. On one hand the weather has certainly played a part in some of the soft sales data, but for others including myself there's also been a question of rising prices and higher mortgage rates playing a part. KBH is putting to rest some of those fears, as it posted a good result all around. It showed new orders up in all regions, and while the West has been lagging somewhat that region also appears to be affected by a lack of supply as good land at a fair price is tough to come by. In fact, the company had recently run out of inventory in inland California.
KBH has since invested in new communities in California, and that seemed to lead to an improvement in order trends in that region. That also speaks to our long-term thesis on housing, where there is an overall lack of supply on the market. Existing home inventory stands at 4.9 months' worth, with new homes being at a 4.7 month supply which is historically a low amount. That also coincides with yesterday's housing starts and permits data which didn't blow anyone away, but did both recently come off of the late-2013 highs, which in turn were the highest levels of home construction since 2008. The current rate of construction has yet to meaningfully lift supply off of rock-bottom levels, giving room for increased homebuilding activity.