Friday, June 26, 2015

I am buying housing stocks as a medium term trade


This is a chart of ITB the iShares Dow Jones US Home Construction ETF. The news in housing has been getting better with a couple of large home builders reporting some recent good news.

Lennar Homes

Stuart Miller, Chief Executive Officer of Lennar Corporation, said, "The homebuilding market continued its steady improvement throughout our second quarter. Driven by higher wages and employment, reasonable affordability levels, supply shortages and favorable monthly payment comparisons to rentals, the homebuilding market is well positioned for multi-year growth ahead."
Mr. Miller continued, "Our core homebuilding business had gross and operating margins of 23.8% and 13.8% in the second quarter, respectively, which exceeded our previously stated guidance. Our average sales price of homes delivered increased to $348,000, the highest in the Company's history, from $326,000 in the first quarter of 2015 and $322,000 in the second quarter of 2014. Our new home deliveries and new order sales dollar value increased 21% and 28% in the second quarter, respectively, compared to the same period last year. Our sales backlog dollar value increased 23% from the second quarter of last year to approximately $2.9 billion, keeping us well positioned going forward.

KB Homes

 Our strong net order performance during the spring selling season underscores the success of our community expansion initiative and the broad appeal of our products and distinctive home-buying experience, as well as healthy demand in our served markets, said Jeffrey Mezger, president and chief executive officer of KB Home. With the positive momentum we have generated across our business, we ended the second quarter with significantly higher backlog levels in each of our four regions relative to a year ago, providing excellent visibility on our deliveries and revenues for the remainder of the year. We are confident that we have the strategic drivers in place to produce measurable year-over-year earnings growth in the second half of 2015 as we realize higher revenues from our larger operational platform and anticipate generating further sequential margin improvement from our recently opened communities and additional scale as the year progresses. 

The overall news for the housing industry continues to improve.

Groundbreakings on new homes fell by a 11.1% in May but building permits hit a new eight-year high, the U.S. Commerce Department said Tuesday. The numbers are one positive sign that the inventory shortage holding back the housing recovery could ease.

I think that the start were down in May due to weather as the spring was very wet across a lot of the country. However permits and home builder confidence is up. I think most people have a negative bias towards housing as an after effect of the 2008 housing debacle. However, as we know things do not stay down or up forever. There has been too little house building over the last few years and the inventory of housing is insufficient for the new buyers that are emerging. I am not anticipating a huge pre-2008 boom but a change at the margin which should be sufficient to move housing stocks higher. I think this trade will move to the upside as the housing numbers surprise many economistsover the upcoming quarters.

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