Ticonderoga on Homebuilding & Building Products: May EHS - Relative to Consensus OK, On Absolute Basis Not too Impressive

Ticonderoga on Homebuilding & Building Products: May EHS – Relative to Consensus OK, On Absolute Basis Not too Impressive

Ticonderoga analyst, Stephen East, said, "Reported EHS for May were 4.81M, a 3.8% sequential drop, which was above the consensus of 4.77M. We note April results were revised down slightly. Single-Family sales were a tad better than the Total metric at down 3.2%. The positive equity reaction is likely due to the positive comparison versus consensus, not due to anything in particular in this middling release. However, we should start seeing modestly improved comparisons next month as this series anniversaries last year’s tax credit driven results."

"A key take-away from the release was the positive shift in first-time and distressed buyer market share. Combined, these segments saw a useful drop in market share. An additional semi-bright spot in the under-lying data was the 1% sequential improvement in Single-Family Sales in the West. Even that can be interpreted as a stretch given a relatively easy April comparison."

"Regionally, all but the West segment (as noted above) reported declines in both Total and Single-Family Sales. Single-Family Sales in the important South dropped 4% compared to last month. On a Not Seasonally Adjusted basis, the sales decline of 12.8% for Single-Family and 12.9% for Total Sales was were exacerbated a buyers last year rushed to close homes in May prior to the expiration of the tax credit."

"Absolute Single-Family Inventory supply decreased a rather limited 1.1% versus a month ago but on a months’ supply basis, rose to 9.0 months versus 8.8 months in April, We note that inventory on a months’ supply basis was at its highest point since Nov. 2010."

"Overall, median EHS prices declined 4.6% versus a year ago, which we view as disappointing given that distressed sales as a percent of transactions were flat year-over-year and first-time buyer market share declined 11 percentage points. As the mix of sales improved, we would have expected that to translate to a better median pricing metric."

"Distressed and First-time buyers accounted for 66% of total sales. This was down usefully from April’s 73% and 77% a year ago. We view this mix as a positive. Distressed sales accounted for 31% of the total or down 6 percentage point from April with First-time buyers accounting for 35% of total sales compared to 36% a month ago. We note the small decline in First-time buyer share continues supporting our belief that activity in the move-up market is improving slightly."

Homebuilder stocks of note include: Lennar (NYSE: LEN), PulteGroup (NYSE: PHM), MDC Holdings (NYSE: MDC), Hovnanian (NYSE: HOV), Beazer (NYSE: BZH), KB Homes (NYSE: KBH), Meritage (NYSE: MTH), DR Horton (NYSE: DHI), Standard Pacific (NYSE: SPF), NVR Inc (NYSE: NVR), Comstock Homebuilding (Nasdaq: CHCI), and Ryland Group (NYSE: RYL)

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