Ticonderoga on Homebuilding & Building Products: October New Home Sales

Ticonderoga on Homebuilding & Building Products: October New Home Sales - Pre-Thanksgiving Indigestion Not Nearly As Bad As Headlines by Stephen East

Ticonderoga analyst says, "New Home Sales at 283K declined 8.1% falling 10% below the consensus estimate of 313K. While the headline metrics are obviously a disappointment, looking below the headline, the data is not quite so disappointing. In combination with the jobs numbers and Michigan Consumer Index results, we believe flattish New Home Sales on a Not Seasonally Adjusted basis and declining absolute inventory are likely the reasons why the builder equities have held their gains so far this morning. An encouraging sign, it appears that the market has taken a forward looking position with regard to today’s release in lieu of driving by the rear view mirror."

"Regionally, results in the West were a huge disappointment falling 23.9% sequentially or 16K units. That being said, results in the important South were more encouraging at up 3.1% or 5K homes. Noted above, Not Seasonally Adjusted Sales results were more encouraging falling 1K units to 23K versus 24K in September and 23K in August. Absolute sales in the West declined 1K homes and was more than offset by a 2K sales increase in the South to 14K. We believe the absolute sales results show a market that has stabilized albeit at very low levels. Additionally, the Not Seasonally Adjusted results mirror commentary with respect to a flat market we heard on Q3 conference calls."

"Inventories declined 0.5% on a Seasonally Adjusted basis and 1% on a Not Seasonally Adjusted basis to 202K (down 1K) and 201K (down 3K), respectively. We remain at a post WWII lows with respect to absolute inventory. Given the disappointing sales pace, however, Months’ Supply increased to 8.6 from 7.9 months. On a Not Seasonally Adjusted basis, Months’ Supply was more favorable remaining relatively flat at 8.6 months, driven by lower sales, not higher inventory. Spec building in October was 20K comparing favorably to 21K in September and 23K in August."

"By sales price, on an absolute basis, the three sub-$300k price categories reported relatively flat sales month-over-month at 18K versus 17K with a 2K sale loss in the $200K-to-$300K segment offset by a 2K increase in the $150K-to-$200K segment and a 1K increase in the sub-$150K segment. As a percent of sales, these three categories gained 1 percentage point of share versus September rising to 76%. We attribute much of the shift down price-wise, to the geographic outperformance of the South, which typically has a lower price point than other regions."

"With respect to inventory, we note a couple of positive trends. Namely, inventory of completed homes continues to decline as well as homes Under Construction. Further, the Median Months for sale continues its downward trend. In sum, this should bode well for well for improved margins as the need to discount standing inventory disappates."

Some homebuilder stocks include Hovnanian (NYSE: HOV), KBHome (NYSE: KBH), PulteGroup (NYSE: PHM), Lennar (NYSE: LEN), Toll Bros. (NYSE: TOL), DR Horton (NYSE: DHI), NVR (NYSE: NVR), Beazer (NYSE: BZH), M/I Homes (NYSE: MHO), Brooksfield (NYSE: BHS), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL) and Meritage (NYSE: MTH)

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