Ticonderoga on Homebuilding & Building Products / March Existing Home Sales Preview
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Rating Summary:
24 Buy, 8 Hold, 3 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 11 | Down: 18 | New: 17
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Ticonderoga on Homebuilding & Building Products / March Existing Home Sales Preview by Stephen East
"Wednesday morning brings March Existing Home Sales at 10:00 ET - The consensus estimate is 5.0M, or a 2.5% increase over February results. Given that Pending Home Sales declined 2.8% in January and increased 2.1% in February, the consensus appears a bit high. We believe EHS will be flattish. The risk to our call is the 2.7% and 7.0% sequential increase for February Pending Home Sales in the South and West, respectively. Given high investor participation in these regions, and shorter requisite time to close for these cash purchases, quicker contract-to-close conversion should favorably impact EHS this month. That said, the magnitude of such an impact is not quantifiable."
"The most important takeaway from the release will be the absolute level of inventory - which we would suspect to be slightly above the 3.488M reported last month (8.6 months’ supply). Any increase will likely be minimal, as inventory has averaged roughly a 50 basis point month-over-month increase in March since 2001. We suspect, however, that the sequential jump will be higher this month, likely in the low single-digit area, as we believe listings were delayed given poor February weather. We note inventory increased 3.5% last month versus January in comparison to an historical average increase of near 6%. Employing EHS of 4.83M (down 1% from February) and Inventory of 3.59M (up 3% sequentially) implies months’ supply of 8.9 versus 8.6 reported last month. We note, holding inventory constant at February’s level, EHS need to improve to nearly 7.0M to reach 6-month supply equilibrium. Conversely, holding sales near a 5.0M annualized rate, inventory would need to decline 28% to reach equilibrium. We doubt either of these events is possible in the foreseeable future, so investors and consumers should expect elevated months’ supply for a very long time, in our view."
Some homebuilder stocks include: Lennar (NYSE: LEN) PulteGroup (NYSE: PHM), DR Horton (NYSE: DHI), MDC Holdings (NYSE: MDC), Toll Bros. (NYSE: TOL), KB Home (NYSE: KBH), Hovnanian (NYSE: HOV), NVR, Inc (NYSE: NVR), Ryland Group (NYSE: RYL), and Beazer Homes (NYSE: BZH).
"Wednesday morning brings March Existing Home Sales at 10:00 ET - The consensus estimate is 5.0M, or a 2.5% increase over February results. Given that Pending Home Sales declined 2.8% in January and increased 2.1% in February, the consensus appears a bit high. We believe EHS will be flattish. The risk to our call is the 2.7% and 7.0% sequential increase for February Pending Home Sales in the South and West, respectively. Given high investor participation in these regions, and shorter requisite time to close for these cash purchases, quicker contract-to-close conversion should favorably impact EHS this month. That said, the magnitude of such an impact is not quantifiable."
"The most important takeaway from the release will be the absolute level of inventory - which we would suspect to be slightly above the 3.488M reported last month (8.6 months’ supply). Any increase will likely be minimal, as inventory has averaged roughly a 50 basis point month-over-month increase in March since 2001. We suspect, however, that the sequential jump will be higher this month, likely in the low single-digit area, as we believe listings were delayed given poor February weather. We note inventory increased 3.5% last month versus January in comparison to an historical average increase of near 6%. Employing EHS of 4.83M (down 1% from February) and Inventory of 3.59M (up 3% sequentially) implies months’ supply of 8.9 versus 8.6 reported last month. We note, holding inventory constant at February’s level, EHS need to improve to nearly 7.0M to reach 6-month supply equilibrium. Conversely, holding sales near a 5.0M annualized rate, inventory would need to decline 28% to reach equilibrium. We doubt either of these events is possible in the foreseeable future, so investors and consumers should expect elevated months’ supply for a very long time, in our view."
Some homebuilder stocks include: Lennar (NYSE: LEN) PulteGroup (NYSE: PHM), DR Horton (NYSE: DHI), MDC Holdings (NYSE: MDC), Toll Bros. (NYSE: TOL), KB Home (NYSE: KBH), Hovnanian (NYSE: HOV), NVR, Inc (NYSE: NVR), Ryland Group (NYSE: RYL), and Beazer Homes (NYSE: BZH).
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