Morning Report – Homebuilder earnings 09/24/13

Vital Statistics:

Last Change Percent
S&P Futures 1692.0 -0.7 -0.04%
Eurostoxx Index 2923.4 17.0 0.59%
Oil (WTI) 102.8 -0.8 -0.79%
LIBOR 0.25 0.000 -0.16%
US Dollar Index (DXY) 80.59 0.140 0.17%
10 Year Govt Bond Yield 2.68% -0.02%
Current Coupon Ginnie Mae TBA 105 0.2
Current Coupon Fannie Mae TBA 104.4 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.39
Markets are flattish amidst a couple of big transactions – Applied Materials is buying Tokyo Electron (yes a Japanese company is being bought by an American firm) and there is a possibility of an “IPO” for Chrysler as Fiat and the UAW pension fund debate the value of the company. Bonds continue their post FOMC rally.
We have a couple real estate indices this morning – Case-Shiller increased 12.4% YOY, pretty much in line with forecasts, while the FHFA House Price Index increased 1.0% MOM. The FHFA index is more of a central tendency index because it focuses on homes with conforming mortgages attached to it – in other words, it ignores the jumbo space and cash transaction which are often distressed sales.
We have earnings from a couple of homebuilders today: Lennar (LEN) and KB Home (KBH). Orders dropped 9% on a unit basis, but increased 7% on a dollar basis. Their cancellation rate was 33%.  Revenues increased 29% and average selling prices rose 22% to 299k. KB’s increase in ASPs is due to a strategic shift on their part. The stock is down small premarket. Lennar reported ASPs of 291k, with new orders up 14% on a unit basis and 32% on a dollar basis. Cancellation rate was 18%. The stock is up 1.5% preopen.
Jeffrey Metzger, CEO of KB Home said “The fundamentals of the current housing recovery are firmly in place, supported by low inventory levels, an improving economy, and positive demographic trends. Given these factors, we believe that the recent slower pace of recovery caused by an uptick in mortgage interest rates is a temporary effect and we expect to see steady upward demand for housing as consumers adjust to both higher rates and pricing.”
Stuart Miller, CEO of Lennar said: “We continue to see long-term fundamental demand in the housing market driven by the significant shortfall of new single family and multi family homes built over the last five years. While there may be bumps along the road that may impact the short-term pace of the recovery, the long-term outlook for our business remains extremely bright.”

18 Responses

  1. Unintended consequences of the National Mortgage Settlement.

    http://www.salon.com/2013/09/24/banks_find_appalling_new_way_to_cheat_homeowners_partner/

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  2. Heh.

    @colvinj: .@deBlasioNYC asked whether he is a “radical, left-wing Democrat.” Responds:”I’m a progressive and I’m a Democrat, that’s right.”

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  3. Uh…

    @mfcannon: RT @sarahkliff: “When we say October 1 is ready and go live, that doesn’t mean its done,” Peter Lee, head of Obamacare in California,…

    C’mon, it’s not like they’ve had, you know, years to set this up.

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  4. For those who are interested, I get into a lengthy first principles debate with a Marxist in this thread under the 3:46 PM post by Poppycock.

    http://www.washingtonpost.com/blogs/plum-line/wp/2013/09/24/immigration-reform-is-on-life-support-but-it-isnt-dead-yet/

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    • That was well done, JNC. And your Marxist ended up in the rut of the “labor theory of value”, as well.

      The extraordinary inability to equate value with the theory of price in a perfectly competitive market and to dually assign to value the circular illogic that it exists absent demand and supply and without regard to investment or research, development and administration as cost factors has struck me as the most common example of faith based shibboleth outside of fundamentalist religion.

      Just one more opiate of the masses I guess.

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    • jnc:

      In the midst of your PL discussion you said that you are big on anti-trust laws because:

      Monopolies aren’t libertarian.

      I think you are correct, but only if the monopoly is coercive, ie the result of government regulation. Anti-trust law does nothing to prevent coercive monopolies, and much to inhibit the free market.

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  5. Scott, as you know, I am completely with JNC on anti-trust. It was one of Adam Smith’s requirements, along with no fraud or theft, for making the competitive mechanism work.

    If economic libertarianism requires the idea that government has no role in breaking monopoly it may as well require no role for government in punishing fraud.

    Then economic libertarianism is merely some new form of ideology like Marxism that relies on the competitve mechanism for its models but then is willing to have them destroyed for the sake of of the utopian dream.

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    • Mark:

      If economic libertarianism requires the idea that government has no role in breaking monopoly it may as well require no role for government in punishing fraud.

      I don’t think monopoly can be equated with fraud. Fraud is inherently bad for free markets because a proper functioning market relies on the free flow of accurate information. I don’t see why a monopoly is inherently bad for markets. I can see how a monopoly can be bad for markets, ie when it is put in place to prevent free markets from existing. But a monopoly can exist as the result of a free market, and I see nothing inherently wrong or detrimental with that. As I said to jnc, it is the threat of competition, not the manifestation of it, that free markets rely on.

      Anti-trust laws ostensibly exist to protect consumers, but I think they can and often do act to protect uncompetitive producers at the expense of consumers.

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  6. I’m a full on supporter of anti-trust for the reasons that Julian Assange argued here:

    “Would you call yourself a free market proponent?

    Absolutely. I have mixed attitudes towards capitalism, but I love markets. Having lived and worked in many countries, I can see the tremendous vibrancy in, say, the Malaysian telecom sector compared to U.S. sector. In the U.S. everything is vertically integrated and sewn up, so you don’t have a free market. In Malaysia, you have a broad spectrum of players, and you can see the benefits for all as a result.

    How do your leaks fit into that?

    To put it simply, in order for there to be a market, there has to be information. A perfect market requires perfect information.

    There’s the famous lemon example in the used car market. It’s hard for buyers to tell lemons from good cars, and sellers can’t get a good price, even when they have a good car.

    By making it easier to see where the problems are inside of companies, we identify the lemons. That means there’s a better market for good companies. For a market to be free, people have to know who they’re dealing with.”

    http://www.forbes.com/sites/andygreenberg/2010/11/29/an-interview-with-wikileaks-julian-assange/5/

    Shrink and I have gone around that before, and I’ll happily concede that it’s my main heresy from “pure” libertarianism and the idea that the market always produces the ideal outcome.

    My usual counter is that in order for market forces to work, there has to be a competitive market in the first place. I do view that as a legitimate role for government, along with other foundational things that are required for markets to work such as contract enforcement and laws against fraud.

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    • jnc:

      My usual counter is that in order for market forces to work, there has to be a competitive market in the first place.

      I understand that, but the existence of a monopoly does not imply the absence of a competitive market. Free market forces can produce a “winner” in a given market. And just because there is a single “winner” does not mean he no longer faces market forces. It is the threat of competition, not only the manifestion of it, that acts as a market force on the provider of a good or service. Only coercive monopolies, ie monopolies that have been established as the result of law/regulation, do not face the threat of competition, which is why it is coercive monopolies that I think are the main problem.

      There are “natural” monopolies (utilities, for example) for which regulation might be appropriate. But if, say, company A comes to dominate a market by virtue of its competitive ability, why should it be subject to special regulations simply because it has been the most successful competitor? It is ironic to me that companies that are particularly good at competing with and beating their competitors get accused by anti-trust regulators of being “anti-competitive”. It is often the anti-trust regulations themselves which prevent actual competition.

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    • jnc:

      BTW, on this:

      and the idea that the market always produces the ideal outcome.

      I don’t say that the market always produces the ideal outcome. I do think it is far more likely to produce a better outcome than one planned and orchestrated by government.

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  7. “most common example of faith based shibboleth outside of fundamentalist religion.”

    Labor theory of value wasn’t the main problem I had with the argument being made. It was the assertion that there would be no elites in the system of “full democracy” and socialism that was being advocated.

    I’d submit that premise is more utopian than anything Libertarians have proposed.

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    • I’d submit that premise is more utopian than anything Libertarians have proposed.

      Again, completely agreed.

      We lost our farm and moved to the city in time for me to enter 7th grade. For some reason that I do not recall, my English teacher created her example of what she thought Marxism was and explained to the class that in Marxism there were no slums or castles, just cottages. I raised my hand and said that in Marxist countries most people lived in slums and the dictator and his friends lived in castles. Food shortages in Moscow stores but Bulganin and Molotov had all they could eat.

      I read that part of your debate opponent’s argument and just laughed. That divorce from reality is at one level, but blind faith in a theory of value that is not ultimately determined by scarcity and need is at another.

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  8. I actually liked the debate. I thought she was well informed on economic theory and consistent in her arguments. It is important to understand the underlying data that informs the statistics on income distribution and taxes as a percentage of GDP if you are going to go beyond the usual exchange of rehashed talking points.

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    • I could tell you liked it. You kept it moving and on point. I would have been tempted to go down a rabbit trail with her. Glad it was you and glad you had as much at your fingertips as you did.

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  9. I tend to see barriers to entry that I suspect you would dismiss. I originally advocated for your position, but the break up of AT&T and the benefits that resulted caused me to rethink that approach.

    The computer industry and Microsoft itself may have well benefited from a break up had that been the outcome in the 1990’s vs the actual consent decrees and the like.

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    • jnc:

      I tend to see barriers to entry that I suspect you would dismiss. I originally advocated for your position, but the break up of AT&T and the benefits that resulted caused me to rethink that approach.

      I don’t know the full history of AT&T, but I would wager that its monopoly position was at aided and abetted by government regulation.

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  10. In real life I tend to see the choice coming down to government actively regulating a monopoly or breaking it up via anti-trust.

    I tend to believe that in most cases, breaking it up and then letting the market work produces better outcomes than attempting to regulate it.

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