Morning Report – Homebuilder earnings 6/27/14

Vital Statistics:

 

Last Change Percent
S&P Futures 1944.2 -4.5 -0.23%
Eurostoxx Index 3230.7 -2.5 -0.08%
Oil (WTI) 106.1 0.2 0.23%
LIBOR 0.235 0.001 0.21%
US Dollar Index (DXY) 80.14 -0.081 -0.10%
10 Year Govt Bond Yield 2.52% -0.01%
Current Coupon Ginnie Mae TBA 106.6 0.0
Current Coupon Fannie Mae TBA 106.1 0.1
BankRate 30 Year Fixed Rate Mortgage 4.16

 

Stocks are lower this morning on no real news. Bonds and MBS are up.
KB Home reported second quarter earnings this morning. Revenues increased 8% on a 10% increase in average selling prices and a 2.5% decline in deliveries. Margins continued to expand. It will be interesting to see how long the builders can keep increasing the top line through price increases and volume decreases. The stock is up an eighth this morning.
Lennar also reported yesterday. Revenues increased 28% on a 12% increase in deliveries and a 14% increase in ASPs. Like KB, margins are increasing. Lennar is ready to launch a starter home product once first time homebuyers are able to get mortgages. (Gee, Lennar, don’t you have a mortgage origination arm?). The spring selling season was weaker than expected, but the homebuilding market is heating up. May was a great month, apparently.
The Kansas City Fed Manufacturing Index came out yesterday. It eased somewhat, but is still reasonably strong. Some companies mentioned that it is hard to find skilled workers, however once company said the problem was finding “workers who are reliable and possess a strong work ethic.” Overall, the comments seemed relatively bullish, with another company saying that “Compensation levels have been increased within all grades to compete with other employers. Production employees received 4-5.5% average wage increases this past year compared to 3% for all other areas of the company.” The missing piece to the inflation picture has been wage growth. If we are starting to see it, bond investors should start eyeing the exit.
Jack Lew spoke yesterday, and announced that the HAMP program would be extended through 2016. Also, the Administration will tap Treasury funds to push for more low-income rental housing. He also called on Congress to allow Ginnie Mae to securitize loans made under the FHA risk-sharing program. Treasury is also seeking public comments on what it can do to foster a more robust private-sector mortgage securitization market.
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