It was a bad day on Wall Street
Thursday for housing stocks. In no particular order Census Bureau
data was released showing that new home sales had declined by 8.1
percent in June compared to May and that May's numbers weren't nearly
as shiny as was first thought.
(Read More: New Home Sales Decline from Downgraded May Numbers)
Then several of the big home builders
released quarterly earnings that missed analysts expectations. An
already jittery stock market did not take it well. The exchange
traded fund that trucks home construction fell to a two month low,
losing 3.4 percent of its value as most home builder and home
builder-related stocks fell. ITB was down another 0.79 percent in
early trading on Friday.
Both D.R. Horton and Pulte announced
that their earnings fell short. Horton reported earnings in its
fiscal third quarter of .32 per share; analysts had expected 0.49.
Pulte reported 2nd quarter earnings of 0.11 per share,
less than half of the 0.26 expected.
Horton said its earnings fell short due
to pretax charges of $54.7 million related to inventory impairments.
These were tied to the Chicago market where sales are still weak and
the company said it was attempting to boost sales and cash flow while
reducing those inventories and sales cancellations. MarketWatch's
Tomi Kilgore said “Wall Street
didn’t appreciate the company’s new strategy of focusing on
increasing unit sales over maintaining profit margins.”
news wasn't really all that bad. Horton, the nation's largest home
builder, said its revenue was up 28.2 percent to $2.09 bill, just
short of expectations and Pulte's sales were up 15 percent.
Horton's CEO, in a conference call with reporters called the demand
for new homes relatively stable and said that his companies
aggressive acquisition of building sites and more aggressive use of
sales incentives had given the company its highest market share ever.
Pulte reported that while net home
orders during the second quarter were down 2.2 percent form the same
quarter in 2013, sales per active community were up about 6 percent
and the net order price was 7.1 percent higher. Home deliveries were
down 8.5 percent.
Another indication that the near
future of home building isn't all that grim comes from the most
recent NAHB/Wells Fargo Home Home Market Index survey. The survey, a
measure of builder confidence in the market, moved significantly to
the positive, crossing over the benchmark score of 50 which indicates
more builders view the market as good than view it as poor. This was
above analysts' expectations and was the first time since January
such a score had been reached and builders also expressed optimism
for future sales. It was only builders' attitudes about current
traffic, still well below the milestone level, that showed lack of
confidence from those on the front line.
(Read More: Homebuilder Confidence Back Into Positive Territory)
Joseph Hogue, writing in Motley Fool
the day before the Horton and Pulte financials were released said
the recent drop in stock prices for most home builders over the last
month was the result of a report (which he attributed to National
Association of Home Builders but it was actually Census Bureau
construction data) showing a surprise drop in home construction in
June. Permits issued during the month declined by 4.2 percent to
963,000 units (a seasonally adjusted annual figure) and housing
starts were down by over 9 percent to 575,000 units.
(Read More: Housing Starts Fall Enough to Break 3yr Trend of Improvement)
Hogue pointed out that the weakness in construction data was
almost entirely due to a near 30 percent drop in starts in the
southern region; surprising because of the relative strength of that
region in recent months. He asks whether that anomaly might just be
the result of a bad month of collecting and reporting data in one
region. Even if correctly reported, he said, there is a strong
possibility that there will be a rebound in next month's data as the
long term fundamentals look promising. He, in fact feels so strongly
that the data for the south might be incorrect and thus negatively
skewing the national data, that he spent considerable ink laying out
and justifying that premise.
Hogue consludes that, "Whether June construction data ultimately proves an error or not,
there is good reason to believe that home builder shares have upside
potential. July data for new starts could show a rebound and the
deficit in new construction should support building for several