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Tags: housing | homes | economy | recovery

Housing's 2 Shortcomings Shouldn't Derail Recovery

Housing's 2 Shortcomings Shouldn't Derail Recovery
(AP)

Dr. Edward Yardeni By Friday, 24 June 2016 01:07 AM Current | Bio | Archive

There’s more good news on the home front. Early earnings from the homebuilders indicate the slow but steady improvement in the housing market continued in the second quarter.

The only obstacles to further improvement appear to be the increasing costs of labor and materials.

However, an optimist might consider those good problems to have, as they indicate strength in both the housing industry and the job market.

Here’s a quick look at some of the results:

(1) Lennar’s profits rose to $218.5 million in the quarter ending May 31, up from $183 million in the year-ago period. Its Q2 earnings per share of 95 cents soundly beat Street estimates of 87 cents, noted a 6/21 FT article. The number of Lennar’s new home orders jumped 10%, and their dollar value jumped 11%.

CEO Stuart Miller described the company’s expectations for future growth and experience with land and labor expenses in the Q2 conference call: “We expect that demand will continue to build and come to the market over the next years and that will drive increased production as the deficit and housing stock ultimately needs to be replenished. Nevertheless, land and labor shortages will continue to be limiting factors and will constrain supply and restrict the ability to quickly respond to growing demand, while the mortgage market and higher rents will continue to constrain that demand. We expect that these conditions will continue to result in a slow and steady positive homebuilding market and will enable slow, steady though sometimes erratic growth throughout the industry.”

(2) The story at KB Homes is similar. Revenue jumped 30% y/y in Q2, and profit came in at $15.6 million, up from $9.6 million in the year-ago quarter. Earnings per share came in at 17 cents, above the Street consensus estimate of 14 cents, noted a 6/21 WSJ article. In addition, new orders rose 8%. KB’s CEO Jeff Mezger credited the strong results to the strengthening of the first-time homebuyer, as Millennials are getting jobs and forming their own households.

KB Homes had less trouble with labor in the most recent quarter. The labor shortage became “pretty intense” during the second half of last year and delayed construction, the 6/21 WSJ reported, “but in the latest period KB Home managed to lower build times by 10 days in part because of efforts to secure labor in advance with trade partners.”

(3) Winnebago may not build homes, but its RVs are large, discretionary purchases that often tumble at the first sign of economic trouble. So its strong fiscal Q3 earnings are a welcome sign. Revenue in the quarter increased only 2% because the company exited a business line, but the company enjoyed a 12.4% increase in shipments of motorized units and a 62.4% jump in towables, according to its press release. Adjusted net income jumped 25.2% to $14.4 million, or 53 cents a share, well above the 45 cents analysts expected.

Together, these three earnings reports confirm that low interest rates and a much-improved job market have given consumers the confidence to make large purchases despite the uncertainties in the global economy. Domestic economic strength was also reflected in the recent report on existing home sales, which increased 1.8% m/m in May. While slow but steady improvement in the housing market may not make for sensational headlines, it may be just what the economy needs to keep this recovery going.

Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research. To read more of his blogs, CLICK HERE NOW.

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EdwardYardeni
There's more good news on the home front. Early earnings from the homebuilders indicate the slow but steady improvement in the housing market continued in the second quarter.
housing, homes, economy, recovery
596
2016-07-24
Friday, 24 June 2016 01:07 AM
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