From GS this a.m.:
Housing views from the ground: (Start)ing to look like it’s more than weather
Housing micro data offsetting tepid macro
Strong 1Q order growth for builders has been in
stark contrast to weakness in national housing
data. For us, this suggests a needed catch-up in
the data (which are consistently revised) and
share gains for large publics over the smaller
private builders. Additionally, homebuilders are
beginning to see pockets of pricing strength in
select cities and the overall environment is
showing improvement. We expect the tone of
upcoming housing data to be positive. Our key
concern, however, is the notable slowdown in
employment growth, which could slow the
improvement.
April sales suggest that weather is not the
key driver of strength
Weather is believed, by some, to be the key driver
of the sales improvement but we disagree.
Comments on April are encouraging and healthy
as the weather benefits fade. Additionally, the
less-traditional housing indicators like railroad
lumber volumes, lumber prices, mortgage
applications and home listing prices indicate a
continuation in near-term improvements.
Home prices tentatively climbing
Our most timely home price indicator,
housingtracker.net, suggests that prices marched
higher by 2.2% mom in April. We expect the Case-
Shiller index to improve through the summer.
Seeing some product sales deceleration
Recent pricing actions across the various building
products channels have been successful, but
momentum has slowed in April. Most of our
industry contacts suggest that April saw an
inventory correction in place and that 2Q sales
growth is dependent on a strong Memorial day.
Our top ideas: Buy MDC, TOL, PHM and OC
MDC Holdings (MDC), PulteGroup (PHM) and Toll
Brothers (TOL) remain our favorites among the
homebuilders. We like MDC and PHM for their
under-appreciated turnarounds and attractive
valuations, while TOL is a long-term share gainer
and beneficiary of strength in high-end housing.
Within building products, Owens Corning (OC),
with its strong pricing power, high blended
incremental margins and buybacks is our favorite. |
