Here's a recent story on the homebuilder sector:
Friday January 12, 5:34 pm Eastern Time
Homebuilders may get boost from lower rates
(UPDATE: Adds details in paragraph 8)
By Rachel Cohen
NEW YORK, Jan 12 (Reuters) - For homebuilders worried the slowing economy may damp demand for new homes, lower mortgage rates may help them weather the storm.
The next few months will test whether lower mortgage rates are enough to offset the risk of a slowing economy and rising unemployment, said Legg Mason analyst David Weaver.
``We could see consumers sway either way over the next several months,'' he said, adding that the outcome will be instrumental for the construction industry.
Homebuilders are more optimistic a decline in interest rates, sparked by the Federal Reserve's move last week to cut key lending rates, will keep homebuyers lining up in near record numbers.
``We think we are in a highly favorable environment for purchasing a new KB home,'' said Bruce Karatz, chairman and chief executive of homebuilder Kaufman & Broad Corp. (NYSE:KBH - news) ``We see mortgage rates declining, inflation under control, unemployment at 30-year lows and household formations on the rise.''
Karatz spoke Thursday, when Kaufman, one of the top U.S. homebuilders, reported higher fiscal fourth-quarter earnings and record full-year results and said it expects to beat estimates for fiscal 2001, due in part to higher volumes.
Lennar Corp. (NYSE:LEN - news) on Tuesday reported fourth-quarter earnings above estimates and the homebuilder said it expects a record year in 2001. The company said its goal is to raise earnings by about 20 percent.
The fortunes of homebuilders are an important indicator for a whole range of other companies, such as home appliance makers, furniture manufacturers and home improvement retailers. If orders for new homes fall off, then all these sectors also feel the impact.
The Fed's interest rate cuts pushed mortgages rates to their lowest levels since spring 1999, and refinancing soared to its highest level in nearly two years, according to the Mortgage Bankers Association of America.
MORTGAGES AT NEAR RECORDS
The outlook for homeowners is so strong, Fannie Mae, the No. 1 U.S. mortgage finance company, estimated on Thursday that 2001 could see the second-highest number of new mortgages in the nation's history. The closely watched 30-year fixed mortgage rates averaged 6.89 percent in the week ended Jan. 13, the first time they dipped below 7 percent since April 1999.
Analysts, though, are not sure that low mortgage rates will be enough to keep the demand for new homes strong.
Consumers are getting more and more cautious, said Arnhold & S. Bleichroeder analyst Barbara Allen.
``In the balancing act between rising unemployment and falling mortgage rates, rising unemployment usually wins,'' Allen said. ``If you're worried about lay-offs, you don't really care what (mortgage) rates are.''
A December survey by the National Association of Home Builders found that home builders expected the market for new homes to slow despite declines in mortgage rates.
Thirty-five percent of builders of single-family detached homes said in December that they expect new home sales to be ``good'' in the next six months, while 57 percent said they expected ``fair'' sales and 9 percent expected ``poor'' sales.
These percentages were similar to the six-month outlook last June, but off from six-month expectations in October when 51 percent of builders expected ``good'' sales, 42 percent expected ``fair'' sales and 7 percent expected ``poor'' sales.
If lower rates aren't enough to offset an economic slowdown, the larger homebuilders will see new orders as they gain market share, analysts say.
Credit conditions are tightening and lenders are not likely to lend to small companies, said Lawrence Horan, director of research at investment company Parker/Hunter in Pittsburgh.
``The big publicly traded companies have plenty of access to capital and can gain market share,'' Horan said, even as overall housing starts go down.
Besides interest rates, the homebuilders have a backlog of orders in the first quarter that will help their results, whether or not they have higher new orders in the first half of 2001.
``Backlogs should sustain them for two quarters,'' said Merrill Lynch analyst Robert Curran, who thinks GDP will grow faster in the second half of the year than in the first half.
``If we have a relatively brief dip in the economy (homebuilders) will be able to sustain themselves,'' he said. |
