The housing market is comprised of buyers and sellers of homes. Information on the housing market encompasses the supply and demand for homes as well as the inventory level of unsold homes. In markets around the country and different nations, you will have a natural progression of demand and supply. In some markets, there are new citizens moving to the city creating demand and, unless there is enough supply to match this demand, prices will rise. Income levels and mortgage rates also play a role in determining how many transactions occur in any given housing market.
Thus far, 460 companies on the S&P 500 have reported their corporate earnings for the third quarter of 2013. The average increase in earnings per share for these companies in the third quarter compared to the same quarter of last year was 3.5%. (Source: FactSet, November 8, 2013.)
My bet is that if you take out the record number of stock buyback programs the S&P 500 companies have announced this year, earnings for the third quarter of 2013 were flat. (I have my research staff working on these numbers, and I will be able to quantify this for my readers in the next few days.)
Yes, per-share earnings of the S&P 500 (before stock buybacks) are flat year-over-year, but the S&P 500 is up 30% over the same period. How can that make sense?
Well, S&P 500 corporate earnings are not even the most disturbing part…
Only a little more than half of the S&P 500 companies (52% to be exact) were able to beat their revenues estimates—a trend that has become common over the past few quarters, where per-share earnings rise but revenues remain flat.
A few of the biggest names on key stock indices have actually reported a decline in revenue. For the three months ended on September 30, News Corporation (NASDAQ/NWSA) reported a three-percent decline in its revenue from the same period a year ago, with revenues falling to $2.07 billion compared to $2.13 billion in the same quarter in 2012. (Source: News Corporation, November 11, 2013.)
And, of course, we have companies continuing to buy back their stock to boost per-share earnings. … Read More
The direction of prices in the housing market has historically been dependent on the direction of mortgage interest rates. If mortgage rates start to increase, it makes homes less affordable for those who want to buy. The math is simple: the higher the mortgage interest rate, the higher the mortgage payment is going to be for the home owner and the more difficult it becomes to keep up with payments—something we learned in the housing market crash of 2007.
Mortgage interest rates are rising, and I believe the U.S. housing market will suffer as a result. Of course, interest rates are nowhere close to what they were in the 1980s, but they are up significantly this year from their lows. The 30-year fixed mortgage rate tracked by Freddie Mac stood at 4.19% this past October. In the same period a year ago, the rate was sitting at 3.38%. (Source: Freddie Mac web site, last accessed November 12, 2013.)
The effects of demand for housing given higher interest rates can be seen in the chart below. The number of new homes sold in the U.S. housing market has been declining since the beginning of the year.
Chart courtesy of www.StockCharts.com
In early 2013, the annual rate of new homes sold in the U.S. housing market was close to 460,000 units. This number came in at just 421,000 units in August, down eight percent.
The weakness in the housing market can be seen in the statistics being released by new home builders. For example, D.R. Horton, Inc. (NYSE/DHI), a large U.S. homebuilder, said that in the fourth quarter of its fiscal … Read More
The news headlines are saying the U.S. housing market is witnessing robust growth and flipping homes for profit is back.
While many are now saying there is growth in the U.S. housing market and that it will continue, I disagree with them, based on many different factors…all of which I want my readers to know about.
Yes, home prices have gone up, but that’s about it for positive developments. The housing market still suffers, and there are problems that need to be fixed before it sees a full-on recovery.
The delinquency rate on single-family residential mortgages in the U.S. remains staggeringly high. In the second quarter of this year, it was 9.41%. Yes, again; it has declined from its peak of 11.27% in the first quarter of 2010, but it’s still almost 140% higher than its historical average of 3.94%! (Source: Federal Reserve Bank of St. Louis web site, last accessed November 8, 2013.)
As I have been harping on about in these pages; institutional investors jumped into the U.S. housing market buying residential homes in bulk, and as a result, prices increased. But we didn’t see first-time home buyers run towards the housing market—an increase in first-time home buyers is essential for any economic recovery.
According to the National Association of Realtors, in September, first-time home buyers accounted for 28% of all existing home sales in the U.S. Meanwhile, investors were behind one-third of all existing home sales! (Source: National Association of Realtors, October 21, 2013.)
The “U.S. Economic and Housing Market Outlook” report issued in October by the Office of the Chief Economist at Freddie Mac said, “According … Read More
In late February, we took a look at Drew Industries Incorporated (DW) out of Elkhart, Indiana. The company is a major component supplier to the recreational vehicle (RV) market and also sells to the manufactured homes market.
The RV market has been experiencing a significant upswing in business conditions. Drew Industries’ total sales are 87% in the RV segment, and the company just reported another solid quarter of growth.
For the company, 2009 was a very tough year. Net sales dropped by more than $100 million compared to 2008, and the company incurred a major net loss. But business conditions turned around in 2010, and have been especially good over the last two years.
During the Great Recession, the company’s 2009 sales dropped to $398 million. By 2012, total sales were a record $901 million, which is a pretty significant turnaround for any business.
Last year Drew Industries returned $45.0 million to shareholders with a special cash dividend of $2.00 per share. Between 2001 and 2012, the company quadrupled its content per travel trailer and fifth-wheel RV. Drew Industries now operates 31 manufacturing facilities in 11 states.
Drew Industries’ five-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
Drew’s third quarter of 2013 also revealed continued economic growth. The company’s consolidated net sales grew 11% to $251 million. Earnings jumped significantly, growing 52% to $14.8 million, or $0.62 per fully diluted share. The company finished the third quarter with a solid gain in its cash position.
It’s great to see genuine new business growth in an old economy industry. Drew’s solid business execution is noteworthy, especially in an industry … Read More
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