Homebuilders Deliver Strong Second Quarter

August 7, 2019 | Hoya Capital

Homebuilders Deliver Strong Second Quarter Uncategorized Aug 6 Written By Amid the volatile backdrop of trade wars and geopolitical uncertainty, the US housing market may be an unlikely stabilizing force. As goes the housing sector, so goes the economy. 2019 continues to be a year of rejuvenation for the single-family homebuilders after falling into a “mini-recession” in 2018. Sharply lower mortgage rates have eased affordability concerns. Second-quarter earnings season may go down as the turning point for the largest US homebuilders.

Order growth exceeded expectations, rising more than 6% from last year. While slower-reacting data sets remain soft, forward-looking metrics like mortgage demand, homebuilder sentiment, and commentary from homebuilders have painted a brighter picture for the second half of 2019. Long-term fundamentals continue to support healthy and growing demand for single-family homes in the 2020s and upward pressure on home values amid a growing housing shortage. Signs of Strength for Homebuilders Second-quarter earnings season may go down as the turning point for homebuilders following perhaps the worst quarter for the sector since the financial crisis in 1Q19.

The most closely-watched metric, order growth, significantly exceeded expectations, rising more than 6% from last year, suggesting that lower mortgage rates are indeed translating into improved demand. The strength was most pronounced, interestingly, in the smaller homebuilders as Taylor Morrison, MDC, and Meritage each reported order growth of more than 20%. Homebuilding revenues, meanwhile, grew 4% while deliveries rose 5%. Commentary on earnings calls was decidedly positive with most builders noting momentum continuing in the weeks since quarter-end.

The winds have shifted rather dramatically over the last seven months as many of the headwinds faced by the homebuilding sector have become favorable tailwinds. A central theme that we continue to discuss is the lingering underinvestment in new home construction during the post-recession period and the ripple-effects it has on all segments of the US housing industry. By nearly every metric, single-family housing markets ...