Back from the wilderness

After that Lennar release, it looks like homebuilders can be 'go-to' once again.

By Jim Cramer Sep 25, 2013 9:27AM

thestreet logoHome under construction © CorbisThey simply didn't hurt that much. That's the only reaction you can have for Lennar (LEN) chief executive Stuart Miller's comments about the spike in mortgage rates, at least when it comes to his business, one of the nation's largest homebuilders.


Miller's quarter, a strong one by any stretch of the imagination, was, to me, the test I have been waiting for. It's a gauge of what has happened in this incredibly important industry after the 10-year U.S. Treasury yield almost doubled and mortgage rates went from roughly 3.5% to 4.85% in a matter of months.


This is the first quarter that really encompasses that rise, while some of the company's sales were no doubt saved by mortgage lock-ins, the period defined by the August. It also offers a glimpse of September, showing that it was, indeed, no more than a speed bump along a road to a very strong housing recovery.


June, the first month of the rate impact rise, was very strong for this national homebuilder. July, however, seems like it was the exact opposite. Yet it came roaring back in August, and it looks like, between the lines, that September remained strong.


What could explain this conundrum? The cost of a product is going up substantially, and yet sales do not get hurt that badly and orders still go higher, although not as high as some analysts expected.


Miller says everything hinges on the production deficit and easier credit year over year. In other words, the U.S. is building far fewer residences than we needed -- between 900,000 and 950,000 -- and we can't possibly make up for the "production deficit" that the downturn has caused.


Many still believe the overbuilding hangover of the mid-2000s is still with us. That's not apparently the case any longer, Miller pointed out. Plus, there's the difficulty of building new units, because of a shortage of entitled land and the dearth of smaller homebuilders who could not survive the downturn. This makes it so there's much more room to build homes than what people had recognized. We know that Lennar's 18,250 to 18,500 prospective units are far fewer than what's needed. Otherwise gross margins wouldn't be on the rise, despite the hefty increases in labor, moderated by a declining price of the key ingredient of lumber. 

So we have more affordability of credit -- something confirmed by Richard Smith, CEO of Realogy (RLGY), the nation's largest real estate broker -- and a slightly higher price of homes year over year, as well as interest rates still at historically acceptable levels. That combination means the housing industry remains on a growth track.


I think that strength's not in Lennar's stock or in the zeitgeist of the investing public, which remains convinced of the long-lasting damage that the rate increase is causing. Lennar, and to some extent KB Home (KBH), have shown this: Unless rates go up again, business will be just fine. They show that, after a gigantic pause when the homebuilders bided their time, they are now ready to advance, even if rates go back to where they were a couple of weeks ago.


Lennar in particular has an excellent perspective on things, because it is also a huge builder of apartments and it provides housing financing. There simply is no reason to believe that Miller's view can be questioned. I didn't feel that way after the previous quarter because I was worried about the rate increases coming, as a tapering from the Fed seemed to be in the cards.


Now that the market has boosted rates already, it looks to have been digestible -- certainly more digestible then the common wisdom holds.


That means this group, and all of its accoutrements, can be owned again. July was aberrant, for certain, but the rates haven't defeated the home buyers. Meanwhile, the lack of supply should allow the home resurgence to last far longer than people expect. That's particularly so for those who believe there are now bubbles all over the place and prospective homebuyers have been defeated by the higher rates now prevailing across the country.


The Lennar release, the conference call and the interview, I thought, made for an irrefutable thesis. The industry can be "go to" once again after a prolonged period in the wilderness.




Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and has no positions of stocks mentioned.  



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Sep 25, 2013 10:09AM
Perhaps the resale market of all these "built in 2 months" homes are going to be a looming bubble that pops?  It won't take long for lenders to realize that giving someone a 30 yr mortgage to go buy one of these crappy homes that are already 15 years old, is a recipe for disaster.  When these cheaply built homes in cheaply built subdivisions are all about 30 yrs old, the only buyers will be slumlords who pay cash.  Now, if Fannie and Freddie are still buying 90% of all the mortgages, the originators won't care, and they'll keep on making loans on over-valued properties until the cows come home.  Sound familiar?
Sep 25, 2013 9:49AM
Yes lets celebrate.  An Industry void of legal workers using chipboard, low quality chinese imported sheetrock, foreign made appliances with a 5 -7 year lifespan, wiring and electrical fixtures one has no idea who made them or where.  Everyone noticing the inability to contact any of these manufacturers about issues with their products?  Good luck on that. Home construction has become a black hole Industry.  Who, where, what, and why are all deep voids that the consumer should be aware of but are very neatly hidden away.  One should visit a home building site sometime soon and see just what we are now being encouraged to not only invest in but actually live in.
Sep 25, 2013 11:09AM
Ha ha ha... idiot. Buy "housing" stocks? We have values kited in place and more people on hyper financing plans than ever in history. The whole nation now knows what "forbearance" means. The need for over-priced cheaply constructed McMansions when 90 million Americans are under and unemployed is... what? We're half past the time when Wall Street should be shut down and quarter to forcing it into the East River wearing cement shoes. Do let us know when the publicly traded big business platform corruption and retained legalese goon squad pulverizer company IPO's. It's the surest bet for something that has legs in this stupid era.  
Sep 25, 2013 10:28AM
As cramer says  this about housing ....remember how in 2008 he was screaming to us that countrywide was a great company as he had its chairman (his friend) Angelo mozila --- cramer even said we can ignore the fact that mozila was selling hundreds of millions of dollars of his own shares ! And look what's happening today.

"NEW YORK (Reuters) - Bank of America Corp's Countrywide unit placed profits over quality in a "massive fraud" selling shoddy mortgages to Fannie Mae and Freddie Mac, a U.S. government lawyer said on Tuesday.

The claim came at the start of the first case by the government to go to trial against a major bank over defective mortgage practices leading up to the 2008 financial crisis."

Sep 25, 2013 2:10PM
Anybody else notice the OBVIOUS suppression of articles with Comments portals today? What's the matter Wall Street... a little shy on control and manipulation? What goes around comes around and usually with a vengeance. I understand Hanes and Fruit of the Loom stock is ticking UP given the anticipation that traders and investors will be soiling underwear from now on and often. It was SUPPOSED to recover America not make the 1% richer.  
Sep 25, 2013 12:01PM

DLH....I just couldn't come up with a better term than "glutinous usage," at the time.


They don't really list it as anything on an electric bill; Just show it as "usage" at a higher rate..

I think the electric companies determine a norm for the area or Region, the if a customer goes over that "average", they pay more....More does not cost LESS in bulk; In this case.


The Utility Companies also have to apply to the PSC's for those rates on a State by State basis.

The Public Service Commissions then decide which rates are applied going forward...

There are so many different charges on Utility Bills (many are taxes) that nobody can figure them out.

Even with the index or explanation legends...Glossary.

Sep 25, 2013 10:29AM
There are a lot of apartment complexes going up here in Texas. Many people moving here from out of state.
Sep 25, 2013 2:33PM
When Wally Mart sneezes the entire Asian rim better buy some Kleenex.  The compression is spreading now with Wall Mart questioning future revenues.  One must remember the FED, not our old one, but our New World one is on the line for gazillions in these newly developed countries.  The big gamble was for capitalism to catch on in these countries.  Now after being primed by American worker incomes whose jobs and incomes are now looking very suspect, their goal to return so many trillions to these internationals and their rich stockholders may see some strong headwinds. . So the Internationals borrowed tons of dough to build factories throughout these developing countries and now they may find their investment is not quite so lucrative.  And if by chance they default the same Americans they put out of work to begin this capitalistic crusade just might be on the hook for these loans.  Little people are always best for screwing wouldn't you say?
Sep 25, 2013 12:18PM

They are "messing with" Obama too...LOL.


Is room monitor, anything like hall monitor, or crossing-walk safety.


Of course nowadays they hire people for crossing walks near schools.

Sep 25, 2013 12:15PM
Now what the hell brought on the fat, middle aged and stupid thing...??
Sep 25, 2013 12:11PM

Not sure I'm all excited about investing in home builders ? Have enough trouble with REITS we are involved in now..

They have been somewhat depressed, because of indecision by the FED..

And have been very volatile for months.

The only Hi-Point are the dividends being paid..

Sep 25, 2013 11:03AM
Lately, what I've seen in my neighborhood of 450K-2.5M+ homes,  a lot of empty purchases  (no renters or attached owners) riding the income of future value only, in various stages of disrepair and depreciation, bought up to bundle and create a stock play that never decays or depreciates, like the asset it represents.
Sep 25, 2013 10:34AM
Many homes have been bought up buy investors, both foreign and domestic, they buy multiple dwellings, in cash.  So mortgage rates are meaningless to them.  The middle class on the other hand will feel the rise in rates, and this may really be illuminating on how much housing has actually improved and how much is just being bought as investments.

Let's see everybody is going to have to pay about what a new car costs for Obama care


just where is the money going to come from all these newly created jobs at minimum wage to pay for $5,000 plus a year Obamacare taxes???


Where is the money going to come from for people to buy houses???


The only reason house prices are going up only the super rich are buying houses. They hope to rent them back to us but we can not even afford renting them from the super rich anymore.


Can anyone out there say America a third world country???


Which begs the question how come Health Insurance executives get to keep 20 to 40 percent of the 'tax' for Obama Care to put into their pockets??? A tax where a few super rich keep your money sounds like the old English tax system we when to war against to get away from. Time to rebell again -- on no this time around they have terrorist laws in which to throw you in jail if you even merely suggest rebellion. Well no rebelling for now folks.

Sep 25, 2013 10:42AM
My friend just got back to Texas from a visit to California to visit his son. He was telling me some of the crazy things in Cali. He said that after a certain amount of electricity usage the rate doubles. He said that vacant lots in his sons neighborhood have to be covered with plastic and then wood chips to keep the weeds down I guess until they are built on.
Sep 25, 2013 12:06PM
Yeah, I'm not sure how that works with businesses on electrical usage; They have an entirely different rate structure....I mention electrical, but think it applies to all Utility services?
Sep 25, 2013 11:10AM

Different States have totally different Public Service Commission (PSC) Regulations and rates.


Some do increase rates on glutinous usage, (over 500-1000kw) others have a lower rate for off-hours operations usually after later evening until early morning, when usage is down.

Sep 25, 2013 10:19AM
i'd think if one had money to throw in this industry, you'd be better off buying a rental than stocks. 
Sep 25, 2013 12:42PM

Fee fo fi fum I smell the stench of hasbara scum .......
Sep 25, 2013 12:40PM

The reason why Pres. Obama did not meet the Iranian yesterday is that one of them has to protect himself agains the cohort of extremist religious bigots at home .....

The other has to go back to Iran.
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