Back from the wilderness
After that Lennar release, it looks like homebuilders can be 'go-to' once again.
They 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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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.
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.
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..
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.
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.
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 .....
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