The Week Ahead
- Monday, NAHB Index Expected to be Consistent with July Following Another Solid Month: The NAHB releases its August Housing Market Index at 10:00 am ET. The index registered at 60 in July, consistent with June’s reading. As a reminder, the index is based on a scale of 0-100, seasonally adjusted and broken into three components: traffic (43 in July), current sales (66) and future sales (71). We believe the index is skewed primarily to smaller builders as the largest public and private builders are part of a different trade organization called the Leading Builders of America. Given the results of our July Homebuilding Survey, which showed consistent, solid order growth and improving pricing, we forecast August’s reading will be equal with July’s strong reading. Our forecast would be up five points year over year and is slightly below the consensus estimate of 61.
- Tuesday, Expect Starts Below Consensus, Likely Due to More Conservative Multi-Family Outlook: At 8:30 am ET, the Census Bureau releases its estimates for July housing permits, starts and completions. In June, the Census reported that total starts increased 10% sequentially to 1.174 million. The sequential increase was driven by a 29% jump in multi-family starts, partially offset by a 1% decline in single-family construction. We continue to believe that the underlying strength in the single-family market is not accurately reflected in the current starts number and expect acceleration in government data over the coming months as production continues to catch up to strong order growth. Specifically, we forecast 720,000 seasonally-adjusted single-family starts, which would be up 5% sequentially and 10% year over year. Our expectation for improvement this month is supported by a robust 22% increase in July starts reported by our private contacts, which follows a gain of 30% in the prior month. Additionally, we expect production delays caused by inclement spring weather in Texas will continue to unwind this month, though we note the release is likely to be gradual given labor-related challenges. For multi-family, we assume a starts pace of 420,000 in July, which would be down 14% sequentially and 4% year over year. We note that our multi-family outlook reflects the still-lingering effects of New York City’s 421-a tax credit in the Census’ estimate, which we expect to roll off next month. In aggregate, our estimates would translate to a total start forecast of 1.140 million, which would be down 3% sequentially, but up 4% year over year. Consensus is currently forecasting total housing starts of 1.190 million, which would be up 1% sequentially and 9% year over year.
- Thursday, Double-Digit Growth in Existing Home Sales Expected, Stronger than Consensus: The NAR releases its estimate for July existing home sales at 10:00 am ET. In June, the seasonally-adjusted pace improved 3.2%, which was easily stronger than consensus of 0.9% and also exceeded our estimate of 2.6% given a downward revision to May data. Our analysis of local data suggests that sales are likely to exceed consensus for the third consecutive month. We estimate a 4.7% sequential decline in unadjusted transactions and an annualized pace of 5.60 million, up 2.0% from June. Consensus is projecting approximately 5.44 million, down 0.9% sequentially. Our estimate would equate to a seasonally-adjusted, year-over-year increase of 10.5% in July, bringing year-to-date growth to almost 8% versus our full-year forecast of approximately 6%. We previously anticipated deceleration through the year as comparisons strengthen, but the year-to-date improvement is still better than expected.
- Earnings this week include HD (Hold) on Tuesday; LOW (Hold) onWednesday; and AMWD (Hold) on Thursday. Please see pages 3-4 for our earnings expectations.
- Apartment REITs: The apartment REITs continued their positive streak with a seventh consecutive week of appreciation. The 1.7% increase was 50 basis points better than the RMZ and 100 basis points ahead of the S&P 500. PPS was the best performer for a second consecutive week, as momentum continued following better-than-expected 2Q15 results on August 3rd. Meanwhile, HME (flat) and CPT (up 0.6%) were the weakest performers, as investors are cautious on the outlook for CPT’s Houston exposure. Year to date, our Apartment REIT Equity Index increased 10.7% following a 40.2% increase in 2014, led by HME and UDR (up 15.8% each), while PPS (up 3.2%) continued to trail peers.
- Building Products: Our Building Products Equity Index increased 2.0% last week, outperforming the S&P 500 (130 basis points) for the fourth consecutive week. Year to date, our Building Products Equity Index has appreciated 13.3%, outpacing the S&P 500 by 1,170 basis points and consumer discretionary stocks by 400 basis points due to improving housing metrics and favorable net pricing dynamics as well as providing investors with a silo from softening international markets. At the company level, BLD (up 6.5%) was the strongest performer last week followed by PGEM (also up 6.5%) driven by better-than-expected 2Q15 earnings. While still positive, SWK (up 0.7%) and MAS (up 1.5%) lagged last week.
- Homebuilders: Our Homebuilding Equity Index increased 5.2% last week, outpacing the S&P 500 by 450 basis points and more than reversing the 3.7% decline in the prior week. DHI (up 7.5%), which was aided by a competitor upgrade, PHM (up 7.2%) and RYL (up 6.3%) posted the largest gains last week, while TPH (down 0.2%) and WLH (down 1.5%) were the only stocks in the group to decline. TPH’s underperformance occurred despite the company reporting stronger-than-expected 2Q15 results last Monday. Meanwhile, WLH’s weakness was driven by a 5.3% selloff last Friday following the announcement of a 2.0 million share secondary offering by the company’s sponsor, Luxor. Year-to-date, our Homebuilding Equity Index has increased 12.5%, outperforming the broader market by nearly 1,100 basis points.
- Homecenters: Our Homecenter Equity index increased 2.8% last week, more favorable than both the S&P 500 (up 0.7%) and broader retail (up 0.8%) for the fourth consecutive week. Over this time frame, our index has outperformed the S&P 500 by 700 basis points and broader retail by 900 basis points, with both LOW (up 7.2%) and HD (up 4.6%) contributing. Year to date, the 12.3% appreciation in our homecenter index has been led by HD (up 15.3%), which has outpaced the S&P 500 and broader retail by 1,370 basis points. LOW (up 5.9%) has also exceeded these indices but by a smaller 440 basis points.
- Mortgage Insurers: Last week, our Mortgage Insurer Equity Index outpaced the broader market by 210 basis points, led by a 5.6% gain in ESNT as its prior-week loss of 9.6% was partially reversed. RDN (2.4%), NMIH (2.1%) and MTG (1.4%) also contributed modest gains. Year to date, the group is up 11.7% versus 1.6% for the S&P 500 as the industry has benefited from robust volume, improving credit trends and greater regulatory clarity.
- Real Estate Services: Last week, RLGY lagged the broader market by 70 basis points, representing the third straight week of underperformance since reporting 2Q15 earnings. As a result, the stock has lagged the market by 770 basis points over the last four weeks and is trailing the market by 4.1% year to date. In our view, a better-than-consensus existing home sales print could help the stock gain traction in the near term. On the other hand, RMAX continued to outperform, leading the S&P 500 by 20 basis points last week and 460 basis points over the past four weeks. Year to date, RMAX has strongly outperformed by 18.9%.
- Single-Family REITs: Our Single-Family REIT Equity Index decreased 0.1%, underperforming the RMZ by 130 basis points and the S&P 500 by 80 basis points. Results were driven primarily by a 1.3% decline in AMH and a 0.9% decline in ARPI. Both SWAY and SBY increased, with a 3.8% increase in SWAY and a 0.8% increase in SBY. SWAY’s performance follows its strong 2Q15 results after selling off prior to the single-family REIT earnings season. Year to date, our Single-Family REIT Equity Index decreased 4.8%, underperforming the RMZ by 280 basis points and the S&P 500 by 640 basis points. ARPI (up 0.9%) is the only REIT to increase year to date, while AMH (down 7.4%) has been the weakest performer.
- Title Insurers: Our Title Insurer Equity Index increased 1.1% last week, outperforming the S&P 500 by 50 basis points. The index’s increase was driven by a 3.6% increase for FAF, a 3.0% increase for STC and a 0.1% increase for FNF. FAF has risen 18.0% since June 5th, outperforming the Title Insurer Index by 870 basis points and the S&P 500 by 1,800 basis points, pushing the stock to an all-time high on Friday.
Article written by Michael Haltman, President of Hallmark Abstract Service in New York.
HAS is a provider of title insurance in New York State for residential and commercial real estate transactions.
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