- Tuesday, NAHB Index Expected to Hold Steady as Recent Volatility Likely Offset Strong December Trends: The NAHB releases its January Housing Market Index at 10:00 am ET. While the results of ourrecent Homebuilding Survey pointed to strong nationwide trends in December, we believe market volatility thus far in 2016, which is when the survey was completed, may negatively affect overall sentiment. As a result, we forecast January’s reading will be consistent with December at 61. Our forecast would be up four points year over year and in line with consensus.
- Wednesday, Expect Upside to Consensus as Single-Family Starts Reach Cycle High: At 8:30 am ET, the Census Bureau releases its estimates for December housing permits, starts and completions. In November, the Census reported that total starts jumped 10% sequentially to 1.173 million. The sequential improvement was driven by an 8% increase in single-family activity and a 16% increase in multi-family construction. We expect starts to continue gradually rising as production catches up with demand following weather and labor-induced delays earlier in the year. Specifically, we forecast 795,000 seasonally-adjusted single-family starts in December, which would be up 4% sequentially and represent a cycle high, while we expect a 14% sequential increase in multi-family starts to 460,000. In aggregate, our estimates would translate to total starts of 1.255 million, up 7% sequentially and 16% year over year. Consensus is currently forecasting a less-optimistic 11% year-over-year increase to 1.195 million total housing starts.
- Friday, Existing Home Sales Expected to Exceed Consensus, but By Less Than Originally Estimated: The NAR releases its estimate for December existing home sales at 10:00 am ET. As detailed in our note published last week, we preliminarily forecast a seasonally-adjusted pace of 5.45 million, ahead of consensus at that time of 5.15 million. Now with a greater sample of local market data, we estimate a pace of 5.36 million, up 12.6% sequentially and almost 6% year over year. Consensus has edged higher to 5.20 million. As previously noted, the sequential acceleration is largely due to the unwind of a TRID overhang in November, leaving 4Q15 growth at approximately 2%, including still-lingering TRID related distractions and delays. Overall, while TRID created disruption within the quarter, if our December estimate proves accurate, 2015 existing home closings growth of slightly more than 6% would be consistent with our latest macro forecasts. We predict a 5% increase in 2016 and a 4% increase in 2017 as strong household formation, attractive affordability and favorable consumer confidence drive above-average turnover, albeit partially mitigated by tight for-sale inventory.
- Calendar 4Q15 earnings season begins with MTG (Buy) on Thursday; DHI (Hold) next Monday, January 25th and NVR (Buy) expected to report early the week of January 25th. Please see pages 4-6 for an outline of our earnings expectations and page seven for a summary of our outlook for calendar 4Q15 homebuilder results versus consensus expectations.
- Apartment REITs: Our Apartment REIT Equity Index decreased for the second consecutive week, down 1.4% last week, but outperformed the RMZ by 100 basis points and the S&P 500 by 80 basis points. MAA (up 1.0%) was the only REIT to post a gain and the best performer for the second straight week, while AIV (down 3.6%) and CPT (down 3.2%) were the weakest performers. Year to date, our Apartment REIT index has declined 4.1%, falling less than the RMZ (down 5.2%) and the S&P 500 (down 8.0%). The relative outperformance has largely been driven by the focus on stable cash flow in an environment filled with fear about decelerating economic growth. Year to date, CPT (down 5.9%) decreased the most, likely driven by its exposure to Houston and the resulting impact of the sharp decline in oil, although Houston represents just 12% of CPT’s same-store NOI.
- Building Products: Our Building Products Equity index declined 4.1% last week, underperforming both the S&P 500 (180 basis points) and consumer discretionary stocks (130 basis points) for the third consecutive week. Year to date, our Building Products Equity Index has declined 11.9%, underperforming the S&P 500 (down 8.2%) by 380 basis points and consumer discretionary (down 8.5%) by 340 basis points. Last week, the weakest performers were USG (down 14.8%), PGEM (down 9.7%), IBP (down 9.1%) and BLD (down 6.7%). Alternatively, SHW (up 0.1%) and SWK (down 0.8%) were the only companies to outpace the broader market.
- Homebuilders: Our Homebuilding Equity Index declined 2.5% last week, slightly underperforming the S&P 500 (30 basis points) following 650 basis points of underperformance in the prior week. WCIC (up 3.3%), KBH (up 2.7%) and MTH (up 1.0%) were the strongest performers in the group last week. KBH’s outperformance partially offsets an 18.2% sell off in the prior week, which followed weaker-than-expected 4Q15 earnings. Conversely, NWHM (down 14.0%), WLH (down 11.7%) and HOV (down 8.8%) trailed peers last week. Year to date, our Homebuilding Equity Index has declined 14.6%, underperforming the broader market by 660 basis points amidst the market volatility.
- Homecenters: Our Homecenter Equity index fell 3.3% last week, underperforming the S&P 500 (100 basis points) for the second consecutive week but exceeding broader retail (50 basis points). While both HD (down 3.8%) and LOW (down 2.7%) underperformed the broader market last week, we increased our domestic 4Q15 same-store estimates for both companies given the solid results in our December homecenter survey. Year to date, the 9.6% decline in our homecenter index has trailed the S&P 500 index and broader retail by a respective 140 and 70 basis points. Relative to the year-to-date performance, HD has declined 9.8% versus 8.9% for LOW.
- Mortgage Insurers: Our Mortgage Insurer Equity Index declined 5.5% last week, underperforming the overall market (340 basis points) for the seventh consecutive week and leaving the index down 14.5% year to date. Likely due in part to its small market cap and capital uncertainties, NMIH sold off an outsized 19.0% last week. On the other hand, RDN, which announced a $100 million stock repurchase plan, declined 4.3% while MTG, which released largely in-line operating metrics, sold off 6.1%.
- Real Estate Services: Last week, RLGY and RMAX outperformed the market after five consecutive prior weeks of underperformance. Specifically, RLGY and RMAX pulled back 1.9% and 1.8% sequentially versus the 2.2% decline for the S&P 500. Having underperformed the market by 480 basis points over the last four weeks and 1,990 basis points over the last year, RLGY is trading at its lowest levels since going public, creating a very favorable entry-point for investors that remain positive on the outlook for the economy and housing. RLGY is included in our Top Idea Basket. For RMAX, the stock has underperformed the S&P 500 by 130 basis points over the last four weeks, which we attribute to the broad-based economic and housing-related concerns, but has exceeded the market by 510 basis points over the last 52 weeks.
- Single-Family REITs: Our Single-Family REIT Equity Index (down 5.0%) declined for the second consecutive week, underperforming the RMZ (down 2.4%) and the S&P 500 (down 2.2%). Last week, each of the four single-family rental companies fell by more than 4%, with the greatest weakness for ARPI (down 5.9%) and AMH (down 5.4%), with the two generally trading in sync given the pending merger. Notably, these two REITs have been the weakest performers in each of the first two weeks in 2016, with ARPI down 11.7% in total and AMH down 10.9%. Year to date, our Single-Family REIT Equity Index has declined 10.4%, below the 5.2% and 8.0% decrease for the RMZ and the S&P 500, respectively.
- Title Insurers: Our Title Insurer Equity Index decreased 1.9% last week, outperforming the S&P 500 by 24 basis points amid a 10 basis point decline in the 10-year Treasury yield to 2.03%. The Title Index’s decline was driven by a 1.6% decline for FNF, a 2.3% decline for FAF and a 3.4% decline for STC. Since the most recent market sell-off began on 12/29, FNF has outperformed the S&P 500’s 9.5% decline by 90 basis points, FAF by 10 basis points and STC has underperformed by 410 basis points.
Michael Haltman is President of Hallmark Abstract Service in New York. He can be reached at email@example.com.