The National Assoc of Home Builders reported their Housing Market Index this morning at 47, the same as Dec 2012. The trend remains quite strong and while there were hints of a pickup in Residential Construction Employment in the January Establishment Survey report there has not yet been a dramatic change in hiring for this economic sector. I expect that future month’s reports are likely to show some dramatic changes.
Stuart Little, CEO of Lennar Corporation (NYSE:LEN), said on his 4Q2012 conference call yesterday:
“2012 was a turnaround year that confirmed that we had been — what we had been seeing and communicating for several quarters, and that is that we are in fact in the early stages of the housing recovery. The recovery began in micro markets across the country, and it’s continued to spread to larger pockets. In the second half of this year, recovery had taken hold across the country and has readily been seen in spite of generally negative economic data. While the current, more positive economic data still lags behind what we continue to see in the field, it, along with information from reliable economists, have instilled a new level of consumer confidence in the housing market.”
“In our fourth quarter, new orders were up 32% over last year, and our backlog was up 87% and the highest level it’s been in 5 years. Gross margins improved to an industry-leading level of 23.5%, a 410-basis-oint increase over last year, and operating margins increased 660 basis points, to 12.2%. Margins continue to benefit from our recent land acquisitions, higher home prices, lower incentives and operating leverage from greater absorption per community and more sales overall.” seekingalpha.com Lennar 4Q2012 Earnings Call Transcript
Housing activity has turned sharply higher and is continuing to expand making CEOs like Stuart Little increasingly positive.
I cannot over-stress enough that this recovery has been solid and appears to be only lacking Housing and Commercial Construction sectors which at this point could add another 10mill to the employment rolls the next 4yrs-5yrs. As these sectors kick in fully it should be quite apparent that the economy is running at a robust pace. Once those who are yet pessimistic begin to recognize that we are seeing a robust economy, their negative commentaries will likely receive less market acceptance and the Trillions still on the sidelines should enter the investment markets.
At all times investment markets are a “Sum of All Fears”. While one can measure economic trends, one cannot with any degree of certainty predict the price of markets and individual stocks. Market psychology routinely ignores a good story and likewise over-inflates good or bad news within the context of geopolitical events. In my experience only very few know how to actually price securities correctly while the rest simply are chasing the activity of known investors, doing technical analysis and acting like Momentum Investors.
Did I ever tell you that investing is part art and part science? The “Science” part comes at market lows where market participants are very pessimistic and the true value buyers like Warren Buffett and selected others who know how to value securities provide market support through their activity. The “Art” part is everything else and requires tracking economic trends and investor psychology reaction to headline events. By studying history one learns how to sift the wheat from the chaff.
Today’s HMI remains a strong positive! Optimism continues to be warranted.