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Robert Wetenhall, RBC Capital Markets director of equity research, on how to make smart investments in the wake of housing price improvements.
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In a single but so if you believe that now is the time to invest where do you Turk.
For that we go to Robert -- hall who is provided us with extraordinary information the past infect your last time you're here you.
You pick several stocks are up 25% but they were down today significantly.
-- -- was down almost 6% Y down so much in one day.
Markets had a fantastic run these stocks have definitely outperform the market and the news today.
Makes people question how real is the upward improvement in housing.
Our view it's definitely real when you see an 11% improvement in pricing you've got to be optimistic Lennar reported on Monday.
Numbers were fantastic new order growth of 44%.
Well let's hold on to say because we have those numbers I think we can put it up on the screen Lennar homes the quarter ending in -- homes delivered.
3655.
That's up 28% from a year earlier.
Home orders 4000 a 198 that's up 44% as you mention.
And the backlogs look at this backlogs were up -- 79%.
4000.
513.
Home so.
It it does look -- particularly when you look at those backlogs like that they've got some work to do in the future that's gonna gain the money.
That's fantastic they're extremely well positioned to the chief's spectacular earnings growth given the current cadence of the recovery.
So we're definitely at the front end of a multi -- recovery in housing.
And our big call is we're excited about the pricing environment for the first time in four or five years all of the home -- companies are gonna benefit -- eight profitability and could be a catalyst for a further leg up -- a group.
Let's talk about why that is happening on one of the reasons I think is because the listing of foreclosed properties is down that is there is a clearing of the -- -- properties.
It's down by 24% from a year ago 45%.
From two years ago then you also -- this is said new home sales -- it two year high but let's go to the great hollowing out of housing construction.
What has happened is so many people over the past three years have been reluctant to build new houses that you have for a few work contractors housing contractors know most of these are small time contractors.
But in 2001 just to give you an idea get a 107000.
2006 the height of the market -- at a 125000.
Of these contractors in 2011 look at the drop.
86000.
That means you have -- fewer people able to build houses and of course when -- have far less supply the prices go up.
I've I've totally on board with that view and our general thesis is there's been a massive liquidation of foreclosure inventory it peaked out in the third quarter of 2000.
An eleven to twenty months we're down to fifteen months -- striving lower so your alternatives now or you can rent.
Where you can look to buy an existing home.
You can buy -- new home and new homes are priced competitively mortgage rates are all time lows so we think the housing market is a bright spot.
And -- otherwise sluggish the con.
Okay but the question is how much longer that can continue because it's still depends on job growth it's still depends on household income.
Of course job growth is down household income is down continues to go down.
But that doesn't bode well for homebuyers in the future does it.
You know what the long term demographics supply demanding given where we are in the recovery.
We're still comfortable with the big call that the recovery is gonna move forward at a good clip but you call hold on to say because it -- we're nowhere near good clip in this recovery we're less than 2% yet has yet at the slowest recovery well -- history you know how some -- questions in the housing market.
We definitely remain concerned about -- TB GDP growth you know structurally high unemployment.
-- -- -- this is very powerful head -- which you're just gonna slow the pace of the house let me just put it -- into perspective -- since the economic recovery began in June of 2009 now this is again since the recovery began.
Household incomes are down.
Five point 7% now when you're in a recovery in -- are supposed to go up not down.
Just I'm just talking specifically to the housing recovery.
Which has been deferred and delayed that's gaining steam.
I totally agree with your insightful points in the broader economy are experiencing -- anemic GDP growth topic and housing.
We like Lennar and KB homes Lennar KB two well known as were our wedding hall you've been on the mark before thank you for -- is so much.
