Deborah Martin Personal Blog

The Commerce Department recently announced that housing begins rose 10.5% final month to an adjusted annual rate of 598,000, giving positive cost help to the SPDR S&P Homebuilders ETF (XHB: 15.17 -0.23 -1.49%), the iShares Dow Jones Home Construction (ITB: 11.59 -0.175 -1.49%) and the PowerShares Dynamic Building/Construction ETF (PKB: 11.54 -0.114 -0.98%).

In general, housing starts are an important indicator of activity in the real estate markets and as starts increase, future construction generally remains healthy. However, the opposite in this recent surge in new home construction is likely to prevail due to supply and demand imbalances and eventually hinder the real estate markets.

An excess of supply is likely to be seen in the coming months as the massive number of home foreclosures, repossessions and properties sitting on bank's balance sheets are expected to hit the market. This imminent surge in supply is anticipated to push inventories of existing homes close to 12 months, if not even higher.

Furthermore, demand for residential real estate is not likely to see a significant uptick any time soon. Although the Federal Reserve has pushed lending rates to near record lows, many are unable or unwilling to take advantage of these low interest rates. Additionally, companies still remain reluctant to increase headcount even though many are posting increased profits and have an abundance of cash. At the end of the day, it appears that the underlying demand in the housing market is much weaker than expected, and the only way to fix this is through the stabilizing of the labor markets. It's awfully difficult to obtain a mortgage - or better yet, keep paying a current mortgage - without a job.

As a result, the supply and demand imbalance in the housing markets is likely to cause the recent big swing seen in housing begins to be reversed in the coming months, resulting in negative cost support for homebuilders.

As mentioned above, ETFs that are likely to be influenced by microeconomic forces in the real estate markets include:

* SPDR S&P Homebuilders (XHB: 15.17 -0.23 -1.49%), which includes numerous holdings that are directly correlated to the performance of the residential real estate sector such as Williams-Sonoma Inc (WSM: 30.70 -0.13 -0.42%) and flooring company Armstrong World Industries (AWI: 39.50 -0.95 -2.35%)

* iShares Dow Jones Home Construction (ITB: 11.59 -0.175 -1.49%), which includes homebuilders like D.R. Horton Inc. (DHI: 10.62 -0.27 -2.48%), Pulte Group (PHM: 8.18 -0.21 -2.50%) and Lennar Corp. (LEN: 14.69 -0.13 -0.88%) in its top holdings.

* PowerShares Dynamic Building/Construction ETF (PKB: 11.54 -0.114 -0.98%), which includes DR Horton, Home Depot (HD: 30.84 -0.04 -0.13%) and Lowe's (LOW: 21.52 -0.24 -1.10%) in its top holdings.

Source: Daily Markets News

Lennar returned to profitability in its fiscal third quarter as home deliveries climbed and building expenses declined.

But the homebuilder said Monday that new orders fell 15 % to 2,624 homes as the government's first-time homebuyers' tax credit score expired.

Lennar and other homebuilders enjoyed a bump in sales this spring as inexpensive costs, low mortgage rates and two federal tax credits lured homebuyers into the market. But because the tax credits expired at the finish of April, the number of individuals searching to buy has dropped, even with the availability of the lowest mortgage rates in decades.

Lennar earned $30 million, or 16 cents a share, for the three months ended Aug. 31. That compares with a loss of $171.6 million, or 97 cents a share, a year earlier.

Lennar stated typical house costs rose slightly to $240,000 from $239,000, although incentives had been reduced to $30,600 per house delivered from $42,200.

Revenue rose 14 percent to $825 million from $720.7 million.

The performance effortlessly beat the expectations of analysts surveyed by Thomson Reuters, who predicted earnings of 5 cents a share on $777.5 million in income. These estimates generally remove one-time items.

Lennar credited its income rise largely to the improve in house deliveries. The company delivered 2,909 homes within the quarter compared with 2,660 homes within the prior-year period.

Aside from reducing construction expenses, the homebuilder also managed to trim its selling common and administrative expenses by 4 %.

The cost control efforts are necessary as several potential homebuyers have chosen to stay on the sidelines, worried about high unemployment ranges and tightening credit score standards.

Lennar's backlog fell 12 % to 2,173 homes. The Miami organization reported a cancellation rate of 18 %.

But Lennar believes it is positioned to climate the current climate.

"Although challenges nonetheless stay in the housing market, we're optimistic that our core businesses are around the proper track to achieving sustainable profitability as the housing market recovers," President and CEO Stuart Miller said in a statement.

Miller added that while higher unemployment and foreclosures present challenges for the housing marketplace, "our communities have been much less impacted than the broader marketplace."

Lennar has operations in 17 states and sells homes for entry-level and move-up buyers too as retirees.

Source: Mercury News