Stocks are lower this morning as oil prices climb. Bonds and MBS are down.
D.R. Horton reported better-than-expected earnings. Revenues were more or less flat on a YOY basis, but margins compressed which drove down earnings by 12%. David Auld, Executive Chairman said: “Our teams are managing each community with discipline, balancing pace, price, incentives and inventory levels to maximize returns. Affordability constraints and cautious consumer sentiment continue to impact new home demand, and we expect sales incentives to remain elevated during the fourth quarter, with incentive levels dependent on demand, mortgage rates and other market conditions.
D.R. Horton focuses primarily on entry-level homes so they are the best read on the state of the first time homebuyer. The first time homebuyer accounted for 64% of sales and their typical buyer was 40, with a 90% LTV and 721 FICO with an income of around $95,000. Given their average selling price was $362k a new D.R. Horton home compares favorably to the NAR existing home sale price of $441k.
Gross margins fell as higher lot costs were offset by lower building materials costs.
Mortgage REIT Annaly reported earnings of $1.06 per share and a 2% increase in book value per share. They also hiked their dividend. Fundings were up 38% YOY and the portfolio. They increased the multiple on the MSR book to 5.97x.
It looks like they have slowed their investment in NQM and are allocating more resources to agency MBS.
As the ROAD legislation takes effect, institutional investors are paring down their portfolio of rental properties. Since Jan 1, a net 3,180 homes have been sold by the big institutional investors. The total number of homes to be sold is 589,000. To put that into perspective, existing home sales is running at a 4.1 million unit clip, so this represents under 2 month’s worth of sales. The 3,180 units sold during the first half of the year is about 0.16% of sales.
The institutional investor ban was always a “feel-good” measure that allows politicians to pretend they are doing something to help affordability. The idea that institutional investors are crowding out other buyers was always nonsense. There wasn’t any resistance to the ban because most of these institutional investors bought their portfolios over a decade ago and have been net sellers anyway. The easy money has been made.
Mortgage applications increased 1.9% last week as purchases increased 6% and refis fell 2%. “Mortgage rates reached another high point last week, with the 30-year conforming rate now at 6.69%, its highest level since last August,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “However, purchase volume increased modestly for the week. Growing home inventory in many markets is supporting more purchase activity. Incoming data showed that inflation dropped in June, but with oil prices spiking again, that improvement seems unlikely to continue in July data, and mortgage rates are likely to remain higher as a result.”
