Morning Report - New Home numbers and homebuilder earnings

Vital Statistics:

	Last	Change	Percent
S&P Futures	1984.0	3.2	0.16%
Eurostoxx Index	3219.1	26.0	0.81%
Oil (WTI)	103	-0.1	-0.08%
LIBOR	0.235	0.001	0.43%
US Dollar Index (DXY)	80.82	-0.003	0.00%
10 Year Govt Bond Yield	2.50%	0.03%
Current Coupon Ginnie Mae TBA	106.2	-0.2
Current Coupon Fannie Mae TBA	105.5	-0.1
BankRate 30 Year Fixed Rate Mortgage	4.27

Markets are higher this morning on decent earnings. Bonds and MBS are down.

Initial Jobless Claims came in at 284k, the lowest print since 2006. Consumer Comfort inched up in last week. 

Remember that blockbuster new home sales number last month? 504,000 units? Revised down to 442k. June new home sales came in at 406k. I remember looking at the strong May number and trying to reconcile it with the weak numbers out of KB Home and Lennar, which were announcing earnings at the time. Turns out the new home sales number was bad. You can see how depressed new home sales are from peak levels almost 10 years ago.

D.R. Horton reported earnings this morning, as orders increased 32% in value and 25% in units. The cancellation rate was 24%, though. Interestingly, gross margins fell, which is the first we have seen. The builders have been able to increase prices faster than input costs have gone up. That said, there were some special items in that number so the year-over-year decrease could be misleading. The stock is down this morning.

PulteGroup also announced numbers this morning. Average selling prices rose 12% to $328,000, and gross margins came in at 23.6%, up 480 basis points year over year. Closings dropped 9% in units, however, so Pulte looks to be following the typical builder pattern of higher prices / lower units. PHM is down this morning.

China is in the midst of a skyscraper-building craze. This sort of thing is reminiscent of the 1920s, where the Chrysler Building and 40 Wall Street were neck and neck to build the tallest skyscraper. The Chrysler building won out by constructing the spire inside the building and then pushing it through the top at the very last minute. However their position as tallest was eclipsed by the Empire State Building in the years following. As a general rule, tallest skyscrapers tend to be associated with market tops. Think Chrysler and the Empire State Building prior to the Depression, the Petronas Towers in Kuala Lumpur ushered in the Asian Crisis. China has been going through a period like the US did in the subsequent WWI era - rapid growth and urbanization. They will probably have to go through a gut-wrenching bust like the Depression as well. 

Note that China is the biggest international player in the US residential market, and is pushing up prices in Los Angeles, San Francisco, San Diego, New York, and Seattle as professional investors buy up properties sight unseen. Once the Chinese bubble bursts and things start getting ugly, look for these same investors to begin unloading properties in these cities. Remember in a crisis, you sell what you can, not necessarily what you want to.