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Just when investors thought the housing market would implode under the "squared weight" of (1) a steeply inverted yield curve and (2) the regional banking crisis, we are witness to homebuilders like PulteGroup ((PHM - Free Report) ) putting up solid Q1 numbers and guidance that lift their prospects considerably.
The reason that PHM is a Zacks #1 Rank now is that analysts launched their consensus estimates since that report from full-year EPS of $7.44 to $9.05.
And next year's profit haul also moved higher from $7.24 to $9.00 per share.
This rebound may mark the earnings trough not only for many homebuilders, but for real estate in general.
This past weekend I published an article about the "possible peak" in my real estate-focused newsletter Multifamily Investing.
You can read the full version at the link but here is a synopsis...
The US economy is doing a pretty good job of absorbing the regional banking crisis.
Despite the persistence of digital banks runs -- with short-sellers preying on blood in the water to drive out deposits by pummeling stock prices -- the stock market has held up well and the Federal Reserve signaled a pause in their efforts to battle inflation.
Meanwhile, job creation, consumer spending, and housing markets remain strong according to a collection of robust data sets.
This scenario sets up “the pause” for the Fed with interest rate hikes.
That diverse body of economists, with tons of data and analysis at their disposal, has done a good amount to tamp down wildfire inflation.
And while the yield curve will remain inverted for some time, the message is clear that they have taken a big bite out of the cost surges.
So now we are seeing inflation stabilize across many sectors. Sure, 5-7% inflation in some sectors like Food & Energy are alarming.
But what matters now to investors is the trend direction and speed.
And that trend is showing a new downward trajectory in inflation and a slowing in the rate of acceleration in either direction.
History shows that this pattern leads to the fire being put out.
Especially in the age of exponential technologies that tend to foster hyper productivity and disinflation. Honestly, when was the last time you had to worry about sending a check, a document, a photo, or yourself for a signature when they can all be done now instantaneously?
What's the Impact for Real Estate?
While I thought the regional banking crisis would have a bigger negative impact on mortgage lending than the positives of the Fed pause, I’m starting to reconsider that idea.
In their article for Forbes Advisor, Mortgage Rate Forecast For 2023, Robin Rothstein and Chris Jennings (Editor) suggest that the inflation battle is being won and the market is recognizing this...
Recent data indicates the Fed's tightening policy seems to be working, though some analysts say too well, given the ongoing turmoil in the banking sector. Nevertheless, headline inflation cooled to 5% in March for the first time in nearly two years and is well below its June 2022 peak of 9.1%. Even so, the current rate is still far above the Fed's 2% goal.
The good thing about this article is that they quote a variety of real estate-focused economists and analysts sharing their views of the unfolding interest rate landscape.
On the alarmed end of the spectrum comes this...
“The latest interest rate hike by the Federal Reserve is unnecessary and harmful,” said Lawrence Yun, chief economist at the National Association of Realtors, in an emailed statement. “(Small regional banks) are becoming zombie-like banks, unable to lend even to good businesses as they are more concerned with balance sheet shuffling for survival. This situation will worsen with each additional rate hike by the Federal Reserve."
Among the optimists were these forecasts...
National Association of Realtors (NAR). “[F]orecasts that … mortgage rates will drop—with the 30-year fixed mortgage rate progressively falling to 6.0% this year and to 5.6% in 2024.”
Compass U.S. region president, Neda Navab. “There have been signals that mortgage interest rates may be at or near their peak, given recent encouraging news around inflation and a corresponding drop in the U.S. Treasury yields that help set mortgage rates. A sustained drop could push mortgage rates into the 5% range late in the second quarter or in the second half of 2023, but that’s definitely not guaranteed.”
Mortgage Bankers Association (MBA). “Long-term rates have already peaked. We expect that 30-year mortgage rates will end 2023 at 5.2%.”
What About the Debt Ceiling Battle?
We've seen this movie before and it usually gets resolved after some customary political brinkmanship.
But the Forbes Advisor piece does share some additional views, including the idea that the uncertainty and potential for default will keep rates elevated into the summer.
This remains the wild card for the spring home-buying season.
The good news is that digital-centric financial markets are extremely quick at absorbing new information (good or bad) and discounting new trends.
This means that barring a tumultuous US default event, inflation and rates are trending down, the regional bank crisis volatility is being absorbed by much bigger banks, and national lenders, builders, and investors will be modeling for rates in the 5% handle.
And if the economy avoids recession, then all the bargains I was expecting in the Multifamily space may not unfold either. To learn more, check out this on-demand educational webinar from Mike Morawski where he goes over the return dynamics, underwriting traps, and tax advantages of Multifamily Investing…
Mike has some great slides in there that illustrate what I call the "power laws" of Cash Flow and Equity Build.
Bottom line: We could still get more Regional Bank scares, but the intelligence of the market discounting machine has weighed and measured what these failures mean and found them lacking in systemic or economic impact. I am surprised by this, but then again, this is a feature and not a bug of US economic resilience as I talked about in my recent vlog...
Image: Bigstock
Bull of the Day: PulteGroup (PHM)
Just when investors thought the housing market would implode under the "squared weight" of (1) a steeply inverted yield curve and (2) the regional banking crisis, we are witness to homebuilders like PulteGroup ((PHM - Free Report) ) putting up solid Q1 numbers and guidance that lift their prospects considerably.
The reason that PHM is a Zacks #1 Rank now is that analysts launched their consensus estimates since that report from full-year EPS of $7.44 to $9.05.
And next year's profit haul also moved higher from $7.24 to $9.00 per share.
This rebound may mark the earnings trough not only for many homebuilders, but for real estate in general.
Inflation and Interest Rates: Have They Peaked?
This past weekend I published an article about the "possible peak" in my real estate-focused newsletter Multifamily Investing.
You can read the full version at the link but here is a synopsis...
The US economy is doing a pretty good job of absorbing the regional banking crisis.
Despite the persistence of digital banks runs -- with short-sellers preying on blood in the water to drive out deposits by pummeling stock prices -- the stock market has held up well and the Federal Reserve signaled a pause in their efforts to battle inflation.
Meanwhile, job creation, consumer spending, and housing markets remain strong according to a collection of robust data sets.
This scenario sets up “the pause” for the Fed with interest rate hikes.
That diverse body of economists, with tons of data and analysis at their disposal, has done a good amount to tamp down wildfire inflation.
And while the yield curve will remain inverted for some time, the message is clear that they have taken a big bite out of the cost surges.
So now we are seeing inflation stabilize across many sectors. Sure, 5-7% inflation in some sectors like Food & Energy are alarming.
But what matters now to investors is the trend direction and speed.
And that trend is showing a new downward trajectory in inflation and a slowing in the rate of acceleration in either direction.
History shows that this pattern leads to the fire being put out.
Especially in the age of exponential technologies that tend to foster hyper productivity and disinflation. Honestly, when was the last time you had to worry about sending a check, a document, a photo, or yourself for a signature when they can all be done now instantaneously?
What's the Impact for Real Estate?
While I thought the regional banking crisis would have a bigger negative impact on mortgage lending than the positives of the Fed pause, I’m starting to reconsider that idea.
In their article for Forbes Advisor, Mortgage Rate Forecast For 2023, Robin Rothstein and Chris Jennings (Editor) suggest that the inflation battle is being won and the market is recognizing this...
Recent data indicates the Fed's tightening policy seems to be working, though some analysts say too well, given the ongoing turmoil in the banking sector. Nevertheless, headline inflation cooled to 5% in March for the first time in nearly two years and is well below its June 2022 peak of 9.1%. Even so, the current rate is still far above the Fed's 2% goal.
The good thing about this article is that they quote a variety of real estate-focused economists and analysts sharing their views of the unfolding interest rate landscape.
On the alarmed end of the spectrum comes this...
“The latest interest rate hike by the Federal Reserve is unnecessary and harmful,” said Lawrence Yun, chief economist at the National Association of Realtors, in an emailed statement. “(Small regional banks) are becoming zombie-like banks, unable to lend even to good businesses as they are more concerned with balance sheet shuffling for survival. This situation will worsen with each additional rate hike by the Federal Reserve."
Among the optimists were these forecasts...
National Association of Realtors (NAR). “[F]orecasts that … mortgage rates will drop—with the 30-year fixed mortgage rate progressively falling to 6.0% this year and to 5.6% in 2024.”
Compass U.S. region president, Neda Navab. “There have been signals that mortgage interest rates may be at or near their peak, given recent encouraging news around inflation and a corresponding drop in the U.S. Treasury yields that help set mortgage rates. A sustained drop could push mortgage rates into the 5% range late in the second quarter or in the second half of 2023, but that’s definitely not guaranteed.”
Mortgage Bankers Association (MBA). “Long-term rates have already peaked. We expect that 30-year mortgage rates will end 2023 at 5.2%.”
What About the Debt Ceiling Battle?
We've seen this movie before and it usually gets resolved after some customary political brinkmanship.
But the Forbes Advisor piece does share some additional views, including the idea that the uncertainty and potential for default will keep rates elevated into the summer.
This remains the wild card for the spring home-buying season.
The good news is that digital-centric financial markets are extremely quick at absorbing new information (good or bad) and discounting new trends.
This means that barring a tumultuous US default event, inflation and rates are trending down, the regional bank crisis volatility is being absorbed by much bigger banks, and national lenders, builders, and investors will be modeling for rates in the 5% handle.
And if the economy avoids recession, then all the bargains I was expecting in the Multifamily space may not unfold either. To learn more, check out this on-demand educational webinar from Mike Morawski where he goes over the return dynamics, underwriting traps, and tax advantages of Multifamily Investing…
Creating Generational Wealth
Mike has some great slides in there that illustrate what I call the "power laws" of Cash Flow and Equity Build.
Bottom line: We could still get more Regional Bank scares, but the intelligence of the market discounting machine has weighed and measured what these failures mean and found them lacking in systemic or economic impact. I am surprised by this, but then again, this is a feature and not a bug of US economic resilience as I talked about in my recent vlog...
Dollar Destruction Hysteria: Why the Panic is Wrong, Again