Mortgage Application Numbers Look Good, But Are They?
First and foremost, the MBA Mortgage Applications report gives a weekly reading of all purchase and refinancing applications submitted in the entire United States, so it’s a pretty good gauge of where the real estate market is going.
Clearly, the bulk of the growth in the MBA numbers is from refinancing, not purchasing. And, getting our fingers a little deeper under the numbers, we see that refi’s are 14% above where they were a month ago, while purchases are a meager 3%.
What’s the cause of the refi boom? Simply put, 30-year fixed rate mortgages are just under 40 basis points where they were a year ago.
But, when you consider mortgage delinquencies are at an all-time high, it’s easy to see why refi’s are on a tear. There’s a ton of people out there who are one-paycheck away from losing their home.
It’s pretty scary really, and even more so for sub-prime lenders who made a ton of risky loans.
In the mean time, let’s put the MBA numbers into perspective with a few homebuilders.
First of all, most homebuilders have taken some pretty hefty charges in the past two quarters to write off some property. And given that many homebuilders are scaling back on new developments, it might seem that inventory to buyers would stabilize.
But it’s not. For 2006, RealtyTrac reported that on a national level, foreclosures surged 42%. So why buy a brand new home, if you can get an "almost brand new home" from a bank at a discount?
And here’s the issue -- for homebuilders to keep up with inventory from the foreclosure market, they have to offer blistering incentives for consumers to but their homes. And at the end of the day, discounted homes, mean lost profits for homebuilders.
Really, don’t ask me if homebuilders have seen the bottom, just take a step back and look at what’s happening. Clearly, it you’re long homebuilding stocks, it’s a pretty good idea to make sure you have some stop loss points already planned out.
Some of the key names in the homebuilding market include Beazer Homes (NYSE: BZH), Ryland Homes (NYSE: RYL), Pulte Homes (NYSE: PHM) and Centex (NYSE: CTX).
I would like to point out though that most of these companies are trading with extremely low price to sales ratios, most hovering in the 0.40 area.
As a revenue junkie, I would normally jump all over these stocks. But I’m even more of a net income addict, and right now, I’m concerned it could be in short supply with homebuilders. Even with awesome price to sales ratios, I’m thinking I might be able to buy many of these stocks even cheaper in a few weeks.
By Mark Whistler, Contributor - Investopedia Advisor
Mark Whistler is the author of Trading Pairs and Trade With Passion and Purpose, both published by John Wiley & Sons. In addition, Mark creates investing ideas for Mt. Vernon Research, The Oxford Club and Investment U, along with writing a regular column for TraderDaily.