The Mortgage Bankers Association Purchase Index rises 23.6%
The Mortgage Bankers Association (or MBA) Purchase Index increased 23.6% in the week ended January 9 as global bond markets rallied. We’re on the cusp of the spring selling season, which begins right around Super Bowl Sunday.
Ever since rates bottomed out last year, the MBA Purchase Index has declined much less than the refinance index. This steadiness is largely because homebuyers tend to be less sensitive to the interest rate than to refinances, which are 100% interest rate–driven. Even if rates increase, people still move, get married, and move out.
Implications for homebuilders
Earnings season is just beginning for the homebuilding sector. KB Home (KBH) kicked it off with a big miss on earnings and also guidance for Q1. KB Home’s stock was slammed to the tune of 16% after the announcement. That said, KB Homes has a November fiscal year, so the huge rate rally over the last month or two might not be reflected in its numbers. That said, its guidance was lower mainly due to margins, not traffic.
We’ll soon hear from Lennar Corporation (LEN), who also has a November fiscal year. We’ll get the remaining ones later on. The biggest questions analysts have concern Texas, where falling oil prices will have a negative effect on jobs, the economy, and margins.
Homebuilder D. R. Horton (DHI) has a lot of exposure to Texas. Other builders such as PulteGroup are more diversified but have a lot of exposure to the first-time homebuyer. That said, even Toll Brothers (TOL) reported a drop in traffic as higher prices discouraged potential buyers.
Analysts will listen closely on the homebuilder earnings conference calls for clues about how rates will affect the spring selling season.
Investors interested in trading the homebuilding sector as a whole should take a look at the SPDR S&P Homebuilder ETF (XHB).