Market Overview

MBA Mortgage Applications Decline, But Housing May be Looking Up

The number of Americans filing for mortgage declined one percent last week as demands for new home loans decreased.

About 81.1 percent of applications were refinancing an existing mortgage, up from 80.5 percent last week, said the Mortgage Bankers Association in their weekly applications survey. Low interest rates have attracted refinancers. Last week interest rates rose 0.03 percent for fixed 30-year mortgages to 4.08 percent.

Later in the morning, the NAHB Housing Market index printed at 29, far above the expectations of 26.

These numbers come on the heels of a speech Friday by Federal Reserve Chairman Ben Bernanke to the National Association of Homebuilders in Orlando. Bernanke said he didn't see a “silver bullet” for fixing the housing industry. Last year there were 302,000 new homes sold, the least since records started being kept in 1963.

“In each of the past few years, roughly 2 million homes have entered the foreclosure process, and many of these homes have been put up for sale, crowding out much of the need for new building,” Bernanke said. “The relatively high rate of foreclosures is likely to continue for a while.”

Many home builders have been hit by the past few years. NVR (NYSE: NVR) had lower-than expected fourth quarter results, with some promising statistics for future growth. The Reston, Virginia-based homebuilding and mortgage banking company has risen from $703.16 to $722.52 at the close of the day Monday. The company reported a decrease in net income from $58.7 million in the fourth quarter of 2010 to $32.4 million in the fourth quarter of 2011 as home closings and mortgage revenue declined.

Tempering falling net income, and boosting the stock price, was news that the builders backlog-homes that will be built but have not been started-rose 26 percent from the end of 2010 to 3,676 homes. Mortgage lending also declined from $7.8 million to $6.5 million, tempering fears for mortgage-wary investors.

Thursday the U.S. federal government announced a $25 billion deal with national mortgage lenders to reduce loans for 1 million homes at the risk of foreclosure and send $2,000 to about 750,000 home owners who were improperly foreclosed on.

Bernanke's words on Friday conflicted with a level of optimism in the industry, as home construction increased in the fourth quarter of 2011 and sales of previously occupied homes rose in the past three months.

Toll Brothers (NYSE: TOL) may be poised to take advantage of new construction of luxury homes. The Horsham, Pennsylvania-based home builder has expanded into the Seattle market and continues to focus on growth in the Northeast – especially in the Boston to Washington D.C. region and New York City, said CEO Doug Yearly Dec. 6 in the company's fourth quarter earnings conference call.

“Nearly 60% of our lots are concentrated in the land-constrained metro Washington, D.C. to Boston corridor which enjoys lower unemployment and greater affluence than many other regions,” Yearly said on the conference call. “We produced our second consecutive quarter of pre-tax profitability.”

Toll Brothers has climbed from $21.01 at the start of the year to $23.71 at the end of the day Monday. The company's fourth quarter homebuilding gross margin before interest and write downs was 24.2 percent, an increase from 23.4 percent in the third quarter and 21.4 percent in the fourth quarter of 2010.

As wealthier residents continuing to shop at luxury stores, CBL & Associates Properties (NYSE: CBL) may be able to take advantage of the trend. The stock in the Chattanooga, Tennessee-based mall real estate investment trust has risen from $16.10 at the start of the year to $18.02 at closing Monday. The company has been expanding in high-income areas, President and CEO Stephen Lebovitz said Feb. 9 in the fourth quarter conference call.

“We recently announced that we were partnering with Horizon Group to develop our second outlet center, The Outlet Shoppes, at Atlanta. The project is located in the affluent suburb of Woodstock north of the city,” he said. “We plan to begin construction on this center this spring. The 370,000 square foot project is already 70% leased or committed with a first-class line-up of retailers, including Saks Fifth Avenue OFF 5TH, Nike, Michael Kors, J. Crew, Puma, and Under Armour.”

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