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MARKET ROUNDUP
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 Stocks took a breather, with the S&P 500 shedding just over two points to 1,909.78 after breaking out to new highs yesterday. The Nasdaq Composite, Dow Industrials and Russell 2000 were pretty much in the same boat, with modest losses.If you want to own a house today, you can. Just make sure you are A) Rich and B) Can pay cash!
That’s my not-so-tongue-in-cheek summation of the state of the housing market, based on all the data I’m seeing.
Just look at today’s news from Toll Brothers (TOL, Weiss Rating: B), the luxury home builder whose houses and townhomes cater to buyers plunking down $700,000, $1 million, $2 million, or more. Profit more than doubled to $65.2 million, or 35 cents per share, in the most recent quarter from $24.7 million, or 14 cents per share, in the year-earlier period.
Revenue surged 67 percent, while average selling prices rose 22 percent. I can tell you that here in Palm Beach County, Toll’s large country club and waterfront developments are once again selling. Construction activity has also been on the rise after a period of a couple of years where hardly anything was moving.
The moral of the story? It’s good to be a 1percenter if you’re looking for a house.
Meanwhile, things are so tough at the bottom end of the housing spectrum that builder D.R. Horton (DHI, Weiss Rating: Weiss Rating: B+) is being forced to offer stripped down, bare-bones models just to attract buyers. Its just-launched “Express Homes” division will sell homes at bargain basement prices of around $120,000 to $150,000.
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| Luxury home sales are booming, but things are tough at the bottom end of the housing sector. |
Those homes will have basically no options or upgrades. But Horton needs to do something to spur lower-end business, since many buyers in that bracket simply can’t afford to buy its products otherwise. Why not?
1) Â Mortgages are much tougher to get these days, requiring higher down payments, more expensive mortgage insurance, lower overall debt levels, and more.
2) Excessive student loan debt and lingering psychological damage from the last housing bust are deterring first-time buyers.
3) All-cash-investor-locusts swarmed over the market the past couple of years to buy up property and rent it out. As I told a Washington Post reporter yesterday, that has helped drive double-digit price increases in many markets. Unfortunately, wage increases, salary hikes, and population and economic growth haven’t kept pace.
As investors turn from buyers into sellers again, it will put the kibosh on the way-too-fast price increases we’ve been seeing. That will allow traditional drivers of housing demand to come to the fore again. But it will be a bumpy ride between here and there — and it will take time. That’s one reason why this real estate analyst still doesn’t like investing in most of the sector!
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“The moral of the story? It’s good to be a 1percenter if you’re looking for a house.” |
How about you? Do you think there are investing opportunities in real estate, long or short? What do you think of the split between the fortunes at luxury builder Toll and mainstream operator D.R. Horton? Is housing affordable in your neck of the woods? Let us know at the blog.
| OUR READERS SPEAK |
Meanwhile, yesterday’s topic turned out to be a hot one. Plenty of you have strong ideas about why students are graduating with record debt burdens. The general consensus? Blame overpaid, underproductive professors … bloated, inefficient bureaucracies and administrative departments … too much government interference and subsidization of colleges and universities, and more
Reader Gil R. had one of the most detailed, lengthy responses, so I’m reproducing most of it here:
“The cause of the problem is government, universities, high schools, parents, students and the media.
“The government continues to tell universities they will provide more and more loans so universities see it as justification to raise prices.
“Universities pay professors ridiculous salaries for minimal teaching hours and build enormous endowments. Universities also offer many courses and majors that offer practically no opportunities for students when they graduate.
“High school guidance counselors don’t do a very good job of explaining options to students.
“Parents should make sure their children are ready for college, and have an idea what they want to do when they graduate. It would also be a good idea for parents to have their children take out more loans. Parents could pay the loans off if their children do well and if not, let them pay them off themselves.
“The media is also to blame as they promote how important it is to go to college. College is great but we need plumbers, electricians, technicians, etc. that make good money and don’t have a mountain of debt.”
Reader Jeff D. zeroed in on the negative impact of government loans on college costs. His take:
“The high cost of college is another gov’t created bubble … gov’t intervention into what ought to be free markets. Make plenty of money available so anyone who wants a degree in ANYTHING can get it and colleges will take advantage of more people (i.e. dollars) chasing a somewhat fixed commodity, so the price goes up.
“Did they improve the quality of the product they’re selling? I doubt it. Are the people seeking the product being really discerning about what they’re actually getting or what its future value will be worth? Doesn’t look like it. Are the professors worth that much more than they used to be? Don’t get me started on that. Govt IS the problem along with the consumer.”
Or as Reader Robert put it rather succinctly: “The Federal Government should not be making student loans. It subsidizes the increasing cost of a college education. The college endowment funds should be making the loans. They would then worry about being paid back, and might not graduate 100 Fine Arts Majors, when only three of them will find a job in the chosen field of education.”
Have any other ideas about this problem? Then by all means, share them on the blog!
| OTHER DEVELOPMENTS OF THE DAY |
Stocks keep hitting record highs, but trading activity and volatility are collapsing. Goldman Sachs Group (GS, Weiss Rating: Weiss Rating: B+) calls it “abnormal.” Maybe bonkers is a better term?
Reminder: If you have any thoughts to share on these market events, all you have to do is hop on over to the blog and leave your comments.
Until next time,
Mike Larson
