June 11, 2010
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RELATED TICKERS: LEG
What does that mean? It means chances are high that home furnishings have also skyrocketed.
My Top picks: LEG, ETH
I thought it meant the end of the tax credit.
Mortgage applications are down 40%.
New home sales soar 15% in April
(What goes into new Homes? New Furniture)
NEW YORK (CNNMoney.com) -- New home sales soared in April as homebuyers rushed to claim the tax credit that expired at the end of the month.
New home sales climbed 14.8% to a seasonally adjusted rate of 504,000 last month, up from an upwardly revised 439,000 in March, the Census Bureau reported on Wednesday. Sales year-over-year were up 47.8%.
A consensus of economists surveyed by Briefing.com had expected April sales to rise to an annual rate of 425,000.
April was the second straight month of increases. In March new home sales snapped a four-month losing streak and surged at the fastest single-month rate in 47 years as homebuyers snatched up properties ahead of the looming deadline for the tax credit.
The homebuyer tax credit, which expired April 30, boosted sales since buyers had to sign contracts by the end of last month. First-time homebuyers qualified for a tax credit up to $8,000, while repeat buyers could get as much as a $6,500 break.
The credit also pushed existing home sales higher during the month, according to a real estate industry report released earlier this week.
"We got two solid increases in March and April," said Mark Vitner, senior economist at Wells Fargo. "We may see sales fall to a record low in the aftermath of the tax credit program, but any fallback should be short-lived."
That's because even with the jump, the current annual rate of new home sales is still historically low. Vitner said about 700,000 homes are sold annually in a stable economy.
"A true recovery in the housing market won't get underway until we see solid gains in employment and income," Vitner said.
Although last month employers added the most jobs since March 2006, Vitner said the labor market has a long way to go as it recovers the 8.4 million jobs that were lost in 2008 and 2009 and long-term unemployment sits at severe highs.
"The job market is getting a little bit better, but it's still abysmal, he said.
Price and inventory: The government report showed that the median price of new homes sold in April was $198,400, down almost 10% from March from April 2009.
Vitner said the drop in price is because first-time home buyers, who typically spend less than repeat buyers, represented a larger portion of overall buyers last month.
An estimated 211,000 new homes were for sale at the end of April. At the current sales pace, the government expects it will take five months to sell through that inventory. That's down from March, when there were 6.7 months of inventory on the market.
I can't find it now, but I recently read an article that discussed the fact that durable goods sales (furniture, appliances, etc...) have suprisingly not followed recent upticks in home sales. In addition, home sales are expected to tank in the coming months. As russiangambit noted, mortgage applications are already down 40%...and this is as morgage rates have reached all time lows. Yesterday, there was an article about Reid's push to extend the deadline for closing on homes purchased with the tax credit until September. The article cited estimates that 180K buyers with signed contracts won't meet the June 30th deadline for closing. These aren't all new homes, but there's a chance that a good portion of those reported sales will fall through...and they won't be buying furniture, etc... I'm staying away from home furnishings...
Davejh23 your going to be shocked when you see how well this sector will perform. LZB reports Monday night so you won't have long to wait and LEG reports in JULY.
In April LEG forcasted improved 2010:
2010 Outlook Improved
Leggett anticipates full year 2010 sales of approximately $3.1 - 3.4 billion. Leggett projects that it should generate 2010 EPS of $.95 - 1.30. At the midpoint of its sales and EPS guidance the company would generate an EBIT margin of about 9.3%.
Cash from operations should exceed $300 million for the full year. Uses of cash include less than $90 million for capital expenditures and approximately $155 million for dividends.
All of Leggett's segments use the FIFO (first-in, first-out) method for valuing inventories. An adjustment is made at the corporate level to convert about 60% of the inventories to the LIFO (last-in, first-out) method. Since the LIFO benefit is not recorded at the segment level, 2009 segment EBIT margins were unusually low. Earnings for the first quarter 2010 reflect a LIFO expense of $2.1 million, compared to a LIFO benefit of $17.0 million in 1Q 2009.
Furthermore, LIFO created significant variability in 2009 quarterly earnings. Steel deflation negatively impacted segment earnings for the first half of 2009. This impact was offset by a LIFO benefit at the corporate level, but that benefit was spread across all four quarters. LIFO-related impacts are not anticipated to be as significant during 2010.
SEGMENT RESULTS – First Quarter 2010 (versus 1Q 2009)
Residential Furnishings – Total sales increased $20 million, or 5%, as a result of improved market demand; unit volume increased 10%, but was partially offset by lower unit prices (from steel-related deflation that occurred during the first half of 2009). EBIT (earnings before interest and income taxes) increased $56 million due to improved sales, price discipline, cost structure improvements, the benefit associated with the sale of a building, and absence of last year's bad debt expense related to a customer bankruptcy.
Commercial Fixturing & Components – Total sales increased $26 million, or 23%, due to our strong position with value-oriented retailers and new programs with office furniture manufacturers. EBIT increased $11 million due to sales growth, cost reductions, and operational improvements.
Industrial Materials – Total sales increased $12 million, or 7%; unit volume was 18% higher, but was partially offset by lower unit prices (from deflation that occurred during the first half of 2009). EBIT was flat, with the impact of higher volume offset by lower metal margins (reflecting higher costs for scrap steel).
Specialized Products – Total sales increased $32 million, or 31%; significantly improved automotive demand was partially offset by weaker demand for machinery and commercial vehicle products. EBIT increased $17 million, with the benefit from higher volume, cost reductions, and operational improvements partially offset by unusual items (that total $4 million of expense).
Here's a counter-argument: the expiration of the tax credit "pushed forward" some people who weren't really ready to buy a home, and now as a result they're "house-poor" and deferred purchases of home furnishings.
I just bought a house to get the credit and lock in a low fixed rate - and certainly now I fall into that above category. I sure didn't go buy a new sofa and armoire to furnish it.