KB Home FY 3Q17 Earnings Call Notes

Jeff Mezger

Housing market conditions remain stable

“Overall, housing market conditions remain stable and positive with strong employment, wage growth and healthy demand from first-time buyers driving overall demand for new homes. Resale inventory remains constrained averaging 4.2 months across the country and far below that level in most of the markets that we build in, filling that deficit of existing home supply. With this market dynamic ongoing, we remain focused on maintaining our healthy pace and increasing overall price where appropriate across the broad range of opportunities in our built-to-order model, including base price, lot premiums, structural options and studio options. ”

Going to be pressure on labor materials in Florida and Houston

“we know there is going to be pressure on labor materials in Florida and Houston, we don’t know to what degree and that there isn’t a lot of funding to start repairs. What we have been doing as a company is procuring the materials for our deliveries we have already procured into the second quarter and it’s a benefit of being in our built-to-order model and knowing your starts and you have visibility in your production. So, we are going to our subs and lock them down. We are going to our suppliers and locking them down now. ”

Strong market in California

” Right now, there is a very strong market in the Bay Area. There is a shortage of product on the market. Prices are still moving up. And as they move up, it moves buyers a little more in them, because there is strong demand to be a homeowner and they will go where they can afford to buy a home. So, we saw price in both Northern and Southern Cal in the inland areas in the the third quarter.”

There is more demand than there is supply

“right now, with the shortage of inventory and all the positive things I mentioned first time buyers coming out, wage growth, employment growth, all these good things are going on and there is more demand out there right now than there is supply.”

Lennar FY 3Q17 Earnings Call Notes

General sense of optimism

“we’ve continued to see strength in the housing market through the third quarter and have seen new orders, home deliveries and margins continue to be in line with or above our expectations. Generally speaking, in spite of the often noisy political environment, there continues to be a general sense of optimism in the market as jobs are being created across the country and wages are generally moving higher.”

Labor shortage translating into wage growth

“The often discussed labor shortage in many sectors of the economy is translating into wage growth. And while much of the data collected by the government doesn’t seem to reflect significant wage growth, the customers visiting our Welcome Home Centers are reflecting an optimistic sentiment and an ability to afford today’s more expensive homes.”

Rick Beckwitt

Business recovering in Houston

” With regard to Houston and to Florida, let me just address that right now starting with Houston. The Houston market is slowly recovering. All of our communities are open and doing business today. From a trade standpoint, it’s consistent with what I said. Trades are tight in the roofing area, the drywall area as you’d expect because there was a lot of damage associated with the interior of the homes. Folks are – those trades are really chasing that insurance business and it’s slowly getting better. From a power standpoint, we’re really not having any power connection issues in the Texas markets. So that’s a good thing. On the sales side of the market, we’re having good traffic, good solid traffic where people want to buy. ”

Still no power in Southern Florida

“Florida is sort of a mixture between north and south. In southern Florida, we still do not have the ability to get power connections. And as a result of that, that’s slowing down the business. That will catch its way up. We have not had the ability to press the power companies because quite frankly they need to address other concerns before they do the new home market. We are doing some things that I think are unique. We’re running some conduit between curb and the home in order to accelerate the connection. So when the power companies come out there to do the connects, we should bring things on pretty fast.”

KB Home FY 2Q17 Earnings Call Notes

Jeff Mezger – Chairman, President and CEO

Extremely low levels of resale inventory

“What remains especially striking is the extremely low levels of resale inventory available. At 4.2 months nationally, and well below that in many our submarkets, resale inventory is insufficient to meet demand. It is one of the key factors underlying pricing power in most of our markets, and we plan to continue maintaining price or pace – sorry – continue maintaining pace while increasing price when appropriate.”

Millenials moving on with their lives

“Certainly there has been employment growth and employment growth creates demand and don’t forget the millennials moving out of the parent’s house. There is a lot of demand being generated right now as millennials move on with their life and get married and dual incomes and all of those things. On the mortgage side, again there was an announcement today out of Fannie on encouraging lenders to loosen up their guidelines a bit. We are seeing little bits around the edges, but no major shifts in the quality of the underwriting.”

June remains good

“Jay, we typically don’t comment within the quarter, because we are so early into it. We did in the first quarter because we do our earnings release half way through the quarters, but we feel we can give you the color I can say in general but the trends remain good just like March, April and May and that’s some specific.”

Lennar FY 2Q17 Earnings Call Notse

Stuart Miller – CEO

Continue to see strength in the housing market

“We have continued to see strength in the housing market through the second quarter and have seen new orders, home deliveries and margins exceed our initial expectations. Generally speaking, in spite of the often noisy political environment, there continues to be a general sense of optimism in the market, there continues to be a perception that jobs are being created across the country and that wages are generally moving positively.”

*”a definitive reversion to normal”

“Overall, the attitude of our customers continues to confirm the sense that we have as business operators that the economic environment in general is strong and stable and improving. The slow and steady though sometimes erratic market improvement that we have seen for the entirety of this recovery continues to seem to be giving way to a more definitive reversion to normal.”

Seeing pricing power, millennials moving into market

“We continue to feel that limited supply and production deficits from the past years are now intersecting with land and labor shortage and we started to see some pricing power as we have moved through the selling season, somewhat offset however by construction costs increases. Additionally the economic realities of a constrained and supply of housing options and the economic realities of higher rental rates are beginning to have a rational impact on decision making for the first time home buyer as millennials are continuing to come to the housing market.”

This is animal spirits

“a lot of what’s driving people to the market is a sense of confidence, it’s animal spirits, it’s the notion that all of this is in exact science, interest rates and affordability and wages and pricing all play a part and what people can afford and how the math actually works out. But the confidence that people bring with them to the table about whether their job is table and whether there’s going to be a wage increase or there is opportunity for them to move and be mobile to the next job opportunity. Whether they have been to able accumulate a down payment or in excess of a down payment, or whether their family members that are able to help support with the gift or something else, all of these are moving parts that define this in exact science that we are all trying to kind of define going forward. So it’s kind of hard to wrap all of our heads around where the market is going, but the general trajectory is positive and even at the first time buyer level as the millennials start to unwind their doubling up and come to the market realizing that rental rates have gone up and there is a real reason to go ahead and purchase. That first time buyer segment is showing some optimism and some ability to be flexible in and around the affordability levels and as prices move up”

Jon Jaffe

Consumer sentiment is a driving factor

Yes I would just echo that the consumer sentiment is really a driving factor right now and we’re not seeing spikes in appreciation that are causing concerns and we’re really not seeing that at the mortgage table. So, I think it’s typical housing follows jobs and wages and that’s really a tailwind that we have right now.”

Spring selling season was a little bit stronger

“Yes I think you saw the traditional spring selling season that strength as you look at year-over-year and the slight uptick in comparison just show that this year was a little bit stronger reflective as our earlier comments seeing in consumer confidence, wage and job growth all reflecting an increased traffic at our welcome home centers, increased convergent rate of that traffic. So all building to a slightly stronger sales pace.”

Toll Brothers FY 2Q17 Earnings Call Notes

Douglas Yearley – CEO

Best spring selling season in 10 years

“Solid and improving demand and the financial strength of our affluent buyer base are driving our growth. This was the best spring selling season we have had in over 10 years. The number of contracts in fiscal year 2017 second quarter was the highest since 2005’s third quarter and the number of contracts per community was the highest since 2006’s second quarter.”

West is great in all regards

“Bob, the West is great in all regards. We had significant order growth in Arizona, Colorado, Idaho of course is new to us and doing very well. Las Vegas, Reno, the only place that was down in the West and it’s strictly mix because we love the market was Seattle and we have more opening coming, so we’ll make up for that, but the West was absolutely fabulous in all regard. We’ve course now report California independently, which is as west as we get and I have the same comments for all of California as I just made for our Western region. It’s just fabulous.”

Raising price faster than cost but not by a huge amount

“Mike, this Doug. It’s certainly better in some reasons and it’s worse in others. California and Seattle have had — we’ve had the ability to raise prices the most. For the quarter, we on average nationwide we raised prices a little more than $5,000 per home. We had cost go up about $2,500 per home. So, we continue on a national level on average to outpace cost increases, but not by a whole lot, by $2500. But when I focus on those areas that have been strongest on you look to where we sold the most homes this quarter and that’s Southern Cal, Northern Cal, Seattle, Northern Virginia, New Jersey, Las Vegas, Reno and Michigan.”

We don’t see an overheated market in CA

“We don’t see overheated market. We don’t see investors. We certainly all know mortgage money is not easy. The percentage of foreign buyers has stayed stable and they have been quite easily been able to finance their homes or get cash into us to purchase their homes with truly no issues. I’ve checked with our mortgage company. I’ve checked with our California teams and it has been business as usual for some time now with that foreign buyer. ”

Bob Toll – Executive Chairman

Housing starts still half of previous peak

“Thanks Marty. We believe our strong results are being supported by the release of pent-up. Single family housing starts rose to 835,000 in April. However, that is still just half the previous peak of 1.72 million in 2005. Many factors are bringing buyers off the fence right now. These include low interest rates, urgency created by the limited supply of resale and new homes and improving personal balance sheets and credit profiles. Our luxury buyers are further benefiting from a solid employment picture, strong consumer confidence, a robust stock market and increasing equity in their existing homes.”

D.R. Horton 1Q17 Earnings Call Notes

David Auld

Sales people feel as good as they ever have

“Not a lot of chatter about interest rates, I can tell you the sales people in our company today feel as good about the market as they have ever. Traffic numbers are up. We’re selling houses, we’re well positioned against competition, where we have competition and it’s just a good time to be in the business.”

Lennar FY 1Q17 Earnings Call Notes

Stuart Miller – CEO

Market conditions feel like they are strong and strengthening

“So let me go ahead and begin and start by saying that market conditions certainly feel like they are strong and strengthening. The slow and steady, though sometimes erratic, market improvement that we’ve seen for the entirety of this recovery seems to be giving way to a more definitive reversion to normal. While our first quarter operating results, particularly gross margins, reflect some of the sluggishness seen at the end of last year, our sales results went from tepid to better to strong as the quarter progressed. Limited supply and production deficits are now intersecting with land and labor shortage and this suggests, though not yet seen, but suggests, that pricing power is on the horizon as we move through the year.”

Customers are clear in their motivation

” As our traffic has increased, we’re getting some very direct feedback from our customers as they tell us what they are looking for, their timing and, sometimes, their motivation. There’s clearly a sense of general optimism in the market. There’s a perception that jobs are being created and that wages are actually starting to move upward. There’s a solidifying sense that the government has adopted a business-friendly posture and that will result in real changes to tax rates and to the regulatory environment. The banking world is making more overtures to small businesses and to mortgage borrowers and there’s a sense that borrowers can make their way through the process. Additionally, the upward direction of interest rates has encouraged some to get off the fence and consider purchasing a home rather than renting. Rents have risen and the prospect of higher purchase prices and higher interest rates makes a compelling case that today’s opportunity might be the best opportunity to leave those annual increases in monthly payments behind.”

60% of 18-35 year olds are living with parents, relatives and roommates

” Interestingly, the front page of U.S.A Today reports today that 60% of millennials ages 18 to 35 are living with parents, relatives and roommates and that is a 115-year high.”

Construction costs have risen in CA

“I think that as we think about our numbers, construction costs as a percentage of our sales price has probably moved up around 100 basis points and there’s most certainly pressure on construction costs in the labor constrained market ”

Mnuchin well aware that there will be winners and losers in a tax revamp

” I will say that I’ve had a recent opportunity to listen to Steve Mnuchin, the Treasury Secretary, who seems to be in a lead position there. And the two things that I take away from listening to him is that he’s very smart, very thoughtful in his approach and I frankly derived a lot of confidence listening to him walk through the thinking. The other thing that I walked away with is a sense that he and this administration are listening carefully knowing that there will be winners and losers, there will be ups and downs, in any configuration of the tax revamp and so there is, virtually, no ability to draw certainty today from what pieces and in what proportion they are going to be woven into a new tax program. ”

Houston a bit of a pickup

“I think some of that is driven by the impact of still, a little bit of sluggishness in Houston, but with regard to Houston, we have seen a pick up. We’re starting to see a little of an increase in rig count and we still have a divergence in sales pace between the higher priced and the lower priced ones. So, Houston was a little soft, but it looks like it’s, the picture is getting a little brighter there as we move through the year.”

Hovnanian FY 1Q17 Earnings Call Notes

Ara K. Hovnanian – Chairman of the Board, President & CEO

Land and labor are headwinds to gross margin

” Three factors continue to be a headwind for more meaningful gross margin improvements. Rising labor costs, increased use of incentives in certain communities and higher land costs”

Definitely feeling strengthening

“Sure. Just overall the macro perspective, we definitely are feeling a little strengthening in the marketplace and I think our sales per community, our contracts per community are certainly an indication of that. If I look around the country, I’d say we’re feeling some strengthening, certainly in Northern California in the Sacramento area that has been strong. We’re continuing to see a strong Texas market, the Arizona market in Bromley in Phoenix that has been strengthening as well. On the other side, we’re seeing a little more challenge in the Chicago market, which has historically done very well for us and our southeast coastal markets have had more of a headwind in terms of incentives that would include the Hilton, primarily the Hilton Head in Savannah markets in south.”

Toll Brothers 4Q16 Earnings Call Notes

Douglas C. Yearley

California continues to be hot

“California continues to be hot. At Baker Ranch in Lake Forrest in the LA suburbs, we signed 66 agreements in the first quarter, double last year’s first quarter total. And we have taken 30 additional deposits in the last three weeks, all at an average price of over $1.2 million.”‘

Strong stock market helping to increase demand for our homes

“Home buyers are beginning to realize gains on the sales of their homes, which gives them the confidence, flexibility and down payment money to trade up into one of our homes. This increased home equity, gains in the stock market, the prospects of potentially lower tax rates and less sensitivity towards mortgage interest rates, due to generally larger down payments and stronger personal balance sheets, seems to be contributing to increased demand for our homes.’

Hot is the right word for CA

“With respect to California, yes, hot is the right word to describe it. Our numbers in Southern Cal doubled. Our sales doubled in the quarter. I referenced Baker Ranch, which is a flagship community of ours in Orange County. Northern Cal was only flat because of a lack of inventory. We have a number of communities opening in the second half of 2017, but both Northern and Southern Coastal California, where we are located, are hot.”

Buyers not levering up

“we’re also very comfortable with the general luxury market. Our buyers are well-positioned for all the reasons we gave in the prepared comments. 20% are all cash. Those that get a mortgage only lever up 70% LTV. They put 30% down. The resale market is firming up. They have equity in their homes. The stock market is roaring. They have money in the markets. Tax rates may be coming down. And it’s a very fragmented business that we tend to dominate, and the competition is small. It’s local. It doesn’t have our horsepower. It can’t buy the land the way we do. Doesn’t have our balance sheet. It doesn’t have our brand. It doesn’t do it the way we do it.”

Millenials buying their first homes later than boomers

“The number one reason for now is millennials. This is a generation that is approaching the size of the boomers. And they will be buying their first home. Many of them a little bit later in life than the boomers did, so they will be wealthier, more established. And we think there’s a huge opportunity that their first home can be the 3 Series BMW, brought to you by Toll Brothers. And so that is what, in the last few years, drove the initial thought and the strategy. ”

Most value of a builder is its land

“Remember that most value of a builder is its land. So we always have to weigh, do we want to buy a builder that has some really good land, some above average land, and then maybe some average or below average land and blend that together in a market we’re already in where we don’t need the brand and the relationship with contractors and somebody to explain the architecture to us and how to buy land, et cetera? And we have to then weigh whether it’s worth it to buy a portfolio that is a blend of different quality land with just chasing the best land deal in the market?”

Mortgage buyers putting 30% down

“Megan, we have not. We still have 20% all cash buyers. A lot of those come out of the Active Adult category. And those that get a mortgage are still on average putting 30% down and only mortgaging 70%. Rates today, the jumbo is about a quarter point below a conforming Fannie Freddie loan. It’s about a 4.125% loan and a conforming is about 4.375%. And as you know, we have more jumbo buyers than the other builders. So the mortgage side of our business is good and the buyers are really doing nothing different than they had in the past.”

Bob Toll

Housing outlook remains favorable

“With home price appreciation strengthening personal balance sheets, the Dow Jones Industrial Average surpassing 20,000 for the first time, low unemployment, we believe the housing outlook for 2017 remains favorable. The pent up demand of the past seven years may be starting to release, bringing more buyers into the market, especially in the move-up segment where rising home values are giving buyers more equity when they sell their homes in order to move up.”

Millenials forming families

“The leading edge of the millennial generation has begun to form families, have children and buy homes. The maturing baby boomers continue to demonstrate strong demand for our Active Adult homes. With supplies of new and existing homes still tight, we believe that a rise in demand could push home prices higher.’

DR Horton FY 1Q17 Earnings Call Notes

David Auld – President and CEO

Seeing strong trends

“We were very pleased with the quarter. And we saw very strong improvement in our absorptions, community-by-community. Throughout the quarter, we continue to see a good response to our positioning. We were much better positioned coming into this first quarter this year than we had been, and we were able to execute against that. The market therefore is a very solid market. I wouldn’t say we saw significant deviations within the quarter month-to-month. It was a pretty consistent result for us. In January, the Cowboy lost. So, in this part of the world, the selling season is kind of starting now. So, we’re excited about the silver-lining on that cloud for us. But we continue to see good sales trends in January, very early into spring. And we’ll certainly keep you updated as things progress, and we get back with you in April on that one.”

2013 wasn’t too bad despite the interest rate increase

“Well, 2013, I don’t know that it was necessarily the rate increase as the rapidity of the rate increase it kind of shocked the market. And you saw, I would say, a deceleration in traffic, less consumer confidence deal from our sales agents. We fought through it. I think we ended with a pretty good 2013. But it did have a significant impact. Right now, the over-optimism that seems to be up there in the market, just traveled through Florida, and I’ll tell you, Florida feels like it is going to market as I’ve seen the long time.”

Bill Wheat

Stick and brick costs moderate, but lot costs increasing

” On a year-over-year basis, our costs, our stick and brick cost which were put, were up only 2%, which is certainly a more moderate than we saw a couple of years ago. And so we’ve been able to keep our revenue growth per square foot exceeding our cost per square foot on the stick and brick basis, which is certainly helping us going forward. We’re seeing lot cost start to increase, lot costs were up 9% on a per square foot basis this quarter. So it’s a very — we’re seeing very good results from our efforts to control our stick and brick, which is helping to keep our margins stable.”