00:00 Speaker A
We did get a read today, Jay, on on, uh, another read on consumer confidence. Not good, Jay. Was tumbling, just as we had here into the the all-important spring home buying season. Um, so I’m just curious, Jay. Let’s start there. Get your take on, on this US housing market, Jay, and how you see it evolving over 2025.
00:34 Jay
Sure. And thanks for having me on. Yeah, the, the confidence numbers didn’t look great. Um, you know, so far the job numbers have held up, okay? That’s the, you know, if there’s anything we’re, we’re kind of watching, we don’t have a formal forecast on it. But, um, you have to have a job to get a house. Um, and so, you know, we’ll, we’ll see all the stuff that’s happening in Washington and other places with the job cuts. We’re kind of keeping an eye on that too. But I think, and, and we wrote about this in our KB note last night, uh, for the builders that are willing to maybe cut a little bit of price and, and change up the incentive mix, um, there is demand out there. Um, KB, we talked about, had a, had a better exit rate in terms of, of their monthly order pace, uh, than what they had for the full quarter after, after they made those, those tweaks. Um, and I think even with what we heard from Lennar last week, their numbers were, were below what we were expecting, but again, in their case, I think they were willing to, to move some price around to get homes sold. Um, you know, the names that we like in the group are mostly geared towards move up and luxury buyers who maybe are not completely independent of what’s going on with, with rates, but maybe a little more payment insensitive than, than some of the entry level buyers. So the names we like on the large cap side are, are Toll Brothers and Pulte, um, and then so on the mid cap, where we like Taylor Morrison and, and a company called MI Homes. That’s a builder out of Columbus.
03:00 Speaker A
And, Jay, are we not seeing some of those same, you know, pulling of levers, um, and margin pressures potentially on that upper end, as we’re seeing with, let’s say, KB or Lennar?
03:23 Jay
Um, we, yeah, we have because I think the even some of the higher end customers, um, they still want to get a, a mortgage rate buy down and, and that, that is become the, the, for many builders, the incentive, the biggest incentive that they’re using right now. Um, names like Toll and Pulte don’t have to use as much of those, but they have to do some. Um, I think it’s just the, the builders kind of open themselves up to this when they started doing rate buy downs two, three years ago. And now it seems to have spread across the industry. So you have that as a concern. I think the other thing we’re watching, we’ve been talking about is rising lumber prices. Um, lumber prices have been up year on year for seven weeks in a row now. Um, you know, and who knows what’s going to happen with the tariffs? Uh, if we do put more tariffs on Canadian lumber, uh, that could be a gross margin and an EPS headwind for, for the back half of the year. Wouldn’t be immediate, but, um, the, the homes that the builders are selling now and then would be constructing later in the year, we could potentially see some gross margin pressure from that.