The market’s response to Toll Brothers’ (TOL) earnings yesterday was not pretty, but it’s not a cause for concern like many would like to think it is. Housing sales volume continues to increase with the MBA mortgage purchase applications index having printed 20% over the last five weeks. Mortgage insurers, large cap banks and select regional banks (MTG, BAC, TCB) all stand to benefit from the recovery in housing. Title insurers like FAF and FNF are also levered to a recovery in the purchase market.
Mortgage production revenue, however, will likely see a decline quarter-over-quarter as we move further into 2013. So the question remains: can housing survive the recovery without quantitative easing from the Federal Reserve? The answer is yes, with the reason QE is being removed is because of underlying strength in the economy. If the economy isn’t actually strengthening, then it’s back to the drawing board.