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FDX: Moving To Roughly Indifferent

Overview

 

We have ‘liked’ FedEx shares since late 2012, gradually reducing our affinity as the shares have moved higher (although a bit too quickly).  With today’s gains, we will move to ‘roughly indifferent’.  Much of the undervaluation in the Express division has been recognized at this point – perhaps 2/3s, if it were possible to provide such allocations.  Management caution on 2H FY15 and static guidance may point to a softer second half.  We preferred FDX when the Express division looked like it was detracting from the market’s valuation of FDX shares.  We would look to re-enter at more attractive prices and would not short/underweight FDX shares.  We do expect FedEx to be reasonably successful with its profit improvement plan and may again be exiting too early.

 

 

Updated Sum of Parts

 

We have written a critique of this valuation methodology and recognize its flaws.  However, we continue to find it a helpful framing when explaining our views on FDX.  We present a comparison of the June 2013 SOTP table with the current one.

 

Sum of Parts in June 2013 – FedEx Express Implied Negative Valuation

(published here, odd formatting included)

 

FDX: Moving To Roughly Indifferent  - bc1

 

 

Sum of Parts Following FY1Q 2015 Results – FedEx Express Implied $15 bil Valuation

 

FDX: Moving To Roughly Indifferent  - bc2

 

 

FY 1Q 2015 Results

 

We will let others provide a detailed review of FDX’s quarter, but pull out some highlights below.

 

Express Segment Margin:  The FedEx Express margin has made progress, but still has a way to go to reach those of UPS and Deutsche Post.  We do not see a reason that FDX’s profit improvement plan (PIP) will not significantly close the gap between FDX and competitors.  That said, we think a good portion of the margin improvement is already reflected in FDX shares.

 

FDX: Moving To Roughly Indifferent  - bc3

 

 

It Isn’t Just Apple Product Launches:  Call Q&A seemed to imply that the quarter was just an Apple launch phenomena.  FedEx Express may wish it were more closely tied to iPhone launches, but the data suggest they are largely unrelated.

 

FDX: Moving To Roughly Indifferent  - bc4

 

 

Far From Outlier Results:  FY1Q 2015 was better better, but without easy comps or with unusually strong yields/volume growth.  

 

FDX: Moving To Roughly Indifferent  - bc5

 

 

Yields improved slightly, most likely because of less International Priority headwind.

 

FDX: Moving To Roughly Indifferent  - bc6

 

 

Volumes also improved, consistent with broader airfreight data.

 

FDX: Moving To Roughly Indifferent  - bc7

 

 

Ground Still Solid:  Management again commented that it won’t be satisfied with less than high-teens margins.

 

 

FDX: Moving To Roughly Indifferent  - bc8

 

 

Freight’s Highest Margin:  The best quarter since the financial crisis for FedEx Freight.

 

 

Guidance:  Management commented that the stronger FY1Q 15 was factored into guidance and implied a weaker back half relative to consensus.  Guidance may just be conservative, but guidance has been fairly on target in the last couple of years.

 

 

FedEx Investment Negatives:  When we presented FDX as a long in late 2012, we often heard its myriad investment negatives.  Many of them were true negatives, but we felt there was adequate compensation for the risks.  That offsetting compensation is less available at current prices.  Negatives include:

  • The Express business is capital intensive and historically not a great generator of free cash flow
  • FedEx Ground faces ongoing legal and regulatory challenges to its independent contractor model
  • Belly space in wide body aircraft in the Asia appears a significant challenge, FTN or not

 

 

 

 

 

 


 




ENERGY: Can the U.S. Shale Boom Be Stopped?

Takeaway: Recent developments in the oil and gas space suggests the U.S. is closer to becoming an exporter

The Bureau of Labor Statistics (BLS) recently reported that the largest employment increases since the shale revolution commenced circa 2006 occurred in the four U.S. states which just so happened to have the heaviest amount of hydraulic fracturing: North Dakota, Louisiana, Oklahoma, and Texas.

Early estimates suggest that U.S. shale plays will add significant production capacity for years to come:

Shale Gas

  • Natural gas from shale formations now accounts for 40% of all domestic natural gas production (up from 4% in 2005) with the EIA estimating shale’s share will increase to 53% by 2040
  • Reserves: The U.S. possesses an estimated 31 years of AGGREGATE annual natural gas production in shale gas reserves (~15-20% of estimated global shale gas reserves)

Tight Oil

  • Tight oil accounts for ~12% of current domestic production with this amount expected to reach 17% by 2040
  • Reserves: estimated 10 years of AGGREGATE production

With hydraulic fracturing still a relatively new extraction method, we have come across a confusing and wide variation in estimates of two key factors:

  • Amount of “Recoverable” Reserves
  • Marginal Production Costs

Producers are developing more efficient and useful ways to induce hydraulic fracturing to improve the recovery process. At the end of the day, we expect the rapid evolution of this process to continue, and a constant refresh of those players improving marginal production costs faster than their peers will be key to picking the winners in an environment of low oil and gas prices. Until more research is completed on the possibilities of improving marginal production costs, we can conclude the following:

  • Decline rates are very high vs. traditional methods:
    • Average decline rate in the world’s conventional oil fields =~5%
    • Average decline rates in the Bakken formation =~ 44%
    • Average first year decline rates in major U.S. Shale plays =~70%

Available resources and marginal production costs aside for now, what other headwinds threaten the U.S. from fully capitalizing on the Shale Boom?

------

In this preliminary note on the topic, we’ll begin with recent developments to the current regulatory obstacles impeding our ability to become an exporter of oil and LNG. More extensive analyses surrounding the sustainability of the U.S. shale boom will follow in the coming weeks.

 

OIL: THE PRESSURE TO LIFT THE EXPORT BAN IS OFFICIALLY HERE

  • export ban on oil implemented after the oil embargo in the 1970s
  • The Jones Act (1920) requires that oil has to be shipped by Americans in smaller ships:
    • It costs around $5-$6 a barrel to ship crude from the Gulf of Mexico to the US east coast on a US-flagged vessel, but only $2 to ship to Canada’s east coast on a foreign-flagged vessel

South Korea and other NATO allies have verbally challenged the U.S. ban on the back of our recent increase in domestic production capacity. Last week the EU’s commissioner for trade, Karel De Gucht, emphasized the need to free up more sources of oil and gas for a wider and more effective free-trade agreement to be instituted.     

The Office of the U.S. Trade Representative and the NSC have held internal discussions with the Obama Administration on how to deal with a challenge from the international community. Washington was able to make a national security argument for implementing the ban back when it was importing most of its crude oil, but the added production from the Shale boom is challenging the credibility of that argument.

With added geopolitical tension globally this year, both Asian and European allies are pushing for diversified supply lines. Strengthening their argument, the U.S. just took China to the WTO earlier this year and won a case accusing Beijing of hoarding raw materials and precious metals. Under International Trade rules (General Agreement on Tariffs and Trade), the argument for upholding the restrictions on the exporting of U.S. fossil fuels may be too hypocritical to justify.

We expect a more publicized stance from Washington in Q4.


NATURAL GAS: LNG EXPORT TERMINAL APPROVAL PROCESS MODIFIED IN AUGUST, BUT DEVELOPING ADEQUATE INFRASTRUCTURE FOR INDIVIDUAL PROJECTS LAGS BY 2-3 YEARS.

In August a modification of federal law governing the LNG terminal approval process was implemented. The new rules essentially expedite the FINAL and LAST DOE approval process for those projects that uphold the requirements of NEPA (National Environmental Policy Act) and FERC (onshore)/MARAD (offshore). This will shorten the last step in fully-approving proposed projects:   

  • Approval required by both FERC/MARAD and NEPA and then finally the DOE (With new rule, DOE gives FINAL approval rather than both CONDITIONAL and FINAL, post-FERC/MARAD approval):
    • This change ultimately means that NEPA approval serves to validate what was previously CONDITIONAL DOE approval
  • The DOE will now begin evaluating applications 30 days after applications have been scrutinized by NEPA
  • NEPA - To meet NEPA requirements federal agencies prepare a detailed statement known as an Environmental Impact Statement (EIS). The EPA reviews and comments on the EISs prepared by other federal agencies, maintains a national filing system for all EISs, and assures that its own actions comply with NEPA
  • DOE - For LNG, U.S. law requires export facilities get a "public interest" approval from the DOE if their buyers are located in countries that haven't signed a Free Trade Agreement with the United States. Non-FTA countries include all European nations as well as China, India and Japan.
  • The countries without free trade agreements with the United States are considered the most lucrative for LNG exports because many of them have huge appetites for energy
  • 31 facilities have applied for DOE permission. Since May 2011, 6 of them (2 in Cameron Parish, La, 1 in Lake Charles, LA, 1 in Texas, 1 in Maryland and 1 in Oregon) have received conditional approval.
  • Only the three below have received the final construction go-ahead(NEPA, FERC, and Final DOE approval). Sabine Pass may begin operating as early as the end of next year:
    • Sabine Pass (Cheniere Energy) in Louisiana was the first approved and generous estimates are that the end of 2015 for first exporting may be possible
    • Cameron Parish (Cameron-subsidiary of Sempra Energy) in Louisiana authorized to export the equivalent of 1.7bn cubic feet/day for a period of 20 years. Project expected to be completed by 2018
    • Martin Country (Carib Energy) in Florida expected to be able to export 40M cubic feet/day

The recently approved projects are not expected to be completed until 2017-18. As mentioned above, Sabine may be ready to export by the end of 2015. Stay tuned for additional research that we hope will help stay on top of the most important issues in the shale energy space.  

As always, please reach out with comments, questions, or additional color on the most important issues that will make or break the potential of shale’s contribution to domestic production. Have a great night.

 

Ben Ryan

Analyst  


ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4?

Takeaway: The slowdown in both growth and inflation domestically requires investors to adopt a particularly defensive asset allocation.

Quad #4 Confirmation

During the week ended August 15th, our Tactical Asset Class Rotation Model (TACRM) generated a “high-conviction SELL” signal for Commodities and it followed that up by generating a “low-conviction SELL” signal for FX during the week ended August 29th. In our model, concomitant USD appreciation and commodity deflation is a clean-cut leading indicator for reported disinflation and that’s what you’re seeing with this morning’s US CPI print, which slowed from +2% YoY in JUL to +1.7% in AUG.

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - CPI

 

For the quarter-to-date, headline CPI is now averaging +1.85% on a YoY basis, which is down from an average of +2.1% in the 2nd quarter. On the growth front, a handful of key indicators have negatively inflected in the 3rd quarter as well:

 

  • #ConsumerSlowing: In contrast with the extremely positive trends in both consumer credit and survey data (e.g. Conference Board Consumer Confidence Index, NFIB Small Business Survey and ISM Non-Manufacturing Report), the ~70% of actual GDP that is Real PCE slowed to a +2% YoY pace in JUL, which is down sequentially and below its trailing 3M, 6M and 12M averages.
  • Median Consumer Woes & #HousingSlowdown’s Impact on Consumption: The dour trend in domestic consumption is in line with recent survey data from the Federal Reserve that shows ~40% of  US consumers are “just getting by” or “struggling to do so”. This is consistent with our groundbreaking work on the median consumer and the impact of all-time highs in key expenditure buckets, as well as our work on slowing home price appreciation, given that houses are the primary asset for most Americans.
  • Labor Market Deterioration: Consistent with the slowdown in the bulk of actual economic activity, we’ve seen the labor market cool off in recent months. Specifically, the seasonally adjusted MoM nominal growth rate of Nonfarm Payrolls slowed sequentially to +141k in AUG – a figure that is well shy of its trailing 3M, 6M and 12M averages. Moreover, the YoY rate of change in non-seasonally adjusted rolling Initial Jobless Claims ticked up to +7.3%, which is up sequentially and well above its trailing 3M and 6M averages.

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - RETAIL SALES

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - PAYROLLS

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - JOBLESS CLAIMS

 

Debating the Bull Case

We don’t highlight these metrics to cherry pick bad data in support of our existing views. Rather, we think it’s important to highlight the risk of #GrowthSlowing given where consensus expectations for growth remain – i.e. out to lunch. Moreover, the lack of dispersion among forecasts remains a key risk; everyone and their mother is convinced a high-growth US economic expansion is here to stay – 63 months into an economic expansion nonetheless!

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - Consensus GDP Estimates

 

Indeed, there’s admittedly a lot of green remaining on our US Economic Indicator Summary table and even our Housing Compendium has a fair amount more green on it that it has had in recent months. The key takeaway for us calling that is out is to highlight our fair and balanced analysis of the data, as well as to show that we are well aware that #GrowthSlowing is not a foregone conclusion for the investment community at large. Indeed, many investors might review the following tables and interpret the trend in domestic economic growth as positive and we’d be remiss to dismiss such claims at face value.

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - US Eco Summary

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - Housing Compendium

 

That being said, we’re also well aware of the fact that few others, if any, model economies the way we do (i.e. with a predictive tracking algorithm that combines differential calculus with real-time market and high-frequency economic data), so we’re comfortable being alone in the domestic #GrowthSlowing camp. We prefer forecasting accuracy over the safety of anchoring and our GIP model has, in fact, been deadly accurate in predicting the 2nd derivative of both Real GDP and CPI over the years.

 

Speaking of the model, there simply isn’t enough sequential momentum in the high-frequency economic data for Real GDP to surmount extremely difficult compares in 2H14, which is a conclusion supported by a compendium of financial market indicators – especially falling interest rates, though our math continues to show that #GrowthSlowing and fears of deflation in the Eurozone have also played a major factor in that trend as well.

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - UNITED STATES

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - UST 10Y

 

For the 3rd quarter in particular, we see Real GDP growth in a range of +1.6% YoY to +1.8% YoY. If it comes in exactly at the midpoint of that range, that would translate to +1.3% on a QoQ SAAR basis – i.e. less than half the rate of the Bloomberg consensus forecast of +3%. We get the advance estimate for 3Q14 GDP on October 30th.

 

Quad #4 = A Dovish Fed

With both economic growth and reported inflation slowing domestically, we are now in a markedly different economic environment than what we saw in the second quarter and we continue to expect a marginally dovish response from the Federal Reserve – particularly relative to near-consensus expectations of a tightening cycle commencing in 2H15.

 

In fact, we’d argue today’s FOMC statement was decidedly dovish:

 

  • They lowered their 2014 and 2015 Real GDP growth projections to +2.0 to +2.2% and +2.6% to +3.0%, respectively, from +2.1% to +2.3% and +3% to +3.2% in JUN.
  • They narrowed their forecast for 2015 PCE Core Price Inflation to +1.6% to +1.9% from +1.5% to +2.0% in JUN.
  • They failed to remove the “considerable time” language in their guidance on the level of the Fed Funds Rate post the end of their existing large-scale asset purchase programs.

 

The one hawkish takeaway that initially had the bond market spooked was that 14 FOMC members now see “policy firming” in 2015, which was up from 12 in JUN. Since 2015 growth and inflation data is a long ways away from being reported, however, we think such projections are, at best, useless. The only thing we actually know about 2015 is that the Fed will continue to be data dependent, and if the growth and inflation data continues to slow, there’s little chance of “policy firming” on par with their current expectations.

 

Adjust Your Asset Allocation Accordingly

From an asset allocation perspective, our GIP model would suggest Quad #4 requires a defensive allocation and we think few investors are prepared for that. If, however, you’ve been following our research, you undoubtedly are adequately prepared for Quad #4 (refer to our August 8th presentation titled, “Are You Prepared For Quad #4?” for more details).

 

In the table below, we show historical quarterly performance of various asset classes according to our GIP model quadrants. It’s worth noting that we anchor on history (i.e. historical performance), math and investor psychology in our tactical asset allocation process, rather than on feel and valuation. In fact, we’d argue valuation has little place in the tactical asset allocation process and, at best, should be reserved for the strategic asset allocation process – which is seldom the focus of our research.

 

While our team boasts an impressive number of Ivy League degrees, nowhere in our Yale or Princeton curriculum did we learn how to be smarter than the market or acquire enough hubris to think that we are. While stubbornly telling the market it’s wrong at valuing a security might work in the art of stock picking, it has little place in global macro investing, in our opinion.

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - GIP Model Backtest Trailing 10Y

 

Summary Investment Conclusions

As you can see, we think investors should be in bonds and defensive, bond-like equity exposure and out of both the domestic growth style factor(s) and inflation hedges.

 

On the long side we continue like:

 

  1. iShares 20+ Year Treasury Bond ETF (TLT)
  2. Utilities Select Sector SPDR Fund (XLU)
  3. Health Care Select Sector SPDR Fund (XLV)

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - TLT

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - XLU

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - XLV

 

And on the short side, we continue to like:

 

  1. iShares Russell 2000 ETF (IWM)
  2. SPDR S&P Regional Banking ETF (KRE)
  3. iShares US Home Construction ETF (ITB)

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - R2K

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - XLF

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - XLY

 

Please note that Quad #4 is not a good economic environment for REIT securities. Even though we’ve been recommending the Vanguard REIT ETF (VNQ) on the long side for several months as part of our slow-growth yield-chasing playbook, we now feel it is prudent for investors to cut or dramatically reduce their exposure to this asset class.

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - VNQ

 

This is especially true if the weakness in commodities portends a Quad #4 setup for the fourth quarter as well. While that is not something we are currently forecasting given the ease of CPI compares in the 4th quarter, the probability of this occurrence is certainly rising according to TACRM:

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - TACRM ACRM Delta

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - TACRM ACRM Percentile

 

ARE YOU POSITIONED DEFENSIVELY ENOUGH FOR QUAD #4? - TACRM CRB

 

Feel free to email us with any follow-up questions. Enjoy your respective afternoons!

 

DD

 

Darius Dale

Associate: Macro Team


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(BONUS) Cartoon of the Day: Lovey-Dovey

Takeaway: On the spectrum of dovish vs. hawkish (versus expectations), this Fed statement was as dovish as it gets says CEO Keith McCullough.

(BONUS) Cartoon of the Day: Lovey-Dovey - Yellen dove 09.17.2014


Where Real Performance Resides (Hint: It’s Not In US Small Caps)

Takeaway: We remain bullish on India, China and Indonesia.

With the Russell 2000 down -1.2% year-to-date, it’s been a lot easier for small and mid-cap growth investors to stay with long China, India, and Indonesia. They were all up again overnight to +5.7%, +29.7%, and +23.9% year-to-date, respectively.

 

That’s where the real performance is.

 

It’s also why you continue to see a higher “International Equities” allocation in our asset allocation model than USA. (Hedgeye macro analyst Darius Dale wrote a related note recently detailing our high conviction. Click here to read.)

 

Where Real Performance Resides (Hint: It’s Not In US Small Caps) - Russell vs. Asia

 

Editor's note: This is an excerpt from Hedgeye research.


NAHB - Party Like it's 2005?

Takeaway: Builders are the most excited they've been since Nov 2005, but we're waiting for tomorrow's Starts/Permits data before joining the party.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

 

*Note - to maintain cross-metric comparability, the purchase applications index shown in the table below represents the monthly average as opposed to the most recent weekly data point.

 

NAHB - Party Like it's 2005? - Compendium 091714

 

Today's Focus: September NAHB HMI (Builder Confidence Survey) & MBA Mortgage Applications

 

September NAHB HMI (Builder Confidence Survey) 

This month (September), the NAHB’s HMI, which measures builder confidence, rose to 59, a gain of four points from August’s print of 55 (which was not subject to any revision), marking the highest reading since November 2005 and the third month above the improvement demarcation line of 50 on the Index.

  • Sub-Indices:  All 3 sub-indices increased MoM for a 4th consecutive month with Current Sales (+5pts) leading the gain alongside a +2pt rise in 6M Expectations and a +5pt rise in Current Traffic.  
  • Regional: Builder Confidence gained across all regions with the exception of the Midwest which saw a modest sequential decline following the largest MoM increase ever ( +13pts) for the region last month.  The 3-month moving average (the NAHB’s preferred, smoothed view) again improved in September across each regional series.

Confidence vs Actual Construction: Builder confidence and Pending Home Sales have shown some reconvergence in recent months while the divergence between builder sentiment and new single family home construction continues to expand.

 

Earnings reports and management commentary out of the public homebuilders has been mixed with TOL indicating that strong buyer traffic is seeing relatively low conversion to sales. Meanwhile, LEN numbers showed a solid performance on both current sales and forward outlook. The TOL commentary accords, at least in part, with the disconnect observed between builder sentiment and actual new construction activity.

 

We’ll get the housing starts/permits data for August tomorrow, but with SF starts middling YTD and permits up just +6K in July, the upside for single family construction over the balance of 2H still appears somewhat constrained.

 

NAHB Chairman Kevin Kelly had this to say on the September reading: 

 

“Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up, which is a positive sign that the housing market is moving in the right direction.

 

NAHB's Chief Economist, David Crowe, added this:  

 

"While a firming job market is helping to unleash pent-up demand for new homes and contributing to a gradual, upward trend in builder confidence, we are still not seeing much activity from first-time home buyers. Other factors impeding the pace of the housing recovery include persistently tight credit conditions for consumers and rising costs for materials, lots and labor."

 

 

NAHB - Party Like it's 2005? - NAHB LT

 

NAHB - Party Like it's 2005? - NAHB Optimism Spread

 

NAHB - Party Like it's 2005? - NAHB Regional 2

 

NAHB - Party Like it's 2005? - NAHB Sentiment vs NHS

 

NAHB - Party Like it's 2005? - NAHB Sentiment vs PHS

 

NAHB - Party Like it's 2005? - NAHB Survey Indicators

 

 

MBA Mortgage Applications

The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended September 12th.

 

  • Headline and Purchase Apps re-traced the holiday week decline with the composite index rising +7.8% to 353 from 327 – after falling from 353 to 327 during the week including Labor Day.
  • Purchase Application volume rose  +4.8% sequentially to 169.3 on the index; the 1st rise in three weeks and the highest level since the first week of July.  Purchase activity remains down -10% YoY and is tracking at -6.3% QoQ with the quarterly average holding at the lowest level since 2Q of 1995. 
  • Refi activity rose +10.3% WoW although the YoY rate of improvement deteriorated to -23% from -17% prior as rates on the 30Y FRM rose  a sizeable +9bps WoW to 4.36%

 

NAHB - Party Like it's 2005? - Purchase Apps LT w summary stats

 

NAHB - Party Like it's 2005? - Composite Index LT w summary stats

 

NAHB - Party Like it's 2005? - Purchase   Refi YoY

 

NAHB - Party Like it's 2005? - Purchase Apps Qtrly

 

NAHB - Party Like it's 2005? - 30Y FRM

 

 

About the NAHB HMI:

The Housing Market Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The monthly survey has been conducted for 30 years. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next 6 months as well as the traffic of prospective buyers of new homes. The HMI is a weighted average of separate diffusion indices for these three key single-family series. The HMI can range from 0 to 100, where a value over 50 implies conditions are, on average, improving, a value below 50 implies conditions are worsening, and an index value of 50 indicates that the housing market is neither improving nor worsening.

 

About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 

 

Frequency:

The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 


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