Looking for more ways to get long our bearish view on US interest rates? We remain long of US Housing (ITB) since we made the #Quad4 in Q4 call in Q4 of 2018.
This morning's US Pending Home Sales report was one of the only major #accelerating US economic data points of the year. Toll Brothers (TOL) isn't down -3% on that report. It's down on rates being up today.
Here's a chunky excerpt from our Institutional Research note (compliments of my Housing Team) this morning:
Today's Focus: January Pending Home Sales
We’ve presaged the elevated probability for a pronounced bounce in signed contract activity recurrently over the last month as the first flow through impacts of the retreat in rates manifest in a meaningful increase in Mortgage Purchase Application Volume in January, a development re-confirmed by the increase in Builder Confidence in February where an increase in both Current Sales and Current Traffic was expressly attributed to the decline in rates.
Again, the fundamental call here isn’t for some escape velocity, step function style inflection in transaction activity – it’s for a progressive transition to ‘less bad’ as the decline in interest rates, a still strong domestic labor market and progressively easier 2019 comps work to shepherd a path to rate-of-change stabilization for a sector mired in a negative 2nd derivative volume slump for years at this point. In short, it’s a quintessential case study in better/worse defining the investment-scape where the simple absence of further, rampant deterioration is the marginal change of consequence.
That’s the pretext for the morning’s PHS data which did, indeed, see a notable rebound as signed contract activity posted its largest sequential increase in 8.5 years while year-over-year growth accelerated ~800 bps. In short, we got the print we were looking for in January and some positive confirmation of emergent stability in existing market demand growth.
Buy on red,
KM
