Homebuilders’ Mortgage Revenues, Not Home Sales, Booming

Don’t assume that since homebuilders’ revenues are soaring, so is home construction. From Bloomberg News this morning:

“At PulteGroup Inc. (PHM), the second-largest builder by market value, mortgage revenue jumped 70 percent in the third quarter, almost six times the revenue gain from home sales. At Lennar Corp. (LEN), the No. 1 builder, mortgage-unit revenue surged 60 percent, double the increase in sales revenue. Aided by lucrative lending units, both companies posted the biggest overall profits since 2006.”

In other words, homebuilders are making more off their lending than off home sales. Investors have not overlooked this:

“Investors are already beginning to lose confidence after a rally boosted the 11-member S&P Supercomposite Homebuilding index 83 percent this year through October as housing rebounded from a six-year low. The gauge has tumbled 7.2 percent in the past month after a Commerce Department report showed fewer new homes were sold in October than forecast and purchases were revised downward for the prior month.”

It seems home sales have joined any number of revisions to the economic numbers, post election. And the warning shot for homebuilders has been fired:

“Homebuilders are getting extra help right now from mortgages,” said Jack Micenko, a homebuilding analyst at Susquehanna International Group in New York. “They’re over- earning in those areas because lending margins are so wide, but they can’t depend on that going forward.”

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