Is this the week when the scales fell from the eyes of Australian investment analysts about the impact of the US housing slowdown, the subprime mortgage crisis and now the higher Australian dollar?
It’s not that there’s been a state of denial about the impact of these three factors on Australian building stocks in particular but some analysts seemed reluctant to fully understand the damage the subprime mortgage crisis will do to sentiment and how it will delay the all important recovery in housing until well into 2008.
That delay could be up to a year and means the hopes and wishes of companies like Rinker Group, Boral, and James Hardie for an upturn are much further away, just as in Australia, it’s now clear a recovery in housing won’t happen this side of the fourth quarter of 2007 at the earliest (Calendar year).
And if rates rise next week, or failing a decision Tuesday, any time soon after, then that local rebound will be stretched out into 2008.
US homebuilding and mortgage groups have all cut their estimates for housing starts to reflect the softening now expected to flow from the mortgage crisis. That will be the big story in the next couple of months.
While new homes account for around 15 per cent of annual home sales in the US, they are the kick starter for the sector. Figures this week showed not only slowing levels of starts and permits, but also a fall in median prices, and, at these levels, a sharp rise in the glut of unsold homes, new and used.
Inflation continues to be of concern to the Fed and the RBA here but there’s also a feeling that jawboning the market by the Fed (as we saw Wednesday night) might for enough in the US (and here as central bankers follow each other): certainly a rate rise is not on the cards in the US
In Australia this week’s figures on the sale of new homes in February showed some growth but from low levels in January. The level of activity in February was sharply down on February 2006, when forecasters were…forecasting a housing recovery.
How you can forecast a recovery without any positive signs of one in NSW is a mystery: the NSW market has a long way to go before it reaches equilibrium.
Prices of new and existing homes have risen, driven by the boom in Perth (strip that out and the gains are not so dramatic).
In both the US and Australia, continuing strong job markets are the only thing stopping further revisions downwards for housing, cuts much steeper than we have seen.
Non-residential activity in both countries is still going well and will continue for some time.
The recent rise in the value of A$ has also been factored in by some analysts into overseas earnings figures for the likes of Boral, Hardie, Rinker and CSR (sugar mainly).
These currency changes are not significant but are a sign of what might be to come if we have an 80 USc dollar in June.
Rinker is perhaps the most interestingly placed stock given the firming Aussie is making the Cemex offer look less and less attractive and the fall in housing activity in Florida and Nevada and Utah, is making the Cemex offer perhaps look at little more tasty.
But as long as Perpetual says no with its 10 per cent plus stake in RIN, Cemex has nowhere to go. Acceptances have not flowed to Cemex.
That’s telling us that the market reckons the bid is dead, despite it being extended into next month.
