Latest news with #housing
Forbes
an hour ago
- Business
- Forbes
Meritage Homes: A Building Stock For All Seasons
New home being built with wood plank, trusses and assorted supplies I originally made Meritage Homes (MTH) a Long Idea in June 2020 and reiterated my bullish thesis on the stock many times since. Meritage Homes, is steadily taking market share, building and delivering homes faster, all the while returning capital to shareholders through dividends and repurchases. Despite an uncertain housing outlook in the short-term, my thesis remains intact, and the stock remains undervalued. In the latest housing supply update, Freddie Mac estimated that the U.S. housing market was undersupplied by 3.7 million units as of 3Q24. The shortage of homes is a key driver of decreased housing affordability in the country. Put simply, when supply doesn't increase enough to meet demand, prices (home and rent) rise. As the 5th largest homebuilder in the U.S., Meritage Homes' products remain in strong demand, throughout all economic cycles, because everyone needs a place to live. Meritage Homes is in an advantageous position even as housing prices and interest rates remain high. The average sales price of new houses sold in the U.S. sits ~$404k in March 2025, up from ~$332k in February 2020, just before the COVID-19 pandemic sent home prices soaring. Entry-level homes, in which Meritage specializes, present a more viable and affordable option for any potential homebuyer. In fact, Meritage Homes' homes closed (finished homes delivered to the customer) grew from 7,709 in 2017 to 15,520 in the TTM ending 1Q25. In turn, the company's market share of U.S. new one family homes increased from 1.3% in 2017 to 2.3% in the TTM. See Figure 1. Figure 1: Meritage Homes' Share of U.S. New One Family Homes Sold: 2017 – TTM MTH Market Share 2017-TTM In 1Q25, Meritage Homes recorded its second highest first quarter orders and closings in company history. Meritage Homes' spec home strategy, which offers move-in ready homes available to close within 60 days, speeds up the buying process. Essentially, this strategy shortens the time between home sale and home closing, and it can help target incentives and promotions to specific market conditions. Of the homes closed in 1Q25, approximately 61% were sold within the same quarter, up from 48% in the prior year period. The company also achieved a record backlog (homes sold but not yet delivered) conversion rate of 221% in 1Q25, up from the 138% in 1Q24. Backlog refers to homes under contract that are not yet closed. It's important to note that the decrease in Meritage Homes' backlog is not due to a decrease in demand, but rather due to a strategic pivot to shorten the sales cycle and sell homes later in the construction cycle. When combining the number of homes in backlog and spec homes in inventory in 1Q25, Meritage has ~5 month supply, which is within the company's preferred range of 4-6 month supply. Figure 2: Meritage Homes' Total Specs & Ending Backlog: 1Q24 – 1Q25 MTH Inventory 1Q24-1Q25 Meritage Homes' fundamentals have been improving over the years. The company has grown revenue and net operating profit after-tax (NOPAT) by 11% and 17% respectively from 2014 through the TTM ended 1Q25. The company's NOPAT margin improved from 7% in 2014 to 11% in the TTM, while invested capital turns fell from 1.5 to 1.2 over the same time. Rising NOPAT margins are enough to offset falling invested capital turns and drive Meritage Homes' return on invested capital (ROIC) from 10% in 2014 to 13% in the TTM. Additionally, the company's Core Earnings, a proven superior earnings measure that excludes unusual gains/losses, grew 17% compounded annually from 2014 through the TTM ended 1Q25. See Figure 3. While below 2022 highs, Meritage Homes' TTM ended 1Q25 Core Earnings are still higher than any annual period between 1998-2020. Figure 3: Meritage Homes' Revenue and Core Earnings: 2014 – TTM MTH Core Earnings and Revenue 2014-TTM Meritage Homes started paying dividends at the beginning of 2023. Since then, Meritage Homes paid $179 million (4% of market cap) in cumulative dividends and increased its quarterly dividend from $0.14/share in 1Q23 to $0.43/share in 1Q25. The company's current dividend, when annualized, provides a 2.5% dividend yield. Though Meritage Homes started paying dividends relatively recently, it's been returning capital to shareholders via share buybacks for much longer. From 2019 through 1Q25, the company repurchased shares worth $486 million (10% of market cap). Since February 2019, Meritage Homes' Board of Directors has authorized the repurchase shares worth up to $750 million, with no specified expiration date. At the end of 1Q25, the company remains authorized to repurchase shares worth up to $264 million. Should the company repurchase shares at its TTM (ending 1Q25) rate, it would repurchase $115 million of shares over the next twelve months, which equals 2.3% of the current market cap. When combined, the dividend and share repurchase yield could reach 4.8%. Meritage Homes generates strong free cash flow (FCF) that covers both its share repurchases and regular dividend payments. From 2019 through 1Q25, Meritage Homes generated $1.1 billion (26% of enterprise value) in FCF while returning $665 million over the same time ($179 million in dividends and $486 million in repurchases). I like companies that choose to return capital to shareholders instead of spending it on costly executive bonuses or acquisitions that rarely drive shareholder value creation. See Figure 4. Figure 4: Meritage Homes' Cumulative FCF Since 2019 MTH Cumulative Free Cash Flow 2019-1Q25 Mortgage rates have risen significantly from the record lows of 2021, when the 30-year fixed rate mortgage (FRM) was around 2.2% and the 15-year FRM was around 2.7%. In May of 2025, Freddie Mac estimates that the average 30-year FRM sits at 6.8% and the average 15-year FRM sits at 5.9% in May 2025. See Figure 5. High mortgage rates make purchasing a home more expensive and present a headwind to all builders. Unfortunately, the easiest solution to aid consumers during times of high interest rates is to offer incentives and rate-buydowns, which create a drag on profitability. Figure 5: 30- and 15-Year Fixed Rate Mortgage: May 2020 – May 2025 Mortgage Rates Past Five Years In the 1Q25 earnings call, Meritage Homes' management noted that they don't yet know to what degree tariff-related cost increases will impact margins the remainder of the year. However, management also noted that 'the current status quo of no tariffs on lumber should get us most of our expected 2025 closings completed at current market lumber prices.' The company also intends to 'leverage its bargaining power with national vendors' given its large scale, limited floor plans, and high level of product visibility. Due to the high interest and mortgage rates, many homebuilders have increased incentives and rate buydowns, which negatively impact margins. Meritage Homes' average selling price (ASP) on home closings, home orders, and home backlogs fell 6%, 2%, and 1% YoY in 1Q25, respectively. Management noted that this decline was driven by 'increased utilization of financial incentives'. We can see the impact of these incentives in Meritage Homes' NOPAT margin, which fell from 12% in 1Q24 to 8.6% in 1Q25. In the company's 1Q25 earnings call, management noted: 'we anticipate the using of pricing incentives to remain elevated for the near future.' The good news is that the impact of lower margins, and any general housing downturn, are already more than priced into MTH at its current price. Details below. At its current price of $67/share, MTH has a price-to-economic book value (PEBV) ratio of 0.7. This ratio means the market expects the company's profits to permanently fall 30% from current levels. For context, Meritage Homes has grown NOPAT by 21% compounded annually over the last five years and 17% compounded annually over the last ten years. Perhaps even more impressive, the company has grown NOPAT 9% compounded annually over the past two decades. Below, I use my reverse discounted cash flow (DCF) model to analyze expectations for different stock price scenarios for MTH. In the first scenario, I quantify the expectations baked into the current price. If I assume: the stock is worth $68/share today – nearly equal to the current stock price. In this scenario, Meritage Homes' NOPAT falls 5% compounded annually from 2025 – 2034. In this scenario, Meritage Homes' NOPAT would equal $471 million in 2034, or 32% below its TTM NOPAT. If I instead assume: the stock is worth $97/share today – a 45% upside to the current price. In this scenario, Meritage Homes' NOPAT would fall <1% compounded annually through 2034. Should the company's NOPAT grow more in line with historical levels, the stock has even more upside. Furthermore, I think companies with long track records of profit growth deserve premium stock valuations, especially in a market filled with so many underperforming companies. Figure 6 compares Meritage Homes' historical NOPAT to the NOPAT implied in each of the above scenarios. Figure 6: Meritage Homes' Historical and Implied NOPAT: DCF Valuation Scenarios MTH DCF Implied NOPAT
Associated Press
an hour ago
- Business
- Associated Press
CMHC releases results for first quarter of 2025
OTTAWA, ON, May 30, 2025 /CNW/ - Canada Mortgage and Housing Corporation (CMHC) today released its Quarterly Financial Report showing strong first quarter results despite a volatile economic environment due to global political factors including rising trade tensions. For the three months ended March 31, 2025, we insured 10,030 transactional homeowner units, an increase of 37% over 7,295 in Q1 2024 supported by decreasing interest rates which lower the cost of borrowing as well as a mortgage rule change, which now allows 30-year insured mortgage amortization. CMHC continues to see strong multi-unit residential volumes, which totaled $14,171 million in the first three quarters of 2025, up from $13,861 million during the same period last year – a 2% increase. The increase continues to be largely driven by the MLI Select product which allows for longer amortizations and higher loan to value, accessibility, and climate compatibility. In Q1, CMHC insured $10,476 million for MLI Select, an increase of 11% over $9,474 million during the same quarter of 2024. CMHC also delivers housing programs and initiatives on behalf of the Government of Canada. An initial $2.63 billion for the Canada Greener Homes Loan Program was fully committed due to high demand. The program received a top-up in Q1 2025 for CMHC to deliver an additional $600 million in interest-free loans for a total of nearly $3.23 billion, supporting 15,000 to 24,000 more homeowners. 'We will continue to assess the impact that economic factors could have on housing affordability, our financial outlook and our financial results. We are fully committed to being an organization Canadians can count on.' – Michel Tremblay, Chief Financial Officer and Senior Vice-President, Corporate Services Additional highlights for the three-month period ending March 31, 2025: The full Quarterly Financial Report is available online. CMHC plays a critical role as a national convenor to promote stability and sustainability in Canada's housing finance system. Its mortgage insurance products support access to home ownership and the creation and maintenance of rental supply. CMHC research and data help inform housing policy. By facilitating cooperation between all levels of government, private and non-profit sectors, it contributes to advancing housing affordability, equity, and climate compatibility. CMHC actively supports the Government of Canada in delivering on its commitment to make housing more affordable. Follow us on X (formerly Twitter), YouTube, LinkedIn, Facebook and Instagram. SOURCE Canada Mortgage and Housing Corporation (CMHC)
Daily Mail
2 hours ago
- Business
- Daily Mail
Owner of £1.4m home enrages neighbours by winning right to 'squeeze' new four-bed house into his garden in conservation area
The owner of a home worth £1.4million has infuriated neighbours after winning permission to 'squeeze' a new house into its garden within a conservation area. The approval came despite complaints from locals in Winchester, Hampshire, who said the proposed new property would spoil the 'harmonious nature' of their affluent road, which is lined with Georgian buildings dating back to the 1800s. Peter Sykes lodged plans two years ago to build the four-bedroom home on a patch of land to the west side of the property, which falls inside a conservation area. During a planning meeting, Mr Sykes has now been labelled as a 'slum landlord' by neighbours in Winchester, who claimed they had already been subjected to 'hell'. They said that while building an extension, Mr Sykes damaged a wall which was built in 1855 and had demonstrated a 'complete inability' to undertake a housing-related project. Winchester City Council has now approved Mr Sykes' plans - commending him for his handling of the application and the design. Mr Sykes lodged plans to build the four-bed house at the side garden of his property in March 2023. The £1.44million home is the St Cross district of the cathedral city that was one of the first conservation areas in the country. The application stated the proposed home's design would 'remain sympathetic' to the local area so that 'new and existing houses are also joined together by the landscape around it'. Plemon Studio, the architects designing the plans, said the new house would 'harmonise well' with existing buildings on the road where homes cost an average of £1.442million. More than 20 neighbours lodged objections to the plans, with one resident living near the property saying that 'messing around' with the proportions of the house would 'detract from the historic streetscape'. Another resident said the size of the proposed property was 'out of character with the locality' and described it as a 'cramped development of an inappropriate size and design given the size of the plot'. And a different local described the mooted new home as 'a completely inappropriate development for this area', calling it a 'cynical money-making exercise'. Samantha White said: 'Going ahead with the proposed additional building squeezed on the current site will strongly change the nature and character of this lovely, quiet street. What is the point of a conservation area if it is not conserved!' Peter Moir said the property would 'undoubtably impact negatively on the harmonious nature' of the road. Residents criticised Mr Sykes for an ongoing extension being carried at his property that was approved five years ago. Liam Kilpatrick said the works being done there had been 'very poorly executed' and were still yet to be finished. He said: 'Damage has been done to existing features namely the front of the property where a brick pillar from 1855 has been knocked over and just left in ruin. 'This affects the street view and shows a total disregard for conservation and all who live here. 'To do yet another property whilst having demonstrated a complete inability to considerately undertake an existing project is unacceptable.' Other neighbours said Mr Sykes had 'neglected' his house for years and subjected neighbours to 'a significant amount of noise, dirt and dust'. It is understood that Mr Sykes lives permanently at a property in Andover, Hampshire, and has previously rented out his Winchester home. The council debated the application to build a new home at a meeting in the city centre. Speaking on behalf of neighbours, Mr Kilpatrick told councillors: 'For nearly three years, everyone on Grafton Road has been subjected to a continuous and never-ending building site from the existing property. Residents have criticised Mr Sykes for an ongoing extension being carried at his property that was approved five years ago 'The project should have taken no more than six months. It is nowhere near complete and continues to make our lives hell. 'They site is covered in rubbish, never cleaned up or left in any state that respects the neighbourhood.' He criticised the designs put forward by Mr Sykes and said the plans to build an 'enormous basement' would require 100 skips' worth of excavated material to be removed. Mr Kilpatrick urged the council to reject the application and described Mr Sykes as 'a slum landlord'. Councillor Brian Laming said he had 'concerns' over the development due to it being in a conservation area and said he is 'extremely worried about the size of this building'. But others favoured Mr Sykes' proposals, with one member saying that 'this development is making good use of the space'. Another told the meeting that Winchester needed more four-bedroom homes to 'free up' smaller houses. Councillor Jane Rutter, who chaired the meeting, commended Mr Sykes' application and said it was good to see a design which respected and referenced the designs of the neighbouring houses. The council voted in favour of the application after imposing conditions. Officers had previously recommended the plans be approved because they considered that it 'will not have a significant adverse impact upon the character and appearance of the site and wider area'.
BBC News
4 hours ago
- General
- BBC News
Retrospective permission refused for 'cramped' Bradford flats
A retrospective planning application to turn the upper floors of a former Bradford pub into flats has been refused by planners as "sub-standard".The former Diplomat pub, on Sunbridge Road, received planning permission for an office conversion in 2014, but the building's upper floors were subsequently converted into nine flats without this year, a retrospective application to retain the flats, described by the applicant as "high-quality residential accommodation, was submitted to Bradford planning has been refused, with officers citing a layout that "resulted in cramped and substandard living conditions". The retrospective application submitted described the residential accommodation as "a carefully considered and contextually sensitive conversion of a historically significant building".But planning officers said all the flats fell below legal minimum-space down the application, officers wrote: "All of the flats fail to meet the minimum-space standards for a one-bed single and double occupancy unit."As such, the flats have resulted in cramped and substandard living conditions, with Flat 6 being particularly affected."Flat six measures just 23sqm - 1sqm less than the legal minimum size. Planners added: "[These standards] are especially crucial in this case, as the flats do not benefit from private or communal outdoor amenity space, and the surrounding area lacks open recreational green spaces for residents."Listen to highlights from West Yorkshire on BBC Sounds, catch up with the latest episode of Look North or tell us a story you think we should be covering here.
CTV News
6 hours ago
- Business
- CTV News
Alberta's D+ grade on housing report card is lowest among provinces
Alberta is ranked dead last in Canada in a new report evaluating home building progress. Alberta is ranked dead last in Canada in a new report evaluating home building progress. Alberta received the lowest grade among Canadian provinces on a report evaluating home building progress. The Report Card on More and Better Housing gave Alberta an overall score of D+ for 'failing to adopt better building codes, incentivize factory-built housing, and regulate construction in flood-prone areas.' 'This, in spite of smart reforms being implemented by municipal governments in Calgary and Edmonton,' the report reads. The report card was commissioned by the Task Force for Housing and Climate. The task force was formed in 2023 to provide practical and actionable advice to governments on housing. It created the Blueprint for More and Better Housing, offering 'a comprehensive set of more than 140 policy actions for adding 5.8 million homes by 2030 that are affordable, low carbon and resilient.' 'Provincial governments control the bulk of housing policy tools and must step up,' said Dr. Mike Moffatt, a task force member and author of the report card. 'Provinces often speak about the housing crisis, but many are not walking the talk. Without meaningful reform from all orders of government, we won't build the homes Canadians need.' The federal government earned the highest grade on the report card, with a B. The report says the federal government adopted key recommendations, including 'federal tax incentives for rental construction, leasing of federal land for housing, and incentivizing municipal zoning reforms, which are having a positive impact on housing supply.' The provincial and federal governments were evaluated based on five categories relative to the task force's blueprint: Legalize density; Implement better building codes; Invest in factory-built housing; Avoid high-risk areas; and Fill in market gaps. 'Alberta has done less to legalize family-friendly density than other provinces and is lagging on resiliency and energy efficiency,' the report reads. No province received a grade higher than a C+. Quebec, Prince Edward Island and British Columbia all scored a C+, while New Brunswick and Ontario got Cs. Saskatchewan, Nova Scotia, Newfoundland and Labrador and Manitoba all got a C-, while Alberta sat alone with a D+. 'Calgary and Edmonton have taken leadership and instituted several helpful reforms on issues ranging from zoning to approval processes. Work on adopting these provincewide. Institute hazard mapping reforms and ensure homes are not built in areas prone to floods and wildfires,' the report said. The group on the task force is bipartisan, with former Edmonton Mayor Don Iveson and former Conservative Cabinet Minister Lisa Raitt involved. Mark Carney was a member of the group before he became the leader of the Liberal party. Read the full report on the task force's website.
