Homebuilders Agree: January Was A Good Month 31 comments
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As noted on Centex (CTX) Ryland Group (RYL) and D.R..Horton’s (DHI) earnings calls, January was a good month pretty much across the board for homebuilders. Pulte Homes' results (PHM) just confirm the trend. From Pulte Homes’ Q408 conference call:
Now that 2008 is behind us, many have recently asked how the first few days of 2009 are shaping up. While the market is certainly not anywhere close to normal, we are thus far experiencing a modest increase in traffic and sign-up paces as compared to the fourth quarter of 2008. In fact, we've seen traffic and sign-up momentum build weekly thus far into 2009… We have seen an improvement in business beginning this year.
Interestingly, Pulte doesn’t see it as a sign of an upturn:
Appraisers are… appraising the market for what property values are and it's impacting us. We come to the table with an appraised value that might be lower than the agreed-upon sales price and we've got to find a way to get that transaction closed.
If we thought the market was going to get better in the next 30 days, then we'd probably stand our ground. But we haven't seen that and so we continue to be way more flexible at the closing table than what we've historically been.
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What do they expect as "normal"...it certainly aint gonna look like 2004 for another generation atleast, if thats what theyre hoping for.
That said, I do see a bottom forming, atleast for a year or so.
Thank you Judy! I am often surprised by the great information one can get about an industry's health and concerns by reading CC transcripts. SeekingAlpha is an awesome resource.
Basically pumping in billions of dollars into a city that should have stayed a town. Once the billions were gone for homebuilding, where is the local economy now?
I remember every office and retail store had at least one title agent, one relator and one mortgage broker.
All but the fewest have shut down.
cycles. We have just come out of the largest Residential Real Estate Bubble in history. Considering the last up cycle lasted for approx. 10 years, we have a long way to go in downward correction. Compounded by massive job losses, massive job outsourcing overseas, bank lending standards tightening, an aging Baby Boomer population that won't need large McMansions - the future looks quite bleak. The Chicaco Real Estate market crashed after the Great Depression in the early 1930's and didn't recover until the mid-1950's.
On Feb 10 08:35 AM brain wrote:
> 20 years in the business as a civil engineer, prime contractor &
> appraiser: trust me on this one, folks - the real estate market is
> worse than you think, and the actions of our illustrious leaders
> is only going to make it worse. stay far, far away from RE unless
> you get basement-bargain prices.
I think I prefer your response style to that of your articles. jegan
On Feb 10 08:13 AM SA Editor Judy Weil wrote:
> Dear Equity Has No Clue,
>
> I'm neither long the homebuilders, nor trying to push up or down
> those stocks. I don't own, have not owned, nor am I short any of
> them. I am simply pointing out that the homebuilders mentioned above
> all noted an upturn in sales in January. I don't have the slightest
> clue as to whether this means the housing slump is turning or is
> just pausing for air before the industry slips further in to the
> doldrums.
>
> The homebuilder executives themselves weren't certain. Pulte's, as
> mentioned above, doesn't see any improvement on the horizon, while
> Ryland's and Horton's were more positive on the general trend.<br/>
>
> I once read an article on Seeking Alpha written by a housing analyst
> who said he was watching the conference calls of homebuilders. He
> said the moment they displayed any sort of positive data or noted
> any positive trends, then that would be the first indication of a
> turn in the market for him. I, of course, don't have any idea if
> that is true, but for those that do subscribe to that theory, then
> here you have the first signs of a positive trend.
>
> Many of the articles that I have read on housing point to further
> declines ahead, so I would say one month's sales would be pretty
> risky to use as a bottom indicator.
>
> The point of this article, and conference call excerpts in general
> is to highlight how much information we can glean from the free conference
> call transcripts that Seeking Alpha offers.
>
> Whether you buy in to homebuilder-executive-... or not, the fact
> that this trend can be gleaned by simply reading all of their transcripts,
> which are free and easily accessible and don't take too long to read,
> is probably the most important part of this entire article!
>
> All the best,
>
> Judy
Thanks for the excerpts!
I for one have been mired in the 'revaluation morass' that has impacted commercial bankers on residential and industrial properties securing loans that were well-secured and performing only 18 months ago, so I don't get a chance to review the transcripts as often as I'd like.
You rightly point out that the data available from SA is free, and provides a unique view into the workings of industries, markets, companies and individuals.
I believe there is a (very) cautious call for some optimism. Not that things will return to the mid-2006 frenzy, but that the bottom of the new housing market is in sight for the hardest-hit areas (NV, FL, the inland empire of Southern CA).
In my view, the variables are land prices and leverage. Undeveloped land prices have plunged as much as 70% in some places, and developed lots are selling for what raw land cost 2 years ago. With lower cost land, builders are seeing that it's possible to construct homes at lower price points, find qualified buyers to purchase them, and make a profit.
If land stays relatively inexpensive (especially in relation to the recent past), the foundation for a recovery may result. (Pardon the pun.)
And those builders with low leverage and large land holdings (whether raw land or finished lots) will be poised to benefit the most.
ATB,
Bill
Interesting comment. Are you seeing banks lower their prices on REOs or just builders and investors unloading what they have?
After seeing prices go down so drastically in many places, I keep wondering how prices could go down so much further as projected by so many economists and insiders. I think Schiller is expecting 10%-15% more declines nationally.
I've been wondering lately if maybe the hardest-hit areas like California, Florida, Nevada and Arizona, are starting to stabilize in terms of prices (sales are up in California and Fla.) and that maybe the further declines that are expected nationally will come from the places that have not been hit so hard yet, like New York, Seattle, and North Carolina, etc.
The fact that you are seeing (cautious) signs of a bottom in Nevada strengthens that idea-- but who knows?? There have been signs of stabilization before and then further declines.
Anyway, I appreciate your thoughts, as always,
Judy
Mcrem51 and Chipseal, glad you find this useful.
If it was possible, I'd love to be long CA and short NY real estate in a pairs trade.
To your question about REOs, I'm seeing definite movement with banks, so much so that 30% haircuts from the auction balance aren't uncommon. Some banks (WFB comes to mind) have beefed up their REO departments, so that you can actually get an answer within 2 weeks on whether an offer has been accepted. The prevailing idea seems to be to clear the books, at whatever the cost. After all, REOs are, by definition, non-earning assets that require capital to support. If your REO balance is going up, that leaves less money available to lend (no matter what the Fed or the Treasury does). And if you're a bank, you'll make more money with earning assets--even if they are just Treasuries--than you will by holding onto non-earning real estate.
Another thing that happens with REO properties that hasn't been mentioned lately is that the banks are on the hook for maintenance on the properties until they are sold. That means utilities (to keep pipes from freezing), HOA dues (unless the bank wants the association to file a lien against the property), real estate taxes, insurance and the like. All those costs are ADDED to the REO balance until the property is sold.
So there are compelling reasons for banks to make deals on REOs. And we have seen some strong sales growth at both ends of NV. But median prices are still dropping, and listings continue to rise faster than inventory is being worked off. So the inventory overhang still exists, even though homes are more affordable than they have been in years.
But things are slowly getting better, I think.
Then again, I could be very very wrong.
ATB,
Bill
On Feb 10 07:57 AM Equity Has No Clue wrote:
> So are you long the homebuilders or trying to push up the stocks?
>
>
>
As a codicil to my comment yesterday, foreclosures in the Sacramento area plunged both compared to December and one year ago:
sacramento.bizjournals...
Now, it may mean that some banks have instituted moratoriums depending on what the Treasury and the Fed are proposing for mortgage relief.
But it may mean that the worst is (finally!) over. Not that there won't be more foreclosures (especially with Alt-A and pick-a-pay resets due this year), but that the tsunami has receded, and the volume will continue to stabilize as the year progresses.
As I posted some time ago, if the market is allowed to correct itself, no government intervention will be necessary.
ATB,
Bill
I would love to see a market turn around more than anyone. But it is like the selling of the top of the bubble, find any data that would sell the position and amplify it.
I guess we're all desperate for anything that even appears positive
Do you have any insight or comment on the recent housing starts numbers that showed a slight rise in starts over January? The financial talking heads looked at it as if it were the manna from heaven.
I tend to think it's a one-off phenomenon because of uncommonly good weather for the mont in the Northeast and South. By contrast, March was brutal throughout the northern half of the US, with heavy snow and rain across most of the New England and Atlantic seaboard states.
The 'under-the-radar' number that showed permits lagged again points to a sharp drop in starts at the beginning of spring. And until banks are willing to make subdivision construction loans again, this one-off event will prove to be yet another false dawn of hope.
ATB,
Bill
A further data tidbit from Sacramento--home sales are up, prices are down.
sacramento.bizjournals...
Sales were level with January and sharply higher than February 2008, while the median sale price fell to $162,500. Only 87 new homes closed in the six-county area, encompassing approximately 1 million residents. Too much competition from foreclosures was cited as a primary reason for low new home closings.
But it speaks to the bottom of the housing crash in one of the hardest-hit areas of the US. Not to say that prices won't continue to fall, foreclosures won't continue to rise, and builders won't continue to go broke. But the worst is over, in my opinion.
Your thoughts are welcome!
ATB,
Bill
There are definitely signs of life. I wonder if California will be the state to lead us out of this slump? Are you seeing any more signs in Nevada?
Do you get the sense that the worst has passed there?
Appreciate your thoughts,
Judy
To your question about the state of the market in NV:
There are defintely signs of life in the sub $200,000 price bracket, as buyers seek out good buys amid low interest rates with lots of product available. One thing we've seen in listing brackets is that listings that were in the $350,000+ range are being lowered significantly, by as much as $50,000-$100,000. In my opinion, it's the direct result of the massive number of short sales and REO properties still on the market, with deep discounts to values considered 'stable' only 6 months ago.
There's also considerable activity in the sub $100,000 market. (I did a recent query on the local MLS and found 322 single family homes priced at $100,000 or less.) For an investor looking to acquire cash-flow positive property, these houses are truly excellent. But the problem is the lack of tenants. Many of the lower end homes are vacant, because the residents have moved on seeking employment elsewhere. Inmigration hasn't begun to replace the number displaced by contraction in the construction industry, and good paying jobs are still hard to find.
And then there's the standing inventory problem that still exists. There's still a 9-month supply of homes for sale in all brackets, with homes over $1 million showing 4 years of inventory at last count. But that's better than 16.
But just because I think the worst is over doesn't mean it's not still bad. More homes are falling into foreclosure and are being auctioned than are being sold, so the number of distressed properties is still rising. Which means that sellers of nondistressed properties will have even more inventory to compete against.
The same trends are happening in Las Vegas, with a majority of closings on distressed property, median prices down 20-40%, but sales up by a comparable percentage over last year.
It appears that the worst is over in NV as well. And the economy didn't crash, we weren't all put out on the street, and for those who don't need to sell their property, be happy you have one. And keep it as a place to live, not as an investment to fund your spending (or retirement).
As I posted some time ago, until new foreclosures fall below sales, and inventory becomes balanced, affordability remains good(which is fairly assured with the Fed pledging to keep rates low along with falling prices), and sales rise even further, can we then say that the housing downturn is over. What I would call this is the bottom of the trough. But I think the trough has a long way to go before we can say we have emerged from it.
ATB,
Bill