So far, 6 home builders have reported their Q4 earnings: DHI, BZH, SPF, MHO, MDC, and NVR. By now, it should be clear that the builders have made progress digging themselves out of the 2007 through 2009 housing ditch. For the most part they increased orders, sold homes, and slowed cancellation rates. This quarter, they were profitable albeit in large part due to favorable tax benefits. (Note: Denominator of homes sold in Q4 2005 was 278,000, in Q4 2009 82,000.)
The builders' made headway improving their balance sheets:
1. They are receiving a great deal of cash from the government's treatment of tax losses. Congress extended the net operating loss carryback from 2 to 5 years, allowing homebuilders to recover taxes paid during their profitable earlier years. Except for NVR, they all will get money (NVR didn't have a bad year, so they don't qualify--how could anyone selling homes stay profitable throughout this housing depression? Quite a feat.). DHI will receive $149 million, BZH $101 million, SPF $94 million, MHO $31 million, and MDC $142 million.
2. For the last 3 years, the builders all have been plagued by asset impairments. They've reported impairments on just about everything: land, houses, joint ventures, goodwill. The write downs were staggering. This quarter is radically different. The impairments are modest. The conferences call indicate that impairments have slowed because of reduced inventories and a bottoming of land and house prices. The slowing of write downs is dramatic. DHI in last year's Q4 wrote down $56 million. This quarter, the impairment was a meager $1 million. The salutary trend extended to all the reporting homebuilders: BZH went from $12 to 8 million, SPF from $444 to $11 million,
MHO from $53 to 23 million, MDC from $60 to $14, and NVR from $120 to nothing.
3. Debt remains a big problem for several of the builders who have reported. BZH's debt to equity remains dauntingly high at 767% and SPF at 426%. However, DHI has improved to 106% over the last 6 months. NVR has managed to bring its already low debt to equity rate down to 8%.
The group as a whole appears to be making a turn. Things are not only becoming less bad. They appear to be stabilizing.
The big two winners of the group, DHI and NVR, have boosted their market share of homebuilders dramatically. DHI in Q4 2005 had 3.6% market share. This quarter it rose to an astounding 6.5%. Each year (Q4 2005 thru Q4 2009), its share has steadily improved: 3.6%, 4.7%, 4.8%, 4.8%, 6.5%. NVR in Q4 2005 sold 1.5% of America's homes. Now NVR sells 3.2%. This last quarter, DHI and NVR built almost one out of every ten homes in the United States. As we get out of this housing depression, DHI and NVR should do extremely well. Their balance sheets have allowed them to approximately double their market share over the last 4 years.
Disclosure: long DHI and BZF
