Housing Market Tracker - Housing Stocks Review

Here's our summary of articles and data points on the housing market. It's part of Seeking Alpha's coverage of the real estate market and homebuilder stocks. Like all other topics and stock coverage from Seeking Alpha, you can have this sent to your Blackberry or desktop email by signing up for our no-spam free email subscription service.

Quote of the Day

"At the end of the day, we're still in a retail world, and we're selling a retail product. [A house] just happens to be the most expensive retail product that you are buying. No different from when car dealerships offer incentives. When other people are offering certain incentives, you have to be competitive." - Bryan Cohen, president of homebuilder Touchstone Homes. (Atlanta Journal Constitution, Dec. 19th)

Homebuilders, Housing Stocks and Housing-Related Stocks

• Moody's Puts Hovnanian Debt Under Review (Forbes, Dec. 20th): "Moody's Investors Service is reviewing Hovnanian Enterprises Inc.'s (HOV) credit ratings for a possible downgrade, a day after the luxury homebuilder reported its fifth consecutive quarterly loss. Hovnanian currently has a "Ba3" rating, which is non-investment grade, meaning substantial credit risk exists. Ratings determine in large part the terms under which companies can borrow money. Moody's (MCO) said it will review whether the builder will be able to get its creditors to amend the terms of current lending agreements, some of which Hovnanian has violated... The agency... will also look at Hovnanian's "ability to achieve sizable and consistent actual inventory reduction."

• Read It Here First: Incentives Distorting Home Prices (Barry Ritholtz in Seeking Alpha, Dec.20th): "Some examples where [homebuilder] incentives are not public[ized]: KB Home (KBH), Colorado: $196,000, according to deed. Actual price = $168,400. Buyer disclosure form: KB paid $27,600 to 3rd firm, which made a cash payment to the buyer. Lennar (LEN), Florida: $479,000. Actual price = $450,000-459,000. Home buyers received vouchers to purchase Mustangs, or a $20,000 Harley-Davidson. Bennett Homes, Maryland: $600,000. Actual price = $469,000. Originally listed in February 2005 for $635,000; Wells Fargo (WFC) held two mortgages: first for $479,800, second for up to $120,000. Buyer's agent said the transaction included a $120,000 "payment by the builder to an organization that collected fees for finding buyers."

• Best Stocks for 2008: Housing Woes Take a Toll on Toll Brothers (Blogging Stocks, Dec. 20th): "Jim Farrish, editor of Sector Exchange: "The technical charts on homebuilders look very similar to those of technology stocks during their rise from 1998-2000... The index has declined more than 70% peak-to-trough. Looking toward 2008 and the housing market, we could start to see a turnaround. "The start is likely to be government aided... the Federal government will put more money into fixing something than corporate America... Our vote to benefit here would be Toll Brothers (TOL). The company has one of the better-looking balance sheets in the industry and management has done a fairly good job of dealing with this downside market."

• The Contraction That Has To Come (Delmarva, Dec. 20th) Florida: "Alan Greenspan [says] a contraction must come; record profits of past years will be hollowed out by some quarters spent writing in red ink. That's already happening to some companies. Greenspan is saying others will follow before the industry's luck changes... [Some of] the national homebuilders are evaluating their investments here. Lennar (LEN), a Miami company, sold its share in the Bridgeville project Heritage Shores to a different big builder, Brookfield Homes (BHS), this month. Lennar cashed in its chips and Brookfield doubled down. Time will tell who made the smart move, but Greenspan, for one, is betting on Lennar."

• Hovnanian Losses Quadruple; Cash Grows (Seeking Alpha, Dec. 19th): "Homebuilder Hovnanian Enterprises Inc. (HOV): Fiscal Q4'07 losses soared to $467 million, or $7.42/share, compared with a $115.3M or $1.88/share loss in Q4'06. Quarterly revenues fell 20% to $1.39 billion versus $1.75 in Q4'06. Analysts had been expecting $1.32B in revenues this quarter, and losses of just $1.49/share, but an accounting charge of $54M supplanted an expected $162M accounting gain. Hovnanian [did] generate $376M in cash from its operations, [paid] down more debt than projected and expects $100M more cash flow in F1'08. Land impairments cost $383M this quarter... Contract cancellation rates rose to 40% from 35% in FQ3'07 and FQ4'06... Hovnanian also cancelled its dividend for 2008."

• KB Home Will Use Energy Star Exclusively In 2008 (Los Angeles Business, Dec. 19th): "KB Homes (KBH) says it will install only Energy Star appliances in its new homes starting in 2008. KBH says its plan to use only energy efficient refrigerators, dishwashers and other appliances is in keeping with its dedication to building greener homes. "KBH is committed to finding imaginative ways to be protective of our natural environment, and this is the latest innovative step in the company's long tradition of building homes that are environmentally friendly," said Jeffrey Mezger, KB president and CEO. Energy Star is a government-backed program. Energy Star-qualified appliances use 10-15% less energy and water than standard machines."

• Offices, Housing Popping Up Near I-75 (Brandon News and Tribune, Dec. 19th): "Tampa Bay, Florida: "The corridor of land between Interstate 75 and Falkenburg Road is expected to explode with new development over the next few years... Construction of the 256-unit Magnolia Park town home complex is under way... The first phase of development on a wooded 500-acre swath that will be converted to a community of 1,400 single-family homes and town homes in 34 buildings. Centex Homes (CTX), developers of Magnolia Park, sold off several other parcels earmarked for a 30,000-square-foot office complex, a 125,000-square-foot retail complex and a 600,000-square-foot "employment center." Centex plans to start building single-family homes in January."

• Mission Royale's Mission Set Back (TriValley Central, Dec. 19th) Arizona: "Meritage Homes (MTH)... is the latest builder in Casa Grande to slow its operations because of the credit crunch and housing slump. Monday the City Council approved a revised plan that splits the [Mission Royale subdivision] into two parcels... In a related development, an Avalon subdivision resident complained that D.R. Horton (DHI) had walked away from what was to be The Buttes subdivision... surrounding the empty property with a chain-link/barbed wire fence. Ryland Homes (RYL) sold two major Casa Grande subdivision projects to a private investment group after it was unable to complete them."

• Builders, Sellers Ply Year-End Buyers (Atlanta Journal Constitution, Dec. 19th) Georgia: "Pulte Homes (PHM) wasn't planning to offer new incentives this winter, with Alicia MacPhee, Pulte's Georgia North Division president, noting there isn't a need because they aren't grappling with a large inventory of spec houses. But, she sees other builders needing to sell 100-400 constructed homes."

• D.R. Horton Credit Ratings Cut to Junk Status by Moody's (Bloomberg, Dec. 19th): "D.R. Horton Inc. (DHI), the fourth-largest U.S. homebuilder, had its credit ratings cut to junk by Moody's Investors Service. The ratings were lowered to Ba1 on concern that a housing recovery won't begin before 2009, New York-based Moody's said today in a statement. The ratings affect about $3.6 billion of debt."

• U.S. MBA's Mortgage Applications Index Fell Last Week (Bloomberg, Dec. 19th): "The Mortgage Bankers Association's index decreased 20%, the most since 2004, to 653.8 from 881.8 the prior week. The group's purchase index fell 11% and its refinancing gauge plunged 27%. Loan restrictions and a glut of unsold homes on the market are prompting buyers to wait for even bigger price discounts, economists said. Higher borrowing costs and more foreclosures suggest the real-estate slump will continue to hurt economic growth well into 2008. Brian Bethune, an economist at Global Insight Inc.: A tougher lending environment "has disqualified a large number of borrowers and continues to restrain demand.''

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