Housing Market Tracker - Homebuilder Review

by: Judy Weil

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

"If I thought I had something that required an impairment, I would have already taken it." - Joel Rassman, Toll Brothers CFO, on the changing nature of homebuilders' net asset value. Rassman concedes that if home prices go lower, that could "change the equation" and Toll would have to take more writedowns, further reducing the company's NAV. (Bloomberg, Dec. 26th)

Homebuilder Stocks

  • Biggest Homebuilder Writedowns Are Yet to Come: Jonathan Weil (Bloomberg, Dec. 26th): "Pulte Homes Inc. (NYSE:PHM) showed $8.1 billion of inventory at Sept. 30, (land and houses.) The company's book value, or assets minus liabilities, was $5.2B. Yet Pulte's stock-market value is only $2.7B, after a 68% drop in its shares this year... Is Pulte's inventory really worth three times more than the company as a whole? Probably not... Pulte, Centex Corp. (CTX), D.R. Horton Inc. (NYSE:DHI), KB Home (NYSE:KBH), and Lennar Corp. (NYSE:LEN), [the] five companies in the S&P 500 Homebuilding Index... have a combined book value of $22.7B, the stock market says they're worth just $15.2B... signaling that their net asset values are inflated by more than $7B."

  • A Savvy Strategy For Year-End Tax Selling (Wall St. Journal, Dec. 26th): "Should you sell [losing stocks now] to realize the tax loss, or... wait for better times? To take the tax loss for 2007 you have to sell before Dec. 31 and then stay out of the stock for at least 30 days... You [could] keep some exposure to the stock and its peers, even while booking a tax loss... Several mutual funds and ETFs track the worst-hit sectors of the market... You can use them as a placeholder until you buy your stock back again in 31 days' time... For homebuilders Pulte, KB Home, Lennar, Horton, Toll (NYSE:TOL), Hovnanian (NYSE:HOV), [there's the] U.S. Home Construction iShares (NYSEARCA:ITB)."

  • Making Spirits Bright; Hovnanian Hit Hard, And Crossing The Delaware (NJ Star Ledger, Dec. 26th): "Hovnanian Enterprises, [having] grown into the nation's sixth-largest homebuilder, snapping up smaller businesses and expanding into 19 states... is [now] shutting down sales operations at several communities, and paying financial penalties to walk away from land options... Company officials acknowledge it will be another rough year... Hovnanian slashed prices by $100,000 or more on new homes in South Brunswick earlier this year... "We feel that Hovnanian has fallen victim to its earlier aggressive growth strategy which has left the credit over-leveraged, inflexible and ill-equipped to navigate through the tough current market conditions," CreditSights, a debt analysis firm, said last week."

  • Beazer Homes USA NewsBite : Beazer Homes USA Falls on Lower Home Prices (Market Intelligence Center, Dec. 26th): "Beazer Homes USA Inc. (NYSE:BZH) closed Wednesday at $8.18, down (-3.20%). The stock hit its 52-week high of $47.60 last December and set its 52-week low of $7.00 last month... S&P/Case-Shiller's index [shows] home prices fell by 6.7% in October, the largest monthly drop since April 1991. Technical indicators for the stock are bullish and deteriorating while S&P gives BZH a negative 2 STARS (out of 5) sell rating... For a hedged trade on this stock, consider a February bear-call credit spread above the $12.50 level. BZH stock could rise up to 53.2% before expiration and this position would still be profitable."

  • Set To Build Homes, Without Generators (Arizona Republic, Dec. 26th) Arizona: "[Two] Mesa builders and the Salt River Project... believe state law will ultimately ban the use of noisy, fume-spewing portable generators... A pilot program involving SRP, Farnsworth Homes Inc. and Pulte Homes... hook[s] the home site to permanent electrical service during the initial building stage. The home's electrical service box is mounted on a reinforced plywood sheet that's planted in concrete when it is poured for the home's foundation. SRP inspector: "Builders can immediately start using power tools without the generator, and when the walls go up, they can even fire up the air-conditioning. They don't have to wait."

  • Man Backs Out Of Home Purchase (ABC TV, Dec. 26th): "Erlindo Casenas bought a three bedroom condominium in Milpitas. He put down a $7,300 dollar deposit and agreed to buy a $368,000 dollar unit pending approval of a loan. But a family emergency forced him to temporarily relocate half way around the world to China to care for his daughter. He turned to KB Homes for help. "One day I went to their office and asked for a refund with my deposit," said Casenas. KB Homes didn't have to, but agreed -- signing a cancellation of purchase agreement."

  • S.F.'S Bid To Keep 49ers Gets Boost - Extra Federal Cleanup Funds (San Francisco Chronicle, Dec. 26th) San Francisco, California: "Lennar already is building 1,600 condominiums and townhouses on 70 acres, one of five parcels the [former Navy] shipyard has been divided into for the purposes of environmental remediation and redevelopment... Builders are [currently] laying the foundation for utility lines. Lennar holds a contract with the San Francisco Redevelopment Agency for the rights to negotiate deals to develop the entire shipyard... The Newsom administration's broader redevelopment Candlestick Point scheme includes a stadium, construction of 8,500 residences, 2 million-sf of office space and 700,000-sf for retail and entertainment, 350 acres of parks and wetlands restoration, and [rejuvenated] public housing projects."

  • Luxury Home Builder Files For Chapter 7 (Jacksonville Business Journal, Dec. 26th) Florida: "Panitz Signature Homes LLC has filed for Chapter 7 bankruptcy protection. The family-owned luxury homebuilder closed its doors in April after 27 years in the business, citing... the slowdown in the real estate market. Since then, company executives have tried to sell the remaining homes and home sites at auction and through marketing with little success, said attorney Brad Markey, who represents the debtor... The company was not able to sell any of the 11 homes, 25 home sites or 32 townhome sites at auction May 19. Two of the home sites were sold later."

  • Toll Brothers' New Exec Sees Better Time For Housing (Orlando Sentinel, Dec. 26th): "New Central Florida division president for Toll Brothers Inc., William "Bill" Reilly: Right now European and South American buyers are keeping the business afloat locally: About 90% of the dozen or so Toll homes already purchased in Drayton Woods are owned by folks from Great Britain, Venezuela or other countries... [Local divisions have] committed more money to a national pot to entice reluctant buyers with discounted mortgage money. Divisions can tap the pool to get financing capital at below-prime rates. Right now, qualifying customers who buy through the company's mortgage affiliate can get 30-year loans at a fixed 5.25%. A pool of 4.99% mortgage money was snapped up in a matter of weeks."

  • How 'Bricks and Mortar' Bets Had Solid Gains (The Street, Dec. 26th): "I continue to believe that small-cap homebuilder Standard Pacific (SPF) is facing a possible restructuring or bankruptcy in 2008... I flagged the stock as overvalued in late October... Standard Pacific remains at the mercy of its banks, as it has already violated several debt covenants. The builder also carries some of the largest joint-venture risk of any other homebuilder, with significant exposure to the California housing market (one of the worst in the country). The stock has fallen 32% in two months since I warned, and I continue to believe it is a value trap."

  • Top Orlando Home Builders Rise Above Slump; Still $1B Short (Orlando Sentinel, Dec. 25th): "The biggest home builders sold nearly $1.8 billion worth of homes in Orange, Seminole and Osceola counties year-to-date by Q3'07... That was $1B less than... the same period last year... Lennar/U.S. Home led... with 468 single-family homes, 8.6% of the 5,470 [homebuilder] sales... through Sept. 30... Engle was second with 443 homes, or 8.1%... KB Home was third with 442 homes, 8.1% of all closings... Centex/Fox & Jacob came in fourth, [then] Ryland Group (NYSE:RYL). MI Homes (NYSE:MHO), Maronda, Park Square, Pulte Homes/Divosta and Avatar Holdings (AVTR) made the top 10, in that order. The second 10 were Ashton Woods, Morrison, Beazer, Cambridge, Standard Pacific, Meritage (NYSE:MTH), Toll Brothers, Centerline, DR Horton and Mercedes."

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