Housing Market Tracker - Homebuilder Outlook

Quote of the Day

"There's no better time to do something like this when everybody's running the other way. The market may appear horrific to some people right now. But if we started this at its peak, it would have been impossible." - Scott Gallivan, one of three former Ryland Homes (RYL) executives who started up their own real estate company in late 2007 to take advantage of the current housing market slump. (Washington Business Journal, Jan. 11th)

Homebuilders, Housing Stocks and Housing-Related Stocks

Taylor Wimpey Results In Line, Warns Of Conditions "Housebuilder Taylor Woodrow said it expects full year results to be in line with expectations but warned of poor conditions in the UK and US. Taylor anticipates a subdued start to the Spring selling season due to lower consumer confidence, while in North America it is not expecting market conditions to improve in 2008. Despite a challenging H2'07, the group... expects the 2007 pro forma operating margin to be around 2 percentage points ahead of the 12.5% achieved on a pro forma basis in 2006... Pro forma U.S. home completions in 2007 were 6,740 versus 8,839 last year at an average selling price of £172k against £212k." (Share Cast, Jan. 15th)

Worst Stock for 2008: Beazer Homes "The company least likely to make it out alive [in 2008]? Beazer Homes (BZH)... Beazer's stock has dropped by a whopping 89%, and [it's] encumbered with the highest amount of debt in relation to its cash and inventory positions. It's also the only one with negative quarterly free cash flow... Because of accounting irregularities... the company is delaying the full release of its most recent numbers and restating its financials for the past few years... [Other issues:] An SEC investigation... regarding the company's lending practices. Sizable job cuts. Suspension of its dividends. The expectation of $230 million in impairments in its Q4. Being forced to negotiate waivers on its debt defaults. A shareholder advisory group calling for the ouster of Beazer's CEO." (Motley Fool, Jan. 14th)

Hovnanian (HOV) Down on Analyst's Comments "Shares of HOV are falling today after a Motley Fool article... identifies the homebuilder sector as a suffering industry likely to be targeted by bargain-hunters, but warns of the sector, "Sometimes, ugly is an opportunity, but other times, ugly is just ugly." Technical indicators for HOV are bearish and steady, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating. If you’re looking for a hedged play on this stock, consider a February bear-call credit spread above the $7.50 range. HOV hasn't been above 7.50 since December. The stock could gain up to 29.9% and this trade would still be profitable." (Market Intelligence Center, Jan. 14th)

Going Green Receives A Boost From Home Builders "The Home Builders Association of Northern California today will ask the region's 101 cities and nine counties to impose green building standards that would reduce energy usage by 15% for every home built in the Bay Area. It's not just about the planet. With home sales sinking to historic lows, many builders have discovered that in the environmentally conscious Bay Area, green sells... "This is not a fad, this is where things are going," said Joseph Perkins, president of the home builders association, which represents 100 publicly traded and private builders, including major developers such as KB Home, Pulte and Centex." (Mercury News, Jan. 14th)

Buried Bombs Could Cause Orlando Homeowners To Lose Insurance "Florida: Hundreds of people who unwittingly bought homes near a World War II-era bombing range are suing after learning they could lose their insurance [saying] Lennar Homes (LEN) and other builders committed fraud by concealing that the homes were built on the bombing range... Since July, live bombs and bomb debris have been found at a nearby school [and] under the yards of some homes... Citizens Property Insurance Corp... said it would not consider writing a policy if there are unexploded bombs. Wayne Broedel, division president for Lennar in Orlando: "Lennar believes the issues at the Pinecastle Jeep Range are ultimately the government's responsibility." (Miami Herald, Jan. 14th)

Advisors Busy Helping Developers Unload Raw Land "Jeff Meyers, founder of Meyers Builder Advisors: More speculative developers, private equity firms and hedge funds are looking for bargain prices on land, while a number cash-strapped builders are trying to figure out the value of their holdings, and whether they should sell. Meyers: “A lot of public (homebuilding) companies are going to re-trade land to get it off the balance sheet." Last month’s $525 million venture between Lennar Corp. and the real estate arm of Morgan Stanley (MS)... is helping other builders “find the bottom quicker,” he said... Meyers Building Advisors now has offices in California, Arizona and Chicago." (Orange County Business Journal, Jan. 14th)

Stan Pac's Stock Slips "Standard Pacific Homes' (SPF) stock remained depressed on Monday after falling precipitously Friday, Jan. 11, following rumors the company has hired bankruptcy expert Millard Buckfire & Co. As of midday Monday, Jan. 14, the stock was trading at $1.90, approximately 24% below the $2.50 range on Jan. 10, and a world lower than the $25 range it was selling for a year ago. (Big Builder Online, Jan. 14th)

Real Estate Briefs Florida: "Only seven homesites remain for sale at Banyan Bay, on Winkler and Summerlin Roads in Fort Myers, where new single-family homes are priced from the $260,000s. Joe Fontana, president of Ryland Homes in the Fort Myers region, said Ryland Mortgage is offering new homebuyers at Banyan Bay up to $10,000 toward closing costs. New three- and four-bedroom single-family homes at Banyan Bay range in size from 1,697 square feet of living space to 3,130-sf, with 2 baths and two- and three-car garages." (News Press, Jan. 13th)

M/I Unveils New Model At Asbel Estates Florida: "M/I (MHO) offers homes with 1,313-3,393 square feet of living space priced from $168,900 at Asbel Estates. As with all M/I homes in communities throughout the Tampa Bay area, each one... comes with the Confidence Builder Program. Benefits include a preconstruction conference with a personal construction supervisor to review the schedule, go over the customer's specific house plans and answer any questions the buyer may have." (Tampa Bay Online, Jan. 13th)

Stock Slump The Latest Of Beazer's Woes "In 2001, letters signed by Scott Thorson, then president of Beazer's Western Carolinas Division, offered Beazer homeowners $100 if they gave the company favorable scores on customer-satisfaction surveys. If 90% of customers in a division said they would recommend the company to a friend, the division president's annual bonus increased 5%. A company that pays customers for responses that it publishes in securities filings may commit securities fraud by misleading potential investors... Beazer was [also] aggressively helping buyers with "buydown" payments in some Charlotte-area starter-home subdivisions-- it helped pay the first two years of home loans... and arranged loans that some buyers couldn't afford [through mis-stated income.]" (Charlotte Observer, Jan. 12th)

Bethel Zoning Panel To Consider 62-Unit Proposal Connecticut: "A town panel is looking at a new application from Toll Brothers Inc. (TOL) to change zoning on Reservoir Street to allow for a 62-unit townhouse development there... [the] latest leg in the saga of Toll Brothers' attempts to develop the 22-acre property. If approved, the zone change to a Designed Conservation District and the special permit to allow construction of the 17-building, 62-unit development would end the town's appeal to a Superior Court finding in Toll Brothers' favor to build a 128-unit development at the site... Toll Brothers has proposed making a payment of $960,000 to the town for the 12 units approved as unrestricted." (News Times, Jan. 12th)

Housing Slump Fails To Deter Trio Starting New Firm "The housing market's downturn has... pushed small companies into bankruptcy, and it's forced national builders to dump land and shower incentives on buyers just to make sales. These conditions make it the perfect time to start a home building business, according to three former Ryland Homes executives who set out on their own in late 2007. With two projects getting off the ground in Fairfax early this year, the principals of Chantilly-based Integrity Homes of Virginia Inc. are starting small but thinking about big opportunities they can cull from the market's flattened state."(Washington Business Journal, Jan. 11th)

Fischer Homes Expands Into Columbus, Ohio "The big builder fallout is slowly opening up opportunities for some smaller, more regionally-based builders... Fischer Homes announced today that it signed a deal with national builder Centex Homes (CTX) to acquire 300 lots at four communities in the Columbus, Ohio area. Financial terms of the deal were not disclosed. Fischer said it agreed to manage the construction for 96 home buyers who had previously signed contracts with Centex. Some of the homes are in the main four communities, while others are in nearby Centex developments. Bob Hawksley, COO Fischer Homes: "Centex made it financially attractive to us to take the land over." (Builder Online, Jan. 11th)

Big Builder Sees Local Promise Albany, NY: "Another sign that national developers see the area as primed for growth... Toll Brothers has proposed the construction of The Preserve at Colonie, a 68-home development... just west of Albany International Airport. The high-priced project, where homes are expected to cost nearly $400,000, still needs approval from town planning officials... Greater Capital Association of Realtors' Ader said that in the first 11 months of 2007, buyers purchased 983 new homes. That compares to 1,227 homes bought during the same period in 2006 and 1,351 during the first 11 months of 2005." (Times Union, Jan. 11th)

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