Housing Market Tracker - Homebuilders: Little Optimism, Lots of Effort

Quote of the Day

"If that value changes, we'll share that risk." - Eric Elder, SVP of marketing and communications, Ryland Homes. Elder was commenting on a new "price protection" incentive homebuilders are offering buyers, who fear buying a home that will lose value. (CNN Money, Feb. 5th)

Homebuilders, Housing Stocks and Housing-Related Stocks

Toll Has Seventh Straight Drop in Quarterly Revenue. "Toll Brothers Inc. (TOL), the largest U.S. luxury homebuilder, reported its seventh consecutive quarterly drop in revenue... [down] 22% to $842.7 million in FQ1'08 from FQ1'07. Toll said it may incur... $300M in pretax expenses to write down the value of property... [Analysts] projected sales of $673.7M for the quarter ended Jan. 31... Toll said 28% of its customers canceled contracts in FQ1'08, down from the record 39% in FQ4'07... The net value of contracts fell 50% to $375M from FQ1'08. The order backlog... fell 42% to $2.4 billion." (Bloomberg, Feb. 6th)

Some Homebuilders Also Do Well Trading Stocks. "Some may remember back in 2005, when insiders at TOL sold over $164 million in stock just days before the stock hit its all-time peak. By not holding that stock, these insiders saved themselves nearly $100M... During the month of January, insiders at Hovnanian (HOV), purchased 389,000 shares of stock at an average price of $5.3. Now only six days into February, HOV's stock is trading at $9.8 for an 85% gain. Not bad for less than a month's work." (Bespoke Investment Group in Seeking Alpha, Feb. 6th)

Marketers Say Age-Restricted Home Sales Holding Their Own. Connecticut: "Marketers of homes in the town's up-and-running age-restricted housing developments said recently that they are holding their own in a market that unquestionably has seen better days. In Oxford, five such developments have been approved by land-use boards, the largest one being the Village at Oxford Greens off Riggs Street where Pulte Homes (PHM) of New England offers Del Webb homes on an 18-hole public golf course. (ZWire, Feb. 6th)

Lennar's $800 Million Tax Refund. "Last year, homebuilder Lennar (LEN) sold... about 11,000 home sites -- for $525 million to a partnership that it formed with Morgan Stanley... The deal seemed terrible for Lennar, which had the land valued on its books at about $1.3 billion... But the deal's structure allowed Lennar to recognize a big loss that it applied against taxes paid the previous two years. The result: Lennar is expecting a tax refund of more than $800M, according to the company's annual results.... [And] Lennar still effectively owns 20% of the land... It also has a 50% voting interest in the partnership." (Wall St. Journal, Feb. 6th)

Builders Resort To Price Guarantees As Turmoil Continues. "Some builders have a deal for potential buyers: Sign a contract, and if the price of comparable homes drops before closing, you get the lower price. Companies including KB Home (KBH) and Ryland Group (RYL) hope such "price protection" guarantees will lessen consumers' paralyzing fears about buying real estate... KB Home is preparing to roll out its program in 35 markets nationwide this month. Ryland... now gives it to any buyer who asks... Last year, behemoth Lennar Corp. tested it in Florida, one of the states hardest hit by the downturn, but stopped... In Q4, KB Homes' average sales price fell nearly 12% and the housing gross margin dropped from 9.1% to negative 4.3% year over year." (CNN Money, Feb. 5th)

Home-Building ETFs Bounce Off The Bottom. "ETFs including iShares Dow Jones U.S. Real Estate (IYR), iShares Dow Jones U.S. Home Construction (ITB) and SPDR S&P Homebuilders (XHB) seemed to be stimulated by the Fed's rate cut. It's also likely that some short squeeze buying and anxious bottom callers pumped life into the sector. But has the housing market really hit bottom? Sales remain lower than inventories. Rating agencies have cut some homebuilder credit ratings to junk. It doesn't look like anyone's going to bail them out... [And] some homebuilder executives are selling their stock. Ryland CEO Chad Dreier sold 80,000 shares of company stock last month." (CNN Money, Feb. 5th)

Standard Pacific Records $767M Year-End Loss. "Standard Pacific Homes (SPF)... ended 2007 on a mixed note. The company generated more than $219 million in homebuilding cash, and reduced its revolving credit by more than $163M, to $90M. But StanPac also lost $767.3M, versus a gain of $123.7M in 2006, on sales of homes and land (excluding its joint ventures) that slipped by 23% to $2.89 billion. For the year, deliveries (again, excluding JVs) were off 26% to 6,918 units, and new orders fell 5% to 5,697. The value of the builder's 1,279 units in backlog plummeted 50% to $442.7M." (Builder Online, Feb. 5th)

Incentives Energize Home Sales Market. "The new home market has taken such a beating that big-name builders are rewarding outside real-estate agents with Starbucks gift cards, wine bottles and even $10,000 checks to sell homes as fast as possible, and rewarding buyers with new cars and major discounts... Whoever purchases one of two houses in La Verne represented by Century 21 Masters of Glendora gets their choice of owning a new Toyota Prius or having $25,000 slashed off the sale price... Some [homebuilders] are coughing up 10% in sales commissions to real estate agents... much higher than the usual 2%-4%." (Inland Valley Daily Bulletin, Feb. 5th)

Homebuilders Cater To Latinos. "Incentives [are] increasingly being added by homebuilders nationwide and in the Inland area to attract Latino homebuyers... Latinos continue to be underrepresented as homebuyers... California Building Industry Association report: Latino home-ownership rate in California is 44%, compared to a rate of 60% for the overall population... 80% of the state's population growth through 2030 is expected to be Latino.... In response to Latinos being family-oriented and having several generations living together, KB Homes is building more homes with first-floor bedrooms, open floor plans... [and] gathering spaces similar to family rooms." (Press Enterprise, Feb. 4th)

Federal Capital Partners Adds Land Platform. "Federal Capital Partners is establishing a for-sale residential land acquisition group... The land program represents a new business platform--an added initiative--to the firm’s overall business plan. Esko Korhonen, co-founder and partner: “We think there numerous opportunities in land right now." Land acquisition is becoming an accepted opportunistic play in the DC region and nationally as well, with investors looking beyond the current housing slump to the next cycle even if it is several years out." (Globe St., Feb. 4th)

Hovnanian Receives Financing Waivers. "Homebuilder Hovnanian Enterprises Inc. said Monday lenders have temporarily waived certain conditions of its credit facilities, according to a regulatory filing. The waivers, which cover tangible net worth, fixed charge coverage ratio and leverage ratio, expire on March 14, according to a SEC filing. Hovnanian said it expects to enter into an amended credit facility prior to the March 14 deadline." (Forbes, Feb. 4th)

County's Looming Housing Boom. Pennsylvania: "Applecross, being built by Pulte Homes, will be one of the biggest single residential projects in Chester County when finished with just over 1,000 houses. Six hundred and fifty of them (a mix of single family, townhouses and carriage houses) will be in East Brandywine. The others, all in an age-restricted community, will be in West Brandywine). Rod Hart of Pulte Homes is optimistic about Applecross despite the downturn in housing... He said sales contracts for 13 houses had been sold as of a week ago." (Philadelphia Inquirer, Feb. 3rd)

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