Housing Market Tracker - Reviewing Homebuilder Fundamentals for Current Rally

Quote of the Day

“Builders have to make commitments to purchasing land, going through the planning and permit processes and then developing their projects, which can take two or three years to do, and if there’s a big shift in the market it’s very hard for them to react to it. By comparison, the real estate market can be fairly nimble.” - Real estate broker Randal Whipple of Prudential Real Estate Professionals. (Register Guard, Feb. 10th)

Homebuilders, Housing Stocks and Housing-Related Stocks

Toll Brothers No Sale is a Family Matter. "Toll SEC filing: The daughter of Toll Brothers (TOL) vice chairman and co-founder, Bruce E. Toll, and her husband are walking away from a $2.5 million condominium that the couple bought... from the builder... Toll [typically keeps] the 7% deposit... if the buyer walks... Toll's general counsel, Mark Kessler: "We are not going to treat them any differently than any other customer." Toll provides discounts on its homes to immediate family members of employees... Toll also disclosed Friday that it sold a $2.2 million condo to a trust, whose beneficiary is a son of CEO Robert Toll. That price reflects a $93,153 discount." (Wall St. Journal, Feb. 11th)

Homebuilders: The Real Deal or Just Another Bear Market Rally? "While builders were rocking last [rally], fundamentals like earnings growth, revenues and other internals continued to weaken. I have found price to be the leading indicator in any market reversal but if the fundamentals don't follow in the next 2-4 months, its time to head for the exits. And so far in this latest rally, the fundamentals have continued to look terrible... The broader market fundamentals don't look any better. Median home prices... and annual sales rates continue to fall... Until underlying fundamentals start to recover, it's a trader's market and that means shorting the rallies and only buying the dips." (Matt Blackman in Seeking Alpha, Feb. 11th)

Jim Cramer's Mad Money In-Depth, 2/8/08: All You Need is L-U-V. "Cramer says recovery comes in three different shapes [of] letters L-U-V. Those who believe in a V recovery believe stocks will be exactly where they were before the crisis. Cramer says V investors are [overly-optimistic], and would even buy risky stocks such as Ambac (ABK), MBIA (MBI), Toll Brothers, DR Horton (DHI) and Pulte Homes (PHM). The overly-bullish Vs are creating suddenly rallies, and Cramer would sell stocks into these rises. L investors are excessively bearish... Ls create down days, which Cramer considers as good buying opportunities. Cramer is in the moderate U camp, and says recovery will be "slow and grinding but ultimately successful." (Miriam Metzinger in Seeking Alpha, Feb. 11th)

Paralyzed Vet Will Star In Ad. "Army Staff Sgt. Matthew Keil [was] paralyzed from the neck down by an Iraqi sniper's bullet a year ago... Groundbreaking for the Keils' new home in Parker is expected in March, Tracy Keil said. The house, being built free of charge by Pulte Homes and the nonprofit Homes for Our Troops, will have all the latest technology and any specialized changes the Keils want, such as roll-in showers, extra-wide hallways and doors, and the electric hoist Keil needs to get in and out of bed." (Rocky Mountain News, Feb. 11th)

Sun City Developer Delivers On Promises. Hilton Head, South Carolina: Letter to the Editor: "Recently, developer Pulte Homes replaced two resident board members with board members of its own choosing, apparently causing quite an uproar in the community... Sun City [has] good value, good amenities, good communities, good geographic area, good location, good lifestyle, etc... Over the past 10 years, Del Webb and then Pulte have done a good enough job to sell more than 6,000 homes, with about 2,300 to go. Pulte has been very generous in turning over the former sales office to the homeowners association and continues to keep promises made in the past." (Island Packet, Feb. 11th)

Dominion Homes: Why Never To Buy a Company with Buyout Hopes. "On January 18, 2008, Angelo Gordon & Co. [and] Silver Point Capital, took over [Dominion Homes (DHOM)] for $0.65/share, [equaling] about a $5.5 million market cap... Dominion shareholders faced two awful choices: Sellout at fire sale prices or... go bankrupt... This is also a good example of why never to buy a company in hopes for a buyout... There is an arbitrage opportunity where one has to see whether the probability of the deal will go through... The spread is [now] roughly 6.5% and levered up 2:1, a pretty nice rate of return within the amount of time the deal should go though." (Eric Schleien in Seeking Alpha, Feb. 10th)

Big Jobs Help Keep Builders In Business. "Oregon: Building permits issued for new single-¬family homes throughout Lane County... dropped 33% in 2007 compared to 2006... Construction permit tracker Construction Lead Services: Last year, builders took out 577 permits for new residential construction in cities throughout Lane County, compared with 864 in 2006... The giant D.R. Horton Inc... which claimed nearly 25% of the single-family residential permits — 97 — in the Eugene-Springfield area in 2006... took out only three building permits in Lane County in 2007." (Register Guard, Feb. 10th)

Foreign Investors Look to Land for Profits. "Foreign investors [and] private equity firms and other funds are increasingly targeting land parcels in this country in anticipation of the next real estate cycle... Residential builder [woes] are an added plus, as these firms are being forced to sell entitled land at deep discounts in order to keep shareholders satisfied, or even just stay afloat... Duball LLC is launching a $300 million fund with CMI Group to acquire land parcels in the Mid-Atlantic. Its goal is to acquire land in tracts worth between $5M-$50 million. The fund has a $150M equity pool that is leveraged by $150M of debt." (Globe St., Feb. 10th)

Couples Suing Companies Over Real Estate Appraisal Practices. "Two couples are suing KB Home (KBH) and Countrywide Financial Corp. (CFC), claiming the company schemed with real estate appraisers to inflate prices paid for homes as the housing market started to crumble. The complaint names the home builder's KB Home Mortgage Co. and mortgage lender's Countrywide Home Loans Inc. and a joint venture between the two, Countrywide KB Home Loans as defendants. It also names two real estate appraisers. The plaintiffs are seeking class-action status to cover KB Home customers in California who were financed thorough Countrywide and closed on their homes between Aug. 1, 2005-July 31, 2006." (Ventura County Star, Feb. 10th)

Nine Years After Proposed, 'Views At Hudson Pointe' Open. "[In] 1999, New Jersey's top residential real estate developer, K. Hovnanian (HOV), presented plans to the North Bergen Planning Board for a luxury complex that they proposed to call "The Views at Hudson Pointe." Now, nearly nine years after that initial proposal was introduced, Hovnanian's latest waterfront development is ready to take in occupants. According to Randy Brosseau, the area president of the Metro New York region for K. Hovnanian, the 146-unit Hudson Pointe complex couldn't have come at a better time." (North Bergen Reporter, Feb. 10th)

Oxford Withholding Permits For Age Restricted Development. "Connecticut: Building permits and certificates of occupancy will be withheld at The Village at Oxford Greens until its developer fixes the community's sewage disposal system. Tad Serrao, sales manager for the complex, said on Friday the problem has been rectified and believes there won't be a delay in permits or certificates of occupancy once paperwork gets to the town's Planning and Zoning Commission. The commission directed Zoning Enforcement Officer Derek Valentine to deny permits or certificates until Pulte Homes, the developer of the 55-and-over community, resolves the system's failures." (Republican American, Feb. 9th)

Toll Cuts Chief Executive's Pay by More Than Half. "SEC filing: Robert Toll, CEO of homebuilder Toll Brothers Inc., had his compensation cut by more than half last fiscal year and received no bonus after the company's shares fell 21%. Toll was paid $8.4 million in the year ended Oct. 31... In 2006, he got $19.2M, including a $17.5M bonus. F2007 net income at Toll... dropped 95% to $35.7M, the lowest since 1993... Toll received a base salary of $1.3M in F2007, stock options valued at $7M, and other compensation of $94,987... In F2006, Toll got a base salary of $1.3M, a bonus of $17.5M, and other compensation of $404,721." (Bloomberg, Feb. 8th)

D.R. Horton Reports a Steep Loss. "D. R. Horton, the largest American home builder... posted a first-quarter loss on Thursday, as sales fell by more than a third and new orders dropped 61%... D. R. Horton posted a loss of $128.8 million, or $0.41/share, for FQ1 ended Dec. 31, in contrast to a year-earlier profit of $109.7M, or $0.35/share. The results included land impairment and write-off charges totaling $245.5M. Q1 home-building revenue fell 39%, to $1.71 billion." (NY Times, Feb. 8th)

MDC Down $281 Million In Q4. "Homebuilder MDC Holdings (MDC)... reported a Q4 net loss of $281.1 million, or $6.14/diluted share, compared with a net loss for Q4'06 of $6.4M, or $0.14/diluted share. Revenue dropped 42%, to $784.8M, from Q4'06... The company took $175.2M in pre-tax charges to write down... land inventory ($126M) and homes under construction ($49M). It also wrote off $7.8M [in land] options; posted $13.8M in net pre-tax losses on land sales; and wrote down the value of its deferred tax assets by $160.0M. F2007 net loss was $636.9M, or $13.94/diluted share. Net income for the 2006 full year was $214.3 billion." (Rocky Mountain News, Feb. 8th)

Home Front: Seasonal Housing Uptick Has Folks Edgy. "Last weekend, Lennar Corp. (LEN) found a successful way to sell eight houses in the region. Its offer of 30-year fixed-rate loans at 4.875% and no closing costs triggered five sales in Rancho Cordova, two in Gridley and one in Roseville, said Laura Stickelman, VP for sales in the builder's Sacramento division. Nationally, Lennar sold 223 houses with the promotion last weekend, she said. The deals applied to what the industry calls "standing inventory," finished houses without buyers." (Sacramento Bee, Feb. 8th)

Prices Offered Up to 50% Off During D.R. Horton's 'UnAuction' Sale - February 16 and 23 Only! "D.R. Horton has announced unheard of savings up to 50% off on a variety of homes at 23 participating neighborhoods throughout Southern California. Unlike any Sale homebuyers have ever seen, D.R. Horton's UnAuction presents dramatic sale prices and unbeatable new home value without the auction hassle... Chris Chambers, California Regional President for D.R. Horton: "Market-wise buyers do not want to miss out on this opportunity to purchase a new D.R. Horton home at prices up to half-off." (Press Release, Feb. 8th)

Beazer Sees Times Good For Buying Home. Beazer Homes (BZH) survey: "Despite all of the negative commentary about the housing and credit markets, 64% of Americans believe that for those with good credit and a down payment "this is an ideal time to buy a home," [and] 24% of survey respondents say they plan to buy a new home in the next two years either as a primary residence or second/vacation home. Indeed... 65% of survey respondents agree that given the current supply of homes for sale and special incentives this is "truly a buyer's market." (Trading Markets, Feb. 8th)

Toll Brothers Celebrates Chinese New Year At Bay Area New Home Communities. California: "Toll Brothers is getting the Chinese New Year off to a big start with celebrations at eight Bay Area communities. The parties will be held Saturday and Sunday, Feb. 16 and 17, at Toll Brothers locations throughout the East Bay and South Bay. The Year of the Rat will get a huge welcome with delicious food and entertainment... Traditional lion and dragon dance troupes will be performing in vibrant color, along with exciting live kung fu shows. Best of all, every community will offer special home incentives available for these two days only." (San Jose Mercury News, Feb. 8th)

Deutsche Bank Reports 9.22 Pct Stake In Beazer Homes. "Beazer Homes USA shareholder Deutsche Bank AG reported a 9.22% passive stake in the homebuilder, according to a regulatory filing. Deutsche Bank said the stake gives it ownership and sole voting power over about 3.6 million shares." (Reuters, Feb. 8th)

Beazer Homes To Delay Filing 10-Q Until Prior Year Restatements Are Completed. "Beazer Homes late Friday said it will delay filing a Form 10-Q with the SEC for the quarter ended Dec. 31, 2007, until it has completed previously announced restatements of financial statements for fiscal 2005 and 2006, and the interim periods of fiscal 2006 and fiscal 2007. The homebuilder said it has also not yet filed a quarterly report for the quarter ended June 30, 2007, or a Form 10-K for the fiscal year ended Sept. 30, 2007." (CNN Money, Feb. 8th)

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