Housing Market Tracker - Homebuilders Criticized for Benefitting From Foreclosure Bill

Homebuilder Stock Trends and Company News

Home Buyers, Stimulus Package Could Put Wind Back in Economy’s Sails. “Not all of the real estate news is bad. The top builder in Southern California is Lennar Homes (LEN). MarketPointe Realty Advisors Residential Trends’ publication reports that Lennar sold 2,555 homes in Southern California in 2007. No. 2 was KB Home (KBH) with 2,339 homes purchased. Coming in third was Centex Homes (CTX). Those signs are a good beginning.” (San Diego Business Journal, Apr. 7th)

Waiting for the Rebound. Florida: “Last month brought the latest bankruptcy filing by a Pasco builder… Wiregrass Ranch is another major development that has stalled while the housing market sorts itself out. Wiregrass' residential plans went south last summer when Pulte Home Corp. backed out as its primary developer. Pulte still owns nearly 20% of the 5,000-acre ranch at the heart of Wesley Chapel. Pulte officials haven't said what they plan to do with the property, but Wiregrass spokesman David Evans said he thinks the builder its likely to sell out eventually.” (Tampa Tribune, Apr. 6th)

Good Time to Buy? “Builder Magazine Conference: “One of homebuilders’ major leadership objectives is to prop up morale within their companies, especially among salespeople. [They say] newspaper articles contribute to negative consumer psychology. Private builders [say] public builders ruined the market by pursuing 20% annual growth at the behest of the public capital markets. Some speakers criticized cash-strapped builders desperate to sell homes by offering six-figure discounts that condition every buyer in the market to ask for concessions… Most housing organizations, including the NAHB, are calling for a decline in housing sales and starts this year.” (Builder Online, Apr. 6th)

Texas: New Equipment Should Boost Productivity. “Local manufacturing operation EH Systems… produces structural insulated panels [SIP] used to construct residential and commercial buildings. It struck a deal on March 18 with Pulte Homes (PHM) to buy new manufacturing equipment which officials said should vastly increase the company’s production capacity and simplify the entire construction process. Bill Stipanovich, VP of operations for EH Systems: “The company’s capacity will likely quadruple after buying from Pulte new SIP manufacturing and fabrication equipment, open web floor truss assembly systems, pre-assessed flooring equipment and metal stud forming and wall panel machinery.” (Herald Zeitung, Apr. 6th)

Buyers Can Find Deals At Auction. Florida: “Almost 50 properties ranging from $500,000 to more than $15 million will be [auctioned] next Friday… seven of them are absolute-- [where] an owner agrees to sell for the best offer… Several homes have their reserve, or lowest acceptable bid, set more than 50% below the home's list price… [Some properties] are in Manatee County, and one is in Costa Rica… Lennar Homes is auctioning off lots in both Heritage Harbor and GreyHawk Landing. Gulfcoast Mortgage is using the auction as a way to sell 10 foreclosed properties, including a home on Siesta Key listing at more than $10M.” (Bradenton Herald, Apr. 5th)

BridgeWater Using a Variety of Builders. Florida: “In Lakeland's new BridgeWater community… Highland Homes, KB Homes, William Ryan Homes and Vallery Custom Homes are bringing in 822 single-family homes and 462 multi-family homes in several phases or villages. There will be 12 villages in the community. BridgeWater have one and two-story homes and villas with 3-5BRs, two to three bathrooms, ranging from 1,100-3,000-sf. Prices start in the mid $100,000s.” (The Ledger, Apr. 5th)

Rooms With a Bubble View. “Some condo-hotel buyers are suing developers to get out of their contracts, claiming they were misled. In Florida, a group of buyers is suing WCI Communities Inc. (WCI), claiming the developer sold them condo hotels in the waterfront Resort at Singer Island as unregistered securities. The buyers said they bought the units as investments, not primarily for their own use... Some condo-hotel… buyers are talking to the SEC, alleging possible securities fraud… [if] developers sold these units as investments, which should have been registered with the SEC or other regulators.” (Wall St. Journal, Apr. 5th)

Homebuilders Get Breaks From Congress. “The $15 billion Foreclosure Prevention Act of 2008… is drawing… criticism [that it will] do little to prevent foreclosures. The bill contains a $6B emergency tax break that would let companies use losses from 2008-2009 to offset profits earned over the previous four years, instead of the usual two-year timeframe. That's good news for big homebuilders such as KB Home and Pulte Homes... Other big beneficiaries would be Wall Street banks such as Citigroup Inc. (C), Merrill Lynch (MER) and Morgan Stanley (MS). In fact, any company now struggling after years of healthy profits that pumped up their tax bills could benefit.” (AP, April 5th)

SMUD, Home Builder Strike Deal For 1,487 Solar-Powered Homes. “California: A Utah homebuilder and the Sacramento Municipal Utility District have struck a deal to build 1,487 solar-powered homes in Rancho Cordova and Rancho Murieta by 2012... The utility calls the agreement with Woodside Homes the nation's largest solar-home project so far, keeping the capital region at the forefront of efforts to power homes with sunlight… Thirteen months ago SMUD announced a similar deal with Lennar Corp. for 1,254 new homes in Sacramento County... Lennar last year also reached agreement with Roseville Electric to build 650 solar homes there.” (Sacramento Bee, Apr. 5th)

Dozens of Arizona Home Builders Committed to Join APS ENERGY STAR Homes Program. “Dozens of Arizona builders are joining the APS ENERGY STAR Homes Program, representing more than 22,300 residences that are or soon will be built at higher energy efficiency standards. Because of this, the U.S. Environmental Protection Agency [EPA] and the U.S. Department of Energy [DOE] have selected APS as a 2008 ENERGY STAR Partner of the Year… Arizona Builders in the APS ENERGY STAR Homes Program [include] Centex Homes, Pulte Homes.” (EV Living, Apr. 5th)

Beazer Homes USA NewsBite - Beazer Homes Plunges on Recession Signs. “Technical indicators for Beazer Homes (BZH) stock are bullish and steady while S&P gives BZH a negative 2 STARS (out of 5) sell rating. If you’re looking for a hedged play on this stock, consider a May bear-call credit spread above the $15 range. BZH stock could rise up to 36.4% before expiration and this position would still be profitable.” (Market Intelligence Center, Apr. 4th)

Battling for Investment Survival. “Homebuilder NVR (NVR) [is] the best in its industry. Although the problems facing the homebuilders go way beyond debt, the advantages of minimal leverage can't be discounted. NVR’s… debt-to-equity ratio sits at a solid 25%, compared with nearly 200% for rival Hovnanian (HOV). Beazer has a ratio well above 100%, and for Toll Brothers (TOL), the figure is 66%. All homebuilder stocks have fallen sharply from their highs, but NVR, with its much lower debt-to-equity ratio, experienced a less severe price decline than its peers... When the industry picks up, NVR should be a solid bet for investors going forward.” (Motley Fool, Apr. 4th)

Fewer New Homes Being Built In Metro Region. New Mexico: “Research firm DataTraq: Permits for the construction of new homes in the Albuquerque metro area declined nearly 20%, to 263, in February 2008 compared to Feb. 2007… D.R. Horton (DHI) was issued the most permits in February, with 63… 24% of all permits issued in the metro area. Centex Homes and Pulte Homes followed, with 35 and 29 permits, respectively. A third of the permits issued in the metro were for homes in the $150,000-$200,000 range, while 1% were for homes under $70,000, and 2% were for homes costing $350,000 or more. “ (New Mexico Business Weekly, Apr. 4th)

Centex Homes Leads In Area New Home Sales. California: “Hanley Wood Market Intelligence: Centex Homes [sold] 140 homes in… January and February… gaining a 17.5% market share… With 798 new-home sales in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties, that's 57.7% fewer sales than in Jan.-Feb. 2007… Sacramento's other top five builders in January and February: Beazer Homes, with 74 sales and 9.3% market share. Pulte Homes… with 73 sales and 9.1% market share. Lennar Homes with 52 sales and 6.5% market share. D.R. Horton, with 43 sales and 5.4% market share... Hanley Wood: Centex is still offering financial incentives to buyers and keeping prices down.” (Sacramento Bee, Apr. 4th)

LIUNA Steps Up Efforts to Expose Multi-Billion Dollar Corporate Homebuilder Bailout in Senate Foreclosure ''Prevention'' Bill. “The Laborers' International Union of North America: If the carry back provision remains in the [senate foreclosure] bill, the largest corporate homebuilders, who pushed subprime loans through their mortgage subsidiaries, will gain the most. For example, Lennar could get back $573 million, D.R. Horton could get $607M and Pulte could get $598M. Other corporate homebuilders, such as Centex, NVR, KB Home, Toll Brothers, Ryland (RYL), MDC (MDC), Beazer and Standard Pacific (SPF), stand to gain over $100M as well.” (Press Release, Apr. 4th)

Free Luxury Family Vacation to Orlando for Florida Property Buyers. “A free family holiday to Orlando, worth up to $7,500, is being given away by The British Homes Group to encourage people to buy a home from Florida's No. 1 developer. The British Homes Group Florida is giving away a luxury family holiday as part of a package of incentives to encourage buyers from anywhere in the world to consider a Lennar Home.” (Press Release, Apr. 4th)

JMP Affirms Bullish View on Meritage. “JMP Securities reiterated its bullish rating on homebuilder Meritage Corp. (MTH) after the company's first-quarter revenue exceeded expectations, and… Meritage’s cancellation rate fell to 27% from 47% in Q4… Meritage said it expects write-downs on the value of unsold homes and charges for walking away from land deposits to reach $60M-$65M. Analyst James Wilson said that was higher than he expected, but the higher deliveries prompted him to forecast a loss of $2/share for the year, compared with his previous loss estimate of $3/share.” (CNN Money, Apr. 4th)

Home Builders Push To Limit Impact Fee Increases. “Home builders and real estate groups are forwarding a bill at the Arizona Legislature that would restrict cities' ability to raise existing taxes and impact fees on new homes [and] subdivisions for two years after they receive city approvals. Real estate groups including the Home Builders Association of Central Arizona favor the bill, saying it is not fair for cities to boost impact fees in the middle of construction projects. Cities impose the fees to help pay for infrastructure and growth costs associated with new homes and buildings. “ (Pheonix Business Journal, Apr. 4th)

KB Home Declares Quarterly Dividend. “The board of directors of KB Home has declared a quarterly cash dividend of twenty-five cents ($.25) per share on the Company’s common stock, payable on May 22, 2008 to shareholders of record on May 8, 2008.” (Press Release, Apr. 3rd)

Dear Readers: Read anything you liked on this subject and didn't see it here? Why not post a link or a quote from the article in our comments section. Share the wealth! - Ed.

Get Seeking Alpha's housing market coverage by email -- it's free and takes only seconds to sign up.

Comments

[vrspace]

Here is the link to the "Foreclosure Prevention Act"

rpc.senate.gov/_files/...

[vrspace]

Here is one of the interesting paragraphs from the foreclosure prevention act -

"THIS NOTICE SUMMARIZES PROVISIONS OF S. 2636, THE FORECLOSURE PREVENTION ACT OF 2008.

TITLE IV - HELPING FAMILIES SAVE THEIR HOMES IN BANKRUPTCY

SUBTITLE A – MINIMIZING FORECLOSURES

Special Rules for Modification of Loans Secured by Residences

In a nutshell, the substitute (or Foreclosure Prevention Act) changes the bankruptcy code to allow judges to modify the principal terms of a debtor’s mortgage (current law prohibits this) so that judges can reduce the principal balance of a loan and the rate of interest of the mortgage.

The substitute (or Foreclosure Prevention Act) authorizes a bankruptcy plan for individuals with regular income to:

(1) Modify an allowed secured claim secured by the debtor’s principal residence if the debtor’s income is insufficient to retain possession of the residence by curing a default (returning the debtor to pre-default conditions) and maintaining payments while the case is pending;

(2) Provide for payment of such claim for a period not to exceed 30 years;

(3) Permit the addition of certain costs to secured debt under specified circumstances; and

(4) Waive any prepayment penalty on a claim secured by a debtor’s principal residence.

Industry experts estimate that the cost of allowing judges to modify a debtor’s mortgage could substantially increase uncertainty for lenders thereby increasing the risk associated with making a mortgage loan. The costs associated with this increased risk would be passed on to consumers in the form of higher interest rates.

The additional cost to consumers has been estimated to result in an interest rate increase of 1.5 to 2 percent. Every quarter point increase in mortgage interest rates would prevent 1.1 million Americans from being able to afford a home. Accordingly, this change in the bankruptcy code could potentially prevent 9 million Americans from owning a home.

This policy will cost the average American homebuyer an extra $60,000 in interest costs over the course of a 30-year mortgage (assuming the U.S. average home price of $166,000).

In 2008 and 2009 alone, this provision will drive up mortgage interest rates for an estimated 11 million home buyers."

rpc.senate.gov/_files/...

[stockmarketadvantage]

On Saturday I attended a foreclosure home auction run by the Real Estate Disposition Corp. (REDC). I stayed long enough to observe the disposition of 49 of the more than 100 properties auctioned off. The average sales price was $129,000. The average "previously valued to" number was $234,000. This was a 45% haircut.

I didn't inspect any of the properties, but afterwards drove by several higher priced condos in Clearwater Beach that had been auctioned off. They were very nicely situated with water views and the building was only 2 years old. If you drive up and down Gulf Blvd. you'll find numerous condos still being constructed.

It looks like we've only seen the beginnings of the price declines yet to come.

[stockmarketadvantage]

On Saturday I attended a foreclosure home auction run by the Real Estate Disposition Corp. (REDC). I stayed long enough to observe the disposition of 49 of the more than 100 properties auctioned off. The average sales price was $129,000. The average "previously valued to" number was $234,000. This was a 45% haircut.

I didn't inspect any of the properties, but afterwards drove by several higher priced condos in Clearwater Beach that had been auctioned off. They were very nicely situated with water views and the building was only 2 years old. If you drive up and down Gulf Blvd. you'll find numerous condos still being constructed.

It looks like we've only seen the beginnings of the price declines yet to come.

[po_folks]

One type of homeowner assistance I might be enthusiastic about would be extra federal tax rebates (credits) for real estate taxes paid. For everybody.

[gordon]

Nobody in the US inept media has interviewed any JUDGE to get their opinion of the already clogged courts due to bankruptcies ,etc, that have they, notice that?
Pathetic.