Homebuilders Remain Pessimistic - Housing Tracker

Quote of the Day

“Is everyone happy up there? No. But we’re doing our best and we’re not going anywhere.” - Paul Moore, Director of KB Home Customer Service, about homeowners in KB Homes Autumn Hills subdivision in Tehachapi, California. Homeowners petitioned KB Home, complaining about poor customer service.(Tehachapi News, Apr. 14th)

Homebuilder Stocks

KB Homes Pulls Out Of Mid-Atlantic. “Maryland: Homebuilder KB Home (KBH) has decided to pull out of the entire mid-Atlantic region because of poor market performance… KBH officials said the move will help it hold onto cash reserves and ride out the housing crash. The Los Angeles builder has five communities in the mid-Atlantic area under construction including Whetstone Run townhouses in Gaithersburg, and communities in Waldorf, Accokeek, Upper Marlboro, Leesburg, Va., and Alexandria, Va… KB Home: In the Washington metropolitan region, 17 full-time employees will be displaced until new positions are found for them in other parts of the country.” (Gazette.net, Apr. 16th)

Sun City To Break Ground On Second Community Hall. South Carolina: “Sun City Hilton Head will ceremonially break ground today on a second large community hall. Construction on the 16,000-square-foot Magnolia Hall began this month and the nearly $6 million building is expected to be completed by the end of the year, said Jon Cherry, division president for Pulte Homes' South Carolina Coastal Division. Del Webb, the Sun City developer, is a brand of Pulte (PHM). Magnolia Hall will join Pinckney Hall, which is also roughly 16,000 square feet, in the town center area.” (Island Packet, Apr. 16th)

Builders Remain Pessimistic About Slumping US Housing Market. “The National Association of Home Builders said Tuesday its housing market index came in at 20 this month, the third-lowest reading on record. The index, derived from a survey of about 400 residential developers nationwide, gauges builders' perceptions of current conditions, interest from potential buyers and expectations for home sales over the next six months. Index readings higher than 50 indicate positive sentiment. The index has been at 20 or below since September, and below 50 since May 2006... Confidence rose slightly in the Northeast and West, but fell in the Midwest and South. Traffic from prospective buyers also remained unchanged.” (Int’l Herald Tribune, Apr. 15th)

Loon Development Sold To Texas Company. New Hampshire: “Centex Destination Properties has sold its South Peak development at Loon Mountain to Macfarlan Capital Partners, L.P. a private real estate investment firm. The announcement, which came without a disclosed price, was made along with the purchase of four other second home communities in Texas and North Carolina. All were being developed by Centex (CTX) and will now be completed as part of the TerraMesa Resorts brand, a resort development and management company formed by Macfarlan.” (Union Leader, Apr. 15th)

Hovnanian Executives Exercise Options. The CEO and CFO at Hovnanian Enterprises Inc. (HOV) exercised options for a combined 190,000 shares. Hovnanian said CEO Ara Hovnanian and CFO Larry Sorsby exercised the options because they were set to expire next month. The executives sold a total 90,000 of the shares. They surrendered another 59,000 to the company to cover taxes associated with the gains recorded. The men increased their holdings in Hovnanian by a combined 41,000 shares. The company did not say how many shares they hold.” (AP via CNN Money, Apr. 15th)

Homeowners Sue Lennar Over Cracks, Leaks, Mold, Other Problems. “California: Owners of 88 Bakersfield homes are [filing] a lawsuit against builder Lennar Homes. The lawsuit alleges repairs could cost more than $100,000 per home. The complaint, first filed in February and updated last week, is one of several in Kern where a group of homeowners is suing a national or regional homebuilder in the wake of the recent real estate boom. Lennar hasn’t yet received formal notification of the case, court records show.” (Bakersfield Californian, Apr. 15th)

1,000 Sun City Grand Homeowners Taking Del Webb To Court. “Over 1,000 Sun City Grand homeowners are taking Del Webb Communities to court over a multitude of alleged construction defects. The lawsuit was filed Monday in the Maricopa County Superior Court, said Phoenix Attorney Ken Kasdan... His law firm is representing 1,003 homeowners. Of which, 532 have commenced litigation. The remaining 471 homeowners are seeking arbitration because of contract stipulations. Kasdan said the defects include foundation and stucco cracking, peeling roofs and acoustic issues. The foundation issues which are related to soil issues, he said, are the most egregious.” (Your West Valley, Apr. 15th)

Champion Enterprises Posts Wider Q1 Loss On Charges. “Champion Enterprises Inc (CHB), a maker of factory-built houses, posted a wider first-quarter net loss, hurt by restructuring charges and weakness in U.S. housing markets. The company posted a net loss of $20.5 million, or $0.26/share, compared with a net loss of $7.2M, or $0.09/share, a year earlier. Sales rose 14% to $296.7M, driven a 137% growth in sales at its international manufacturing segment. Analysts on average expected… a loss of $0.03/share, before items, on revenue of $273.2M. Champion recorded charges of $9.8M related to restructuring of its North American manufacturing operations and closure of two facilities.” (Reuters, Apr. 15th)

Kern Homebuilders' Group Lays Off Top Paid Staffer. “The Home Builders Association of Kern County, a local pro-building and development lobbying group, has laid off its top paid staffer. Economics drove the “difficult decision” to layoff Executive Vice President Cassie Daniel, according to an e-mail sent to members Monday.” (Bakersfield Californian, Apr. 15th)

This Just In: Upgrades and Downgrades. “On Tuesday, FTN Midwest joined [those] arguing that the homebuilders are ready to rebound… FTN picked just three big homebuilders to cover and assigned "buy" ratings to KB Home (KBH), Lennar (LEN), and Toll Brothers (TOL)… FTN's record on Motley Fool’s CAPS just doesn't do a lot to encourage me about the analyst's ability to time this particular bottom. To the contrary, FTN sports a CAPS rating in the bottom 20% of investors, a record of guessing wrong 55% of the time, and of losing its customers an average of 8% (versus the market) per pick.” (Motley Fool, Apr. 15th)

Loma Colorado Builder Hosts Block Party. “Pulte Homes will host a block party April 19 for the public and residents of its Loma, Colorado master-planned, mixed-use community. The event, featuring food and entertainment, will take place… at Loma Colorado, in Rio Rancho. The 433-acre, 980-home Loma Colorado opened its first models last summer. It offers 15 home models and 20 floor plans ranging from 1,500-4,200-sf, with prices starting around $175,000. Much of the site comprises open space, trails and recreation areas. Retail, office and light industrial uses complement the residential portion of the community.” (New Mexico Business Weekly, Apr. 15th)

EPA Praises K. Hovnanian For Building Energy-Conserving Homes. “The U.S. Environmental Protection Agency is honoring K. Hovnanian Homes for the number of Energy Star Homes it built in New Jersey last year. The federal agency says the company built 1,587 homes in New Jersey in 2007 that qualified as Energy Star. Owners of Energy Star homes save as much as a third on their utility bills over the life of the home, compared to homes that merely "meet code." (Big Builder Online, Apr. 14th)

Home Builders Group Spent $3.2M Lobbying. “The National Association of Home Builders spent $3.2 million lobbying the federal government last year... The trade group lobbied on regulation of government-sponsored mortgage finance companies Fannie Mae and Freddie Mac, affordable housing, redevelopment of environmentally damaged areas, eminent domain, energy efficiency, terrorism insurance, immigration reform, endangered species issues and tariffs for lumber and cement imports. NAHB spent $2 million lobbying in H2’07, and $1.2M in H1’07… according to the Senate's public records office… Earlier this year, the builders were so distressed by what they saw as lawmakers' lack of attention to the housing market… that [they] halted contributions to congressional candidates' campaigns.” (BusinessWeek, Apr. 14th)

Meritage To Get About $10 Mln From Former Exec. “SEC filing: Meritage Homes Corp (MTH) said on Monday it will record a payment of about $10 million in Q2 to reflect an agreement it reached with its former co-chairman and co-CEO, John Landon, who resigned from the company on May 17, 2006. [Landon] reimbursed Meritage the amount he has been paid under a non-compete portion of his contract. On April 10, 2008, the company received $9,559,940 -- $2,701,613 already paid to Landon and $6,858,327 held in escrow, plus interest... Landon also has to pay an additional $875,000, to cover legal and ancillary costs.” (Reuters, Apr. 14th)

Muted Protest at Morgan Stanley. “On May 4, Standard Pacific (SPF) shareholders will vote on a proposal asking for an annual board… evaluation of the company’s [mortgage risk] practices… This may [also] go to a vote at Beazer Homes (BZH)… Amalgamated Bank [proposes] homebuilders establish a “compliance committee” to conduct a review of regulatory, litigation, and compliance risks associated with mortgage lending. The resolution went to a vote at… Lennar on April 8… results were not immediately available. That proposal also will be on the ballot at MDC Holdings (MDC) (April 29) and Pulte Homes (May 15). Pulte shareholders will also decide whether they would like the company to establish a… “prudent lending practices” [committee.]” (Risk Metrics, Apr. 14th)

KB Home’s Warranty Work Questioned By Local Homeowners. California: “Approximately 30 Autumn Hills homeowners [are] complaining about the service and quality of claims for repairs made to their homes by KB. According to KB, more than 750 claims have been completed at the subdivision… Paul Moore, Director of KB Home Customer Service: “There are 134 homes there. We’ve completed over 750 claims with a six day average. Are there sub-contractors and material providers going out of business? Yes. So if you had a Brand X garbage disposal or something like that fail under warranty, we have to find a comparable Brand Z to replace it.” (Tehachapi News, Apr. 14th)

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Comments

[SA Guest:]

Back at the end of February Robert Toll made the following comment:

“We have seen a few glimmers of hope, for example, in the Naples, Florida area and the suburban Washington D.C. market. The improvement in Naples, which was a tremendous market before the downturn, is noteworthy because from March 2006 through late 2007, it seemed as though we couldn't give away a home there.”
www.primenewswire.com/...

I finally got around to visiting Toll’s two Naples developments to get a better understanding of these “Glimmers of Hope”.

The Aviano development (150 homes) came online in September of 2004 and sold immediately even with anti-speculation restrictions that included a purchase limit of one house per person and no re-sales during the first 12 months of ownership. Toll is still active at the development, however, as it is tries to unload six or so “Quick Delivery Homes” which is a euphemism for homes that have been completed but that the buyers walked away from. Toll is offering these at a discount of up to 40% from the original price with additional incentives.

Toll’s second development in Naples called Firano, came online in September 2006. Scattered across the 112 home sites of the development are 8 or so houses that have been completed and another three under construction. Of the completed houses two are part of the “Quick Delivery” program (discounted in the 20-30% range with additional incentives). An additional 10 lots are either sold or on hold.

As I looked across the empty wasteland of their Firano development, what Toll calls a “glimmer” appears to me to be an hallucination. It is indeed a sad commentary that the CEO of America’s largest luxury homebuilder would even comment on the few “quick delivery houses” at Aviano or the handful of properties that have been sold at Firano.

There is little doubt that next time we here from Bob he will be announcing that Aviano has sold out (albeit for the second time) and that sales at Firano have doubled.

2008 Apr 16 07:05 PM

[Robert Trudeau:]

Buy the builders? What, so you can own land that isn't being developed, or land purchase options that expire worthless, or empty homes decling in value. Buy the builders only if you believe the market has bottomed, and please give me some evidence of that so I can make money too. Otherwise you are better off in cash for the foreseeable future.

2008 Apr 19 04:50 PM

[karchad:]

My evidence that the homebuilders has bottomed is this: ITB was at about 13.4 early in the year. It's at 21 now. Waiting for good news in markets is the classic amateur mistake. By the time the news is as good as you like it, you will invest just in time to enjoy inferior returns. That's why the average investor's returns trails the average mutual fund return very badly.
The trick is to not try to time, invest in a sector that has plummeted, and think long-term. Yes, you may not make money the next week or month. But talk about 5 years, and you will be rewarded handsomely.
The problem with all these articles and posts is that they think they have to find the EXACT bottom. This can be done only by luck, not skill. It's been proven in a zillion ways that you can't pick the bottom. Give up!
If now is not the time to invest in homebuilders, after a 70%+ drop, then it's never the time. Again, these articles make me laugh.
Call me stupid now, if homebuilders declines in the next month, or next quarter. Come back to me in a few years and we'll compare our rates of return!

2008 Apr 21 06:35 AM