Homebuilders Shrink Shares and Housing Markets - Housing Tracker

Quote of the Day

“They went through the laundry and got shrunk.” - Stephen Lieber, co-CEO of Alpine Woods Investments in New York, on public homebuilders turning in to small caps after major market value declines since 2006. (Bloomberg, Apr. 29th)

Homebuilder Trends

Homebuilders Turning Into Small Caps After 67% Slump. “The worst housing slump in 70 years erased 67% from the market value of homebuilders in the S&P500 Index, turning the companies into small-cap stocks. Centex Corp. (CTX), the nation's biggest builder by sales, is valued at $2.62 billion, a quarter the size of the largest company in the Russell 2000 Index. Home developers in the S&P 500 have a total market value of $16B, down from $49.2B at their peak in January 2006… The shrinking size of the builders may mean their stocks will be dropped from [the] S&P 500 or Russell 1000 into the small-cap category.” (Bloomberg, Apr. 29th)

Meritage Homes Reports $45M Q1 Loss. “Meritage Homes (MTH) reported a first-quarter loss of $45.3 million or $1.72/share, with home closings down 26% and sale orders 21% compared with Q1’07. The loss, included $60M of pre-tax charges for real estate-related and joint-venture valuation adjustments, compared to net earnings of $15M, or $0.57/diluted share, in Q1’07. Home closing revenue was down 35% y/o/y, based on fewer closings and a 13% reduction in average closing price…Two-thirds of the total 2008 charges were in Arizona and California… Meritage used approximately $80M in positive cash flow to pay down outstanding debt to $2M by the end of Q1.” (Sacramento Business Journal, Apr. 29th)

NVR Actually Makes Money. “Like other builders, NVR (NVR) has been developing homes with smaller square footage and fewer upgrades as standard items. As the biggest employer of subs and suppliers in many of its markets, it’s in a unique position to negotiate labor and material prices as well… Other publics have been shedding markets recently because they spread themselves too thin. NVR’s strategy was to grow share within its existing footprint… A better way to leverage overhead expenses… By offering product at multiple price points NVR retains the flexibility to emphasize entry-level housing at times like this and move-up homes during the boom times.” (Builder Online Blog, Apr. 29th)

Homebuilder Being Replaced. North Carolina: “Crosland spokesman Bill Norton: Crosland is looking for a new builder for the Stafford, Caldwell Commons and Berkshire University-area neighborhoods, [because] D.R. Horton (DHI) has not met its contract terms. Horton will finish construction on its current inventory, a fraction of the homes, over the next six months to a year… Several builders, including Beazer Homes (BZH), have left the Charlotte market recently… In February, Horton pulled out of the upscale Ardrey Crest community near Ballantyne after starting work on fewer than 10% of the homes… Horton is building homes in about a dozen communities in the Charlotte area.” (Charlotte Observer Business Journal, Apr. 29th)

Glut Of Vacant Homes Gradually Decreasing. “Even in the down market in Southwest Florida, there were bright spots. The Lennar Homes (LEN) community Bella Terra in Estero led Lee County in both housing starts, with 134, and move-ins, with 267. Kevin Clark, division president of Beazer Homes — which builds in Bella Terra: “I think No. 1 is that the community offers a wide variety of model homes and price points… Builders have to be flexible in the features they offer for even relatively modest homes. “Before, you typically had to pay over a million for a custom home.” (News Press, Apr. 29th)

Iowa's Regency Homes Shuts Down Operations. “Executives at Iowa-based Regency Homes effectively shut down homebuilding operations late last Friday, April 25, halting construction and laying off more than 100 workers. The company has operations in Ames, Cedar Falls, Cedar Rapids, Des Moines, and Iowa City. Management's decision came after it was unable to renew a lending agreement with Wells Fargo (WFC) that had expired in December. Without access to that capital… management [was] unable to pay its homebuilding employees or continue building. The company had more than 300 homes in inventory at the time of the announcement; much of [it] concentrated in townhomes and condos, according to local sources.” (Big Builder Online, Apr. 28th)

Protests Planned Outside MDC Annual Meeting. “One of MDC Holdings Inc.'s (MDC) shareholders, Amalgamated Bank's LongView Funds, wants the Denver builder to toughen the oversight of its lending practices. The New York-based bank invests workers' retirement savings via its LongView Funds, and LongView holds 13,660 MDC shares. The Laborers' International Union of North America [LIUNA] plans a demonstration outside MDC's South Monaco Street headquarters, where the annual meeting will be held, against U.S. home builders seeking "a multibillion-dollar handout from Congress through the Foreclosure Prevention Act." The union represents construction workers. (Denver Business Journal, Apr. 28th)

Can't Cut Those Cancellations at MDC. “With most of the big builders today in survival and balance sheet-strengthening mode… MDC now has about $1.2 billion in cash on its balance sheet, along with no borrowings outstanding on its $1.25B line of credit… While MDC is clearly making progress as it relates to lower impairment charges, for my money, the company's escalating cancellation rate is proof positive that housing will continue to slide along on its bottom for some time to come.” (Motley Fool, Apr. 28th)

Palm Harbor Homes Countryplace Mortgage Unit Sells $51.3M Of Loans. “Palm Harbor Homes Inc. (PHHM) said Monday its CountryPlace Mortgage Ltd. lending subsidiary has sold about $51.3 million of its $69.4M warehoused portfolio of chattel and mortgage loans. About $41.5M of the proceeds were used to repay and terminate the warehouse borrowing facility scheduled to expire on April 30, the Dallas-based maker of factory-built homes said. 'We are very pleased to announce the sale of these chattel loans and mortgages without incurring a loss,' said Chairman and CEO Larry Kenner.” (Thomson Financial via Forbes, Apr. 28th)

Builders' Creativity Rises As Housing Market Slumps. Ohio: “Owner Bill Dold says they trade homes, and if they can't sell the home they've traded for, they lease it. Jeff Wehrle of Wehrle Forrester Homes says what used to be considered extras -- like paneled kitchen cabinets and stainless steel appliances -- is now standard in most of his new homes... To stay ahead of the competition, every home is also "energy-star" qualified, which means it's built with energy efficient materials.” (WTOL, Apr. 28th)

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.

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Quote of the Day

“They went through the laundry and got shrunk.” - Stephen Lieber, co-CEO of Alpine Woods Investments in New York, on public homebuilders turning in to small caps after major market value declines since 2006. (Bloomberg, Apr. 29th)

Homebuilder Trends

Homebuilders Turning Into Small Caps After 67% Slump. “The worst housing slump in 70 years erased 67% from the market value of homebuilders in the S&P500 Index, turning the companies into small-cap stocks. Centex Corp. (CTX), the nation's biggest builder by sales, is valued at $2.62 billion, a quarter the size of the largest company in the Russell 2000 Index. Home developers in the S&P 500 have a total market value of $16B, down from $49.2B at their peak in January 2006… The shrinking size of the builders may mean their stocks will be dropped from [the] S&P 500 or Russell 1000 into the small-cap category.” (Bloomberg, Apr. 29th)

Meritage Homes Reports $45M Q1 Loss. “Meritage Homes (MTH) reported a first-quarter loss of $45.3 million or $1.72/share, with home closings down 26% and sale orders 21% compared with Q1’07. The loss, included $60M of pre-tax charges for real estate-related and joint-venture valuation adjustments, compared to net earnings of $15M, or $0.57/diluted share, in Q1’07. Home closing revenue was down 35% y/o/y, based on fewer closings and a 13% reduction in average closing price…Two-thirds of the total 2008 charges were in Arizona and California… Meritage used approximately $80M in positive cash flow to pay down outstanding debt to $2M by the end of Q1.” (Sacramento Business Journal, Apr. 29th)

NVR Actually Makes Money. “Like other builders, NVR (NVR) has been developing homes with smaller square footage and fewer upgrades as standard items. As the biggest employer of subs and suppliers in many of its markets, it’s in a unique position to negotiate labor and material prices as well… Other publics have been shedding markets recently because they spread themselves too thin. NVR’s strategy was to grow share within its existing footprint… A better way to leverage overhead expenses… By offering product at multiple price points NVR retains the flexibility to emphasize entry-level housing at times like this and move-up homes during the boom times.” (Builder Online Blog, Apr. 29th)

Homebuilder Being Replaced. North Carolina: “Crosland spokesman Bill Norton: Crosland is looking for a new builder for the Stafford, Caldwell Commons and Berkshire University-area neighborhoods, [because] D.R. Horton (DHI) has not met its contract terms. Horton will finish construction on its current inventory, a fraction of the homes, over the next six months to a year… Several builders, including Beazer Homes (BZH), have left the Charlotte market recently… In February, Horton pulled out of the upscale Ardrey Crest community near Ballantyne after starting work on fewer than 10% of the homes… Horton is building homes in about a dozen communities in the Charlotte area.” (Charlotte Observer Business Journal, Apr. 29th)

Glut Of Vacant Homes Gradually Decreasing. “Even in the down market in Southwest Florida, there were bright spots. The Lennar Homes (LEN) community Bella Terra in Estero led Lee County in both housing starts, with 134, and move-ins, with 267. Kevin Clark, division president of Beazer Homes — which builds in Bella Terra: “I think No. 1 is that the community offers a wide variety of model homes and price points… Builders have to be flexible in the features they offer for even relatively modest homes. “Before, you typically had to pay over a million for a custom home.” (News Press, Apr. 29th)

Iowa's Regency Homes Shuts Down Operations. “Executives at Iowa-based Regency Homes effectively shut down homebuilding operations late last Friday, April 25, halting construction and laying off more than 100 workers. The company has operations in Ames, Cedar Falls, Cedar Rapids, Des Moines, and Iowa City. Management's decision came after it was unable to renew a lending agreement with Wells Fargo (WFC) that had expired in December. Without access to that capital… management [was] unable to pay its homebuilding employees or continue building. The company had more than 300 homes in inventory at the time of the announcement; much of [it] concentrated in townhomes and condos, according to local sources.” (Big Builder Online, Apr. 28th)

Protests Planned Outside MDC Annual Meeting. “One of MDC Holdings Inc.'s (MDC) shareholders, Amalgamated Bank's LongView Funds, wants the Denver builder to toughen the oversight of its lending practices. The New York-based bank invests workers' retirement savings via its LongView Funds, and LongView holds 13,660 MDC shares. The Laborers' International Union of North America (LIUNA) plans a demonstration outside MDC's South Monaco Street headquarters, where the annual meeting will be held, against U.S. home builders seeking "a multibillion-dollar handout from Congress through the Foreclosure Prevention Act." The union represents construction workers. (Denver Business Journal, Apr. 28th)

Can't Cut Those Cancellations at MDC. “With most of the big builders today in survival and balance sheet-strengthening mode… MDC now has about $1.2 billion in cash on its balance sheet, along with no borrowings outstanding on its $1.25B line of credit… While MDC is clearly making progress as it relates to lower impairment charges, for my money, the company's escalating cancellation rate is proof positive that housing will continue to slide along on its bottom for some time to come.” (Motley Fool, Apr. 28th)

Palm Harbor Homes Countryplace Mortgage Unit Sells $51.3M Of Loans. “Palm Harbor Homes Inc. (PHHM) said Monday its CountryPlace Mortgage Ltd. lending subsidiary has sold about $51.3 million of its $69.4M warehoused portfolio of chattel and mortgage loans. About $41.5M of the proceeds were used to repay and terminate the warehouse borrowing facility scheduled to expire on April 30, the Dallas-based maker of factory-built homes said. 'We are very pleased to announce the sale of these chattel loans and mortgages without incurring a loss,' said Chairman and CEO Larry Kenner.” (Thomson Financial via Forbes, Apr. 28th)

Builders' Creativity Rises As Housing Market Slumps. Ohio: “Owner Bill Dold says they trade homes, and if they can't sell the home they've traded for, they lease it. Jeff Wehrle of Wehrle Forrester Homes says what used to be considered extras -- like paneled kitchen cabinets and stainless steel appliances -- is now standard in most of his new homes... To stay ahead of the competition, every home is also "energy-star" qualified, which means it's built with energy efficient materials.” (WTOL, Apr. 28th)

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.