Struggling Public Homebuilders Try Custom Homebuilding [Housing Tracker]

 |  Includes: FCE.A, HOV, KBH, LEN, TOL
by: Judy Weil

Quotes Of The Day

"Banks aren't supporting businesses that supported them for decades." - Mick Pattinson, CEO of private California homebuilder Barratt American, about the crisis California homebuilders are facing. Pattinson says many will go under, and blaming mainly banks that are no longer lending or extending credit to homebuilders. (LA Times, July 24th)


"It's somewhat of an insult that we're getting lumped in with Pulte (Homes) and Lennar (Homes) and the other big guys of the world.” - Chris Glover, COO of Palmwood Builders. Small, private Florida homebuilders say they’ve both suffered the competition from large, public homebuilders and are now suffering from the glut they left behind when housing went bust. (Tampa, July 27th)

Homebuilder Stocks

Developers Scale Back Mega Housing Projects. “Lennar (NYSE:LEN) began planning its $1 billion, 3,600-acre Asante project in Surprise in 2004... The community [was] envisioned to include 14,000 homes, schools, [and] a 1 million-square-foot retail center. Lennar marked Asante's grand opening last week with the launch of a 60-acre housing development called the Vistas. Lennar originally had expected to open three or four housing developments, offering a variety of housing sizes, with inventory on hand for immediate move-in. Instead, it opened the Vistas with its most popular product line - three- to four-bedroom, single-family homes - and no inventory on hand.” (Arizona Republic, July 28th)

Hedge Funds May Post Worst Month in 5 Years as Bank Bets Sour. Hedge funds may post their worst month in at least five years after bets on financial stocks and crude oil backfired. Hedge Fund Research Inc.'s Global Hedge Fund Index of more than 55 funds slid 3.2% through July 24, heading for the biggest monthly drop since the measure started in 2003. Wagers on a decline in financial stocks and homebuilders, one of the most popular, soured after Fannie Mae and Freddie Mac shares more than doubled in the six trading days to July 23. Bullish bets on crude oil turned to a loss as oil slid 15% from a record $145.29/barrel.” (Bloomberg, July 28th)


Crafts Retailer To Close Mainland Crossing Store. “Texas: Officials with Friendswood Development Co. are working to make it clear that the company and its local projects are in no way affected by the June 8 Chapter 11 bankruptcy filing of California development firm LandSource Communities Development… LandSource is a joint venture between Lennar and LNR Property Corp., each of which have a 16% stake, and MW Housing Partners, which holds a 63% stake in the venture... Lennar is the parent company of Friendswood Development Co… LandSource is the parent company of Friendswood Development Co. LLC… But the venture has nothing to do [with] Friendswood Development Co.”  (Galveston Daily News, July 28th)


Builders Sweeten The Deals. Pennsylvania: "Buy a new home, get a new Honda with it for free. That's the deal for those who buy a new single family home this summer at Summit Ridge in Mahoning, where prices start at $199,999. [Or,] buyers can have the builder pay the principal and interest on their mortgage for one year. Or they can have the builder pay closing costs and receive a reduced interest rate on their 30-year fixed mortgage. Last weekend, Toll Brothers Inc. (NYSE:TOL) was offering those who put a deposit on a home in any one of seven communities it is building in the Lehigh Valley and the Poconos the ability to buy kitchen and upgrade packages worth thousands of dollars for $1.” (The Morning Call, July 27th)


Developer Keeps Champale Control. New Jersey: “Developer K. Hovnanian (NYSE:HOV) will control the fate of the former Champale Brewery property for at least another year, as the city planning board voted to extend the company's right to redevelop the land… granting Hovnanian's request to extend its protection for a site plan for the parcel… The company wants to build an 84-unit condominium complex at the former brewery site. The Red Bank-based developer reached a redevelopment deal with the city in 2005, but cited "current conditions affecting the housing and real estate markets" in an October 2007 letter explaining delays in the project.” (, July 26th)

Gas Prices Forcing Change. “Stapleton, Colorado’s developer, real estate company Forest City (NYSE:FCE.A), puts homes within walking distance of schools and stores while linking them to the workplace by public transportation… Maricopa, about an hour's drive outside Phoenix, [was] built on former corn and cotton fields, the suburb has grown to number 38,000 people from about 1,500 in 2002, accommodating people who were willing to accept longer commutes in order to get homes at cheaper prices. These days, Maricopa has been inundated by foreclosures and short sales -- where lenders agree to take a repayment that is lower than the outstanding loan to avoid dealing with a foreclosure, and high gas prices are part of the reason.” (Calgary Herald, July 26th)

Statement of Terence M. O'Sullivan, General President of the Laborers' International Union of North America, On Passage of the Housing Bill.  “Today Congress passed a housing bill that will benefit struggling homeowners and is a needed step in the effort to return stability to the nation's housing and mortgage markets. For Americans who have waited for action on the housing crisis - only to see handouts and bailouts for corporations - it is particularly encouraging that despite heavy lobbying from corporate homebuilders, Congress rejected a $25 billion taxpayer handout in the form of a net operating loss carry-back provision. Not only would the carry-back provision provide no benefit for struggling homeowners or our economy, it would have rewarded corporations that helped cause the current crisis.” (MarketWatch, July 26th)


Is KB Home Committing A "Random Act Of Greenness"? “KB Home (NYSE:KBH) recently announced a company-wide commitment that all communities opening in 2009 will meet "Energy Star" certification… This does represent a significant commitment on their part. Energy Star is not the norm. And they're only able to make the commitment because they see a market of consumers asking for green homes. For a business to stay in business, there must be a market for their product. They could commit to only building carbon-neutral, net-zero energy homes on urban infill sites, but they would soon be out of business. The American public isn't asking for that product...yet. Maybe this effort will even drive demand.” (Public, July 25th)


Toll Brothers Announces Completion of Employee Stock Option Exchange Program.Toll Brothers completed its employee stock option exchange program… which reduced the number of shares subject to outstanding stock options by 914,266 shares, will have a positive effect on the retention and motivation of participating employees. Toll has accepted for exchange and cancellation options to purchase 2,515,275 shares of its common stock, representing approximately 97% of the shares underlying all eligible options. Options held by eligible employees with an exercise price equal to or greater than $27.24/share were eligible for exchange in the program. Of the 467 Company employees who were eligible, 403, or approximately 86%, participated in the program. The Company's directors, CEO, COO and CFO were not eligible to participate in the program.” (MarketWatch, July 24th)

The Custom McMansion. “A number of big homebuilders are now getting into the custom-home game -- an area that was once almost entirely the province of boutique builders. Companies such as John Laing Homes, Toll Brothers and K. Hovnanian Homes are all venturing into [the] field… Custom-home building is more profitable for builders. And it also carries less risk: Builders avoid the carrying costs of land, taxes and other monthly expenses that can come with speculative building. Because custom building caters to the upper end of the market, it's doing better than production building right now.” (Wall St. Journal, July 24th)


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