Why Are Homebuilders Up On Lousy Earnings? [Housing Tracker]

Seeking Alpha's Housing Tracker is a collection of housing-related excerpts from various sources, grouped by topic. Feel free to post any interesting links on the subject in the comments section below.

Homebuilder Stocks

Mortgage Applications Fall As Home Builders' Stocks Rise. Huh?  “Shares of Hovnanian Enterprises Inc. (HOV), Toll Brothers Inc. (TOL) and Lennar Corp. (LEN) all gained double-digit percentages in Q3… Investors [want] to call a bottom in the housing market. But I sat that's premature. S&P:Many metropolitan areas are showing double-digit declines in home values... Last week, KB Home (KBH) reported a worse-than-expected quarterly loss and offered a bleak assesment of market conditions. I don't see any hope… either. Many housing developments in my area are going to be sitting idle for quite a while [and] dropping prices… Demand and supply will be out of whack for a while. People considering homebuilder stocks might want to remember that.” (Blogging Stocks, Oct. 1)

Orleans Homebuilders Posts Wider Loss In Q4 – Update. “Orleans Homebuilders, Inc. (OHB) reported a wider loss in Q4 as revenues declined 7% from last year. Orleans reported a Q4 net loss of $34.23 million or $1.86/share, compared to a net loss of $11.33M or $0.61/share a year ago. Loss from continuing operations was $34.19M or $1.85/share, compared to loss from continuing operations of $11.74M or $0.63/share in Q4’07. On a non-GAAP adjusted basis, fourth quarter loss from continuing operations was $8.71M or $0.47/share, compared to a loss from continuing operations of $290 thousand or $0.02/share in Q4’07.” (Press Release, Oct. 1) 

Keybank Sues To Recover Millions From Builder Of Legend Homes.  “KeyBank has sued Legend Homes' CEO David Oringdulph to try to recover $32.5 million in troubled loans that the homebuilder and its affiliated companies owe the bank… Like most homebuilders, Oringdulph personally guaranteed he would repay the debts from KeyBank's seven loans… KeyBank is Legend Homes' largest creditor and has pushed hard to recover its money… KeyBank's parent company, KeyCorp, reported losing more than $1.1 billion in Q2, in part because of bad real estate loans… In [hard-hit] Riverside County, Calif., for example, KeyBank lent $18M in 2005 to a company affiliated with Matrix Development to buy land.” (The Oregonian, Sept. 27) 

KB Home Building Smaller Houses To Lift Sagging Sales. “KB Home lost $144.7 million from July through September, or $1.87/share, compared with a net loss of $35.6M, or $0.46/share, for Q3’07… The loss exceeded analysts' estimates and came as sales of the company's homes fell 56% in Q3’08 compared with Q3’07. Q3 revenue was $681.6M, down from $1.53 billion in Q3’07. KB CEO Jeffrey Mezger: Foreclosed houses… were continuing to pull home prices down, and… previously stable areas including Charlotte and Raleigh, N.C., and Austin and San Antonio, Texas, where "sales rates are off… [will] soften.” Mezger: KB has been selling smaller houses at lower prices.” (LA Times, Sept. 27)

Meritage Wins Case Against Ex-Leader. “Valley homebuilder Greg Hancock sold his business to Meritage Homes Corp. (MTH) seven years ago… Meritage paid him $80 million and hired Hancock as Phoenix president for three years.  The relationship quickly soured. Hancock abruptly quit with more than a year left on his contract, and Scottsdale-based Meritage sued him in 2004, accusing him of defrauding the company, unjust enrichment and breach of contract. A U.S. District Court jury, after a three-week trial, on Thursday agreed with Meritage in the case. It found against Hancock on nine counts… and ordered him to pay more than $200M in damages.” (AZ Central, Sept. 27)

New Homes Helping Revitalize East Oakland. California: “Construction is under way to build more than 135 single-family homes near the Elmhurst neighborhood in East Oakland. The Pulte Homes (PHM) project [or] Arcadia Park, is part of an effort to transform the area's entrenched urban blight, poverty and crime… Prices for the units range from $380,000-$460,000. Pulte sales manager Mike Barbieri said the first buyers have started to move in and about 30 families are expected to settled in by the year's end… The Pulte Homes project is aimed at helping turn vacant industrial land into housing developments… Pulte also built Zephyr Gate, a new townhome community in West Oakland.” (Inside Bay Area, Sept. 27)

Beazer Homes Settles SEC Investigation; Company Execs Still Under Scrutiny. “Beazer Homes (BZH) has settled with the SEC in its investigation into the company’s accounting procedures for much of this decade. Beazer, which builds single-family homes in California and 16 other states, neither admitted nor denied any findings or claims of the SEC’s investigation and, because it cooperated, will pay no monetary penalties. The SEC is continuing its investigation into individual executives’ actions during that period.” (Sacramento Business Journal, Sept. 26)

KB Home: Is It A Buy? “KB Home [earnings] missed by a wide margin. [But] shares [are] up over 16% for the three-month period... Should I buy the stock? Well, if you think there is strength with this stock, then I say… you've got to wait until it comes down before even thinking of buying. I just can't get myself to consider this homebuilder after seeing it miss estimates… I concede that you have to consider the effect of the discontinued operations on last year's earnings number. Still, it is my opinion that staying away from KB Home is best for now.” (Blogging Stocks, Sept. 26)

WCI Seeks to Sell 22 Condo Units.  “Homebuilder WCI Communities Inc. (WCI) is seeking bankruptcy-court approval to sell 22 condominium units to Southern Caledonian Properties Ltd. for $3.52 million. The deal, if approved by the U.S. Bankruptcy Court… would allow the builder to unload a significant portion of its completed inventory. The units make up one of the three buildings that are the first phase of a condominium project under way in the Pelican Preserve neighborhood in Fort Myers, Fla. WCI currently owns or is building homes and mid- or high-rise residential units and operating amenity facilities at about 40 communities. WCI also holds about 12,000 acres of land, which could ultimately be developed into about 15,000 residences.” (WSJ, Sept. 26) 

                                                                                 

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Comments

[fatcat:]

Great compilation ,Judy..thanks.

2008 Oct 02 07:02 AM

[SA Editor J...:]

Thanks!

2008 Oct 02 07:05 AM

[SW Richmond:]

This is a perfect, perfect, perfect illustration of the 30- and 40-something crowd that still believes that this is just another dip that the Fed et al are going to maneuver us out of, and so this "low" is just another historic buying opportunity. Americans have been taught that they have a right to expect the stock market to always go up. The 30- and 40-somethings have grown up in an environment where stocks just go up. Put money in the stock market and by magic it gets bigger! What's not to like? This is the short-attention-span crowd that thinks it understands economics and boo-yahs at idiots like Cramer.

And their is a paradigm that that will kill most of them. This crowd has never seen a genuine capitulation. We are so far still from a genuine capitulation event that when it comes this crowd will be vomiting on the streets. Literally.

And then they will be begging for the government to save them.

2008 Oct 02 07:10 AM

[globalHOBBIT:]

I totally agree with SWRichmond assessment on the 30ish to 40ish group of investors. I was in college back in the early to mid 1970's and was interning at a brokerage company, Hoppin-Watson & Co., and I still remember well the 1972-1974 correction. We seem to be on our way there now as this is worse than 1987's correction and the dot-com bubble of 2000. Seek out the wisdom of men like Art Cashin who were around back then and now give very sage and insightful investing guidance.

2008 Oct 02 07:56 AM

[TBill:]

This isn't anything like 1973. Believe me. For a comparison, you have to go back to 1930. Smoot Hawley, Sarbanes Oxley. And now we are about to elect a leftist who will make it worse. Yup, it's all there.

2008 Oct 02 10:48 AM

[JohnKing:]

Its not the 30-40 something investors. Its the 30-40 something mutual fund managers that take advice from Cramer. Due diligence for them is watching "Mad Money".

I kid you not.

2008 Oct 02 01:25 PM

[bddoyl:]

Does anyone really believe that housing stocks will ever repeat their earnings of 2005. With lower and middle class real wages decreasing and credit standards tightening, it's would be optimistic to believe that the housing industry will have meaningful earnings before 2010-11. To buy such stocks now is a great leap of faith.

2008 Oct 02 01:37 PM

[specks:]

It's hard to blame the decisions on the current managements of our banks and governments. The actions being taken are those taught by our most prestigeous halls of education.
Until that is corrected, our problems will continue. This will take at least a generation to adjust. We're just going to have to BEAR with it!

2008 Oct 02 03:14 PM

[Pretzel Logic:]

Hey! As a 30-something investor, I resent these implications! Short attention span, my ass! Wait... what was I talking about again?

Anyway, you'd be surprised how many of us 30-somethings know our history. I've been bearish since 2001 (I actually missed the cyclical bull we completed last year because I stayed bearish the entire time). This market looks a lot like the market of the late 60's to me, and I don't expect an end to the bear for years.

Why all the bashing of 30-40-somethings, when it's the Baby Boomers who took the strongest economy in history and basically destroyed it over the course of about 20 years? They mortgaged our economic future to China, Japan, et al and buried us in debts we cannot repay (except possibly by massive inflation). As far as I'm concerned, the Boomers sold this country down the river, but my generation will be the one left holding the bag.

So which generation has the short attention span, exactly?

Generation X: The suckers who are still buying into their 401Ks and paying their FICA because they don't know their history?

Or the Baby Boomer ME generation who just had to have their entitlements and a bigger home and a plasma TV and timeshare in Venice -- and didn't care how they got them, as long as they got what they wanted?

And, for the record, Cramer is a complete idiot.

2008 Oct 05 05:23 AM