dhkystud

Downside For KB Homes Not Necessarily Priced In

I am a builder, or I should probably say "was". Now I'm a lot inventory holder. In any event, I don't think any builder can make much of a margin on selling homes, even if the write there lot off completely. Unfortunately, material prices have not dropped enough to allow a brand new home sell for a price that is competitive to any homes being offered today (which are heavily discounted). Secondly, even if the builder wanted to sell a brand new home at 25 to 30% over the current market (which is probably the spread today), they probably wouldn't get the appraisal to support their price, which is simply based on their cost of materials plus a small profit (or margin to cover overhead). Its going to take several months, and at least 1 year to perhaps 2, for values to rise enough to support new home prices.

A Prefabricated Future?

The manufactured and modular business will take along time to recover. The HUD code homes sold for parks can't get financing and the IRC modular homes are still overpriced, in comparison to the resale market. Champion looks like it could go BK any day. No capital and limited working capital. They were really irresponsible to have purchased SRI in Canada when the dollar was at par to the Canadian, and when the market in Alberta had clearly already had peaked. Poor management.

The Rebound List - Cramer's Mad Money (8/26/08)

Cramer is looking at the chart and not the P&L. Most of his builder stocks on the " Housing bottom list" are selling homes at a negative gross margin, and can't cover there overhead. Ignore the graphs and the charts, study the balance sheets. Liquidity is touch and go. If the prices of homes don't rise quickly (which is unlikely), these builders won't get a gross margin to cover material increases. Ironically, material is still increasing in price and prices are dropping. Why would you want to be a partner in that business model? JBS