Housing Market Tracker - Small Homebuilders are the Fittest

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Includes: BZH, CTX, DHI, JOE, LEN, MTH, NVR, PHHMQ, RYL
by: Judy Weil

Quotes of the Day

“We want them to sell what they said they’d sell and if they’re going to do this, we’re going to prohibit their sales." - Rob Kusserow, who purchased a home in The Hills at Concord Place in Brentwood, a Centex Homes (CTX) development. Residents are trying to "sabotage" sales that will lower neighborhood home values. (WKRN, Feb. 18th)

"Builders know there's a difference between people looking and people buying, and their current outlook remains quite subdued. - David Seiders, NAHB's chief economist, on the slight uptick this month in the NAHB/Wells Fargo Housing Market Index. (Builder Online, Feb. 19th)

Homebuilders, Housing Stocks and Housing-Related Stocks

Is It Time to Rush In to 'Cuba'? "There are four caveats [to investing in] Herzfeld Caribbean Basin Fund: Share [price rises] haven't been matched by its investments... [so] shares now look expensive... This fund has virtually nothing invested in Cuba-- [there's an] embargo... Founder Thomas Herzfeld says he is now eyeing riskier companies that could be transformed in their fortunes if Cuba opened up, [like] stricken homebuilder Lennar. The "New Cubans" will need a lot of new residential property. [But] it may be years before Cuba is ready to open up for business. The total expense ratio for this fund... comes to 3.3% of net assets a year. That's a lot." (Wall St. Journal, Feb. 20th)

Cuba Fund Has Biggest-Ever Surge After Castro Resigns. "Thomas Herzfeld's Herzfeld Caribbean Basin Fund ETF surged 17% after Cuba's Fidel Castro resigned... Herzfeld said he bought shares in the past year of Lennar Corp. (NYSE:LEN), a Miami-based homebuilder, and other companies "that may not necessarily be doing well now, but which are stronger Cuba plays'' than its core holdings. Lennar, whose shares have tumbled more than 70% since their July 2005 peak amid the U.S. housing recession, is "well positioned to develop homes in Cuba down the road,'' Herzfeld said." (Bloomberg, Feb. 19th)

Builder Confidence Edges Higher in February. "NAHB/Wells Fargo Housing Market Index [HMI]: Builder confidence in the market for new single-family homes edged marginally higher in February as home buyer traffic through model homes improved considerably. The HMI rose one point to 20 this month, still close to its December 2007 historic low reading of 18... The HMI gauges builder perceptions of current single-family home sales and expectations for the next six months [and] also asks builders to rate traffic of prospective buyers... The HMI reached 71 in December 2004, one of the peak years of the housing boom." (Builder Online, Feb. 19th)

St. Joe 4th-QTR Profit Falls to $1 Million. "St. Joe Company (NYSE:JOE) posted net income of $1 million, or $0.01/share [in Q4'07], compared with a profit of $22.3M, or $0.30/share, in Q4'06. The decline was primarily due to a 35.4% decrease in revenue. For all of 2007, the company had net income of $39.2M, or $0.53/share, compared with $51M for 2006. The decline was due to write-downs of $23.2M... The company took restructuring charges of $8.9M, $4.3M related to a liquidating trust minority position and $2.2M [for] discontinued operations. It also booked a pre-tax gain of $47.8M related to the sale of the company's office building portfolio." (Big Builder Online, Feb. 19th)

It's A Different Way Of Selling A Home 'Unauction'. "Some had been camping out... for a few days for a chance to buy a discounted [D.R. Horton] luxury condominium at Port Marluna at Seabridge... unheard of in today's declining housing market. But price reductions of up to $320,000 drew eager buyers. Ten of the 11 condos for sale sold Saturday for [about] $4.8 million, according to a price sheet... Dubbed an "unauction sale," Horton described it as "low auction level pricing" without the hassle. Homes went up for sale on a first-come, first-served basis... Horton's (NYSE:DHI) goal was to reduce inventory at 23 of its communities throughout Southern California."
(Ventura County Star, Feb. 19th)

Hotchkis & Wiley Buys Wachovia Corp., Citigroup Inc., AstraZeneca PLC, Sells Alcoa Inc., Kraft Foods Inc., ScheringPlough Corp. "Value investing team HOTCHKIS & WILEY focuses on... a company's tangible assets, sustainable cash flow, and potential for improving business performance. Similar to many other successful value investors, they have underperformed lately. Q4'07 Buys: Wachovia Corp., Citigroup Inc... National City Corp... First Horizon National Corp., Capital One Financial Corp., Webster Financial Corp... Sells: The Ryland Group Inc. (NYSE:RYL)... Meritage Homes Corp. (NYSE:MTH) during the 3-months ended 12/31/2007." (Guru Focus, Feb. 19th)

"Home Builder Lowers Prices, Neighbors Angry". California: "In one Brentwood community... homebuilder Centex Homes lowered prices on new homes... by as much as $80,000... Upset when the new, less expensive versions of the houses started going up, [homeowner] Rob Kusserow and as many as 20 of his neighbors put out “For Sale by Owner” signs in their yards, trying to scare away anyone looking to buy... Residents want Centex to either sell the new houses at the market price they paid, of refund the difference in price... A local Centex employee said their signs will have to be removed, saying they are also considering a class-action lawsuit." (WKRN, Feb. 18th)

Housing Slowdown Leads Volvo To Expand Testing Facility Near Wittmann. "Arizona's stalling real-estate market has allowed Volvo... to embark on a 20-acre, $25 million expansion at [its] testing facility this month... Around 2000, Volvo officials... thought that encroaching development from Surprise might endanger the privacy needed to run the facility. At that time, Centex Homes received approval to build Fox Trails, a 2,300-unit housing development on roughly 900 acres next to the proving grounds. Now, however, residential development in that area is not expected to start for another five years, and... the city has restricted Centex's development to low-density on the side that borders Volvo." (AZ Central, Feb. 18th)

Dirisio Builders Thriving In The Tough Industry Of Homebuilding. NY state: "Rochester is a unique market in that it is dominated by small custom homebuilders... NVR Homes (NYSE:NVR) is here, but that's about it — everybody else is a company just like DiRisio Builders... We are... just two people... This year so far the phone is just ringing off the hook. We're at a point right now where we're locked into at least the same amount of activity as all of last year. It's just been phenomenal. Interest rates are good and the market here in Rochester is still pretty solid." (Rochester Democrat & Chronicle, Feb. 18th)

Costs, Liability Concerns Slow Railroad Quiet Zones. "Montgomery officials twice studied the creation of quiet zones [for railroad crossings] but never took the plunge because of the price tag. According to a 2006 study, channelization devices at three of the crossings with township roads would cost $238,000, raised medians would cost $437,800 and wayside horns would cost $415,000... In Hillsborough, township officials are moving forward in the creation of four quiet zones at Norfolk Southern rail crossings at Beekman Lane, Auten, Roycefield and Valley roads. The township will use $250,000 from developer Beazer Homes (NYSE:BZH) and $100,000 in budgeted funds for the project, which could take up to a year to complete." (Central NJ.com, Feb. 18th)

Kimball Hill Considers Bankruptcy Filing. "Kimball Hill Homes disclosed on Feb. 14th nearly 30 covenant violations in a 10-Q filing with the SEC and said it was considering a bankruptcy filing... With Houston being its strongest market... the once-stable Texas market has fallen sharply... Kimball Hill [is also] exposed to the Florida, California and Las Vegas markets. Though it has been cutting costs, selling off land, and dropping home prices, in its FQ1... Kimball Hill lost $46 million, more than double its loss in FQ1'07. The company posted $152M in home building revenue, off 36% from last year. Home building gross margins fell to 6.1% of revenue." (Big Builder Online, Feb. 18th)

Home Modular. "The first modular home ‘ever’ to receive the National Association of Homebuilder's Green Award at the Gold level... are, on average, 40% more energy efficient than the standard energy code requirement in the state of FL. A Gold Level Award means if something can go green, it probably is. Like low-water usage faucets and showerheads. "Low E" insulated glass, meaning much of the heat outside bounces off the glass. Low emission paint surfaces. No air leakage... Palm Harbor Homes (PHHM) thinks a home of the future is more than just being green." (Central Florida News, Feb. 17th)

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