Housing Market Tracker - Homebuilder Rally: Prescient Markets or Desperate Investors?

|
Includes: CAA, CTX, DHI, KBH, LEN, MDC, PHM, RYL, TOL
by: Judy Weil

Quote of the Day

"I think (new home) starts have already pretty much bottomed out. I think the housing market this spring will begin its recovery phase." – Billionaire real estate investor Sam Zell, who sold his Equity Office Properties to Blackstone last year at what turned out to be the peak of the commercial real estate market. (Forbes, Feb. 26th)

Homebuilder Stocks

Homebuilders In A Building Mode. "Since Jan. 9, when the homebuilding index hit a low point, homebuilding stocks have bounced more than 50% higher – proving that the equity market is always several months ahead of things, or that investors are just plain desperate. These are impressive rallies, made more so by the fact that the news surrounding homebuilders is still awful... Earlier this month, Lennar (NYSE:LEN) and KB Homes (NYSE:KBH) were among the most heavily shorted stocks on the S&P 500... These short-sellers might now be reversing their positions, giving the stocks an additional lift." (Globe & Mail, Feb. 27th)

Toll Misses, Sees Glimmers Of Hope. "Number-one U.S. luxury homebuilder Toll Brothers (NYSE:TOL) posted a $0.61/share loss, exceeding the -$0.44 expected by analysts. The loss included a $245M writedown, net of which Toll earned $0.35/share. Net contracts signed fell 50% to $375M; backlog fell 42% to $2.4B. CEO Robert Toll was again critical of the media's relentless 'drumbeat' recession talk, which he said dampens consumers' moods and keeps them from buying. Toll said selling remains weak, but that it sees a few "glimmers of hope." (Eli Hoffmann in Seeking Alpha, Feb. 27th)

Builder Set To Abandon Valley Lots. "A Scottsdale, Arizona homebuilder is in foreclosure on empty lots it owns in four master-planned communities across the Valley. As a result, homeowners in those unfinished developments could be staring at a barren landscape for another 3-5 years instead of the year to 18 months originally expected. Randall Martin Home, a company that formed in 2005 at the peak of the Valley's housing boom, bought property in Surprise's Marley Park, Avondale's Roosevelt Park, Chandler's Dobson Crossing and Gilbert's Higley Park between 2005-2007. On Tuesday, the company announced that it would abandon those investments, allowing its lienholders to take over." (AZ Central, Feb. 27th)

Earnings Preview: Toll Brothers. "Banc of America upgraded Toll Brothers shares in early February to a Neutral from a Sell. The firm cited the improving affordability of new homes, driven by reduced prices and mortgage rates, as a key reason for the upgrade. Banc of America expects the increasing affordability of homes to trigger a rebound in demand over the course of 2008." (Fly on the Wall in Seeking Alpha, Feb. 26th)

Home-Building Shares Up On Buyout Rumor. "Shares of U.S. home builders rose on Tuesday on rumors that a group from the United Arab Emirates has offered to buy Lennar Corp (LEN), the second largest home builder, and on upbeat remarks by real estate tycoon Sam Zell, analysts said. Goldman Sachs Group Inc (NYSE:GS) was rumored to have been hired as the investment banker for the deal, Buck Horne, an analyst with Raymond James and Associates, said of the rumor posted on theflyonthewall.com." (Reuters, Feb. 26th)

Standard Pacific Plans to Raise $600M. "Homebuilder Standard Pacific Corp. (SPF) plans to raise up to $600 million, the company said in a regulatory filing Tuesday. Proceeds could be used to repay debt, buy or develop new homes or for a possible acquisition of another homebuilder’s operations... The company could issue debt or stock to raise money, it said.... Standard Pacific, which counts a market value of about $350 million, has been working to address its debt issues as of late." (Orange County Business Journal, Feb. 26th)

Pulte Homes Sees Pretax Loss For 2006-8 Period. "Pulte Homes Inc (NYSE:PHM), the No. 3 U.S. home builder, said on Monday that due to the continued downturn in the homebuilding industry during 2007, it "anticipates being in a three-year cumulative pretax loss position during the years 2006 to 2008". Pulte gave its forecast in a filing with the U.S. SEC." (Reuters, Feb. 26th)

North Metro Police Report. "Blaine, Minnesota: Feb. 8: Threats. A real estate agent for Pulte Homes reported that he sold a house to a couple, but the couple hasn't closed on the sale yet. Now the couple wants out of the agreement, but Pulte Homes will not allow that. The agent told police that the woman gets emotional and makes vague threats while the man states that he cannot control what his girlfriend does." (Star Tribune, Feb. 26th)

Builders Offer Buyers Smaller, More Affordable Home Options. "California: KB Home will add two new scaled-down models to its new Antioch development, Almond Ridge, that will range from the low-to-mid-$300,000s. "Our business model focuses primarily on the affordability and combines the whole idea of value to the customer," said Marc Burnstein, VP of sales and marketing for KB Home, South Bay Division, which includes the East Bay. "The average homes size was 2,700-sf and now it's about 2,100-sf." Home buying has slowed and builders are responding with smaller, inexpensive models aimed well below the $417,000 conforming loan limit to maximize the number of buyers." (Inside Bay Area, Feb. 26th)

Council To Mull Proposal For Land On Rollingwood. "California: KB Homes goes before the Vallejo City Council tonight to seek approval for its 214-unit subdivision on land along Rollingwood Avenue... The subdivision is slated to contain two housing types - homes ranging in size from 1,942 to 2,248-sf, and smaller higher-density homes with garages at the rear and private alley access roads." (Times Herald, Feb. 26th)

No Bonus For Lennar CEO. "Homebuilder Lennar president and CEO Stuart Miller earned his perennial $1 million in salary for 2007, but he received no bonus (after a $4.7M bonus in 2006 and a $21.8M bonus in 2005) and he forfeited almost $10M in restricted stock because the company failed to turn a profit last year. Miller didn't get any restricted stock in 2006; The Miami Herald calculated his 2006 compensation as $9.16M. Miller consistently ranks as one of South Florida's highest paid executives. But that is in jeopardy after a year in which Lennar lost $1.9 billion and it shares sank about 70%." (Miami Herald, Feb. 26th)

MDC Holdings CFO Paris Reece to Retire. "M.D.C. Holdings Inc. (NYSE:MDC) said Tuesday that after 20 years with the company, CFO Paris G. Reece III will retire on June 30... Reece has been with M.D.C. for 20 years. He will serve as a consultant for up to 18 months. Shares rose $1.35, or 3.1%, to $44.76 in morning trading. Earlier this month, the company reported a larger fourth-quarter loss, a casualty of the growing housing market slump. MDC has cut operating divisions by half from peak levels two years ago in an effort to lower costs as sales slide." (CNN Money, Feb. 26th)

Reports Reflect Bleak Housing Picture. "Matthew and Shiela Pryor initially wanted to list their Durham, N.C. home for $250,000. But after checking what other homes sold for in the area recently, their real estate agent recommended $233,000 — the same price they paid for it in June 2006. Sheila Prior: "It was less than what we were hoping for, but renting it out wasn't financially viable either so we decided to sell it anyway." She's optimistic that they can sell the house within six months, but worries about the competition from KB Home, which is selling new houses in the area at discount prices." (Associated Press, Feb. 26th)

D.R. Horton CFO Wheat Exercises Options. "The CFO of D.R. Horton (NYSE:DHI) Inc., the nation's largest homebuilder, exercised options for 39,645 shares of common stock, according to a SEC filing. In a Form 4 filed with the SEC Friday, Bill W. Wheat reported exercising the options for the shares Thursday for $5.01 to $6.08 apiece and then selling 24,718 of them the same day for $16.01 to $16.13 apiece." (CNN Money, Feb. 25th)

Zacks Analyst Interview Highlights: D.R. Horton and The Ryland Group. "[Homebuilder] book values have further to fall before they adequately reflect the current condition of the housing market. In the near-term, we see few glimmers of hope for builders such as D.R. Horton or The Ryland Group (NYSE:RYL). The U.S. stimulus package contains higher mortgage limits for FHA and FNMA (Federal National Mortgage Association). While we expect the higher conforming loan limits to narrow the spread between Jumbo and Conventional fixed rate mortgages to around 50 basis points from the current 100 basis point spread, home affordability remains low and fear of further price declines are expected to keep buyers on the sidelines." (Fox Business, Feb. 25th)

Centex Townhome Project Bridge Mill Progresses. "Centex Homes (CTX) is opening its new 103-unit townhome development to "priority interest list" as land development for the project continues... Bridge Mill at Providence located in Mt. Juliet will offer three-bedroom brick homes from the $130s. Homebuyers will have four floor plans to choose from - all with garages." (Nashville Business Journal, Feb. 25th)

Sacramento County Sues Home Builder Over Missing Trees. "Sacramento County has sued embattled homebuilder Reynen & Bardis for failing to replace 500 mature oaks it cut down to make way for houses in Rancho Murieta. The county's lawsuit... adds to the legal and financial troubles facing Reynen & Bardis, which just a few years ago was aggressively buying land in the Central Valley but is now struggling to survive. The local company has stopped building houses and laid off half its employees." (Sacramento Bee, Feb. 25th)

Centex Offers Guard-Gated Living At Ardiente In North Las Vegas. "Ardiente, a guard-gated, age-qualified community in North Las Vegas, has been included in Where to Retire magazine's 2007 list of America's 100 Best Master-Planned Communities... The community offers single-story homes measuring from 1,235-2,813-sf, with 2-4BR and 2-3 baths. Prices start in the mid-$200,000s." (Las Vegas Review Journal, Feb. 24th)

Jim Walter To Close 36 Offices: The Homebuilder's Roanoke Sales Center Is Among Those Affected By The Restructuring. "Walter Industries (NYSE:WLT), the parent company of Jim Walter Homes is closing nearly half of its sales centers, including its Virginia locations in Roanoke and Richmond. Officials of Florida-based Walter Industries said... that it will undertake a major restructuring of its financing and homebuilding business. Part of that restructuring includes closing 36 Jim Walter Homes sales centers. Officials said lowering expenses by at least $26 million will offset lower sales." (Trading Markets, Feb. 24th)

Get Seeking Alpha's housing market coverage by email -- it's free and takes only seconds to sign up.