Quote of the Day
“You move from an expansion mode to protecting your balance sheet immediately. Then you hunker down, build up your cash, wait for the blood in the streets and take advantage of the opportunities.” – Toll Brothers CEO Robert Toll, on how he's dealt with past housing downturns, and the current one.
Signs of an Upturn in Luxury Market? “In discussing the company’s $96-million first-quarter loss, Toll Brothers CEO Bob Toll (NYSE:TOL) told analysts that constant talk about recession is dampening consumer confidence, though he pointed to “glimmers of hope” in a few markets, including Naples. Overall, Toll says his company, the nation’s 12th-largest home builder, is in “pretty good shape” to weather the downturn with a $2.15 billion cash cushion and lines of credit.”
Jockey Club In Oceanport Is Half Sold Out After Nine Months. New Jersey: “Half of the homes in a community of high-end, energy-efficient homes in Oceanport are already sold after just nine months. K. Hovnanian's Jockey Club, a community of 44 active-adult homes, opened in July. Rob Hofmann, area VP for K. Hovnanian Homes (NYSE:HOV): "Recent increases in mortgage rates are creating a sense of urgency." Hofmann said K. Hovnanian has several programs that make it easier to purchase a home, including special mortgages and its From Your Home to Ours program that helps home buyers market their current home.”
New Jersey Builders Put Up A Good Front. “Doug Fenichel, K. Hovnanian's marketing chief: "We sold 100 homes in New Jersey, New York and eastern Pennsylvania on President's weekend. And we did it with a very small incentive, offering the public the same discount we offer our employees. In most cases, that was only 3%." Fenichel added that his company has demonstrated for several months that the buyers are out there... Their President's weekend sale attracted 900 potential buyers in New Jersey alone. Because of this, he said, K. Hovnanian is confident that the company can phase out its extra marketing incentives this spring.”
FALLBROOK: Homeowners Upset By 'Downsizing' Plans. “San Diego: Homeowners in the new Shady Grove subdivision said Friday they were concerned that their upscale houses will plummet in value if the developer KB Home (NYSE:KBH) is allowed to shrink the size of most of the homes that are still in the planning stages… KBH plans to substitute smaller floor plans for many of the homes they are trying to sell in the proposed 101-home development... The company has already sold about 20 of the original models, which range in size from 2,250-3,400-sf. The latest proposal calls for models of 1,690-2,275-sf on most of the remaining open lots.”
Housing Market In Visalia Heats Up — In This One Spot. “California: In southwest Visalia Friday afternoon… Six Visalians waited to snag home lots in Impressions at Westpark, a Centex Homes (CTX) development. The lots were to be released at 10 a.m. Saturday… Base-plan prices range from $170,000-$215,000… The builder has been releasing lots in its various southwest neighborhoods every 30 days. The last two times, only five lots were released to new buyers — and lines formed both times.”
McMansions Getting Downsized. “Census Bureau: The median size of a new, 2007 single-family home reached 2,248-sf, up from 1,560-sf in 1974. In Q1’08, the median home size [reached] 2,302-sf. But slipped to 2,241-sf in Q2… A broader decline may be in the offing. Jeffrey Mezger, CEO KB Home: The average newly built KB Home today is 2,200-sf, 200-sf less than before the shift in sentiment took hold… Centex Corp. is scaling down the size of its homes or their amenities in some of its developments... Kira McCarron, Toll Brothers chief marketing officer, [said] there "probably is more demand for 3,000- versus 6,000-square-foot," homes.”
Homeowners Find Incentives To Build Despite Soft Market. Wisconsin: “Craig Vermeulen, director of sales and marketing for William Ryan Homes Wisconsin: "We've reduced our base pricing -- anywhere from $25,000-$50,000 -- to be more competitive… Even in its new $175,000-to-$250,000 price range, William Ryan Homes sees lots of homeowners fretting about the chances of getting their old places sold. In response, the homebuilder is introducing two new offers: They will apply price discounts to an escrow fund dedicated to a buyer's existing-home mortgage payments or will guarantee purchase of the buyer's old place, to a third-party investor if need be.”
Baby Boomers Look For Change In Housing Market. “One housing trend is predicted to boom: re-urbanization. Although the conventional American dream — a suburban house with property — remains strong, an increasing number of baby boomers are looking toward a different model: a close-knit community that’s walkable and convenient… Surveys conducted throughout the country show significant preference for new urban options such as walkable town centers versus sprawling shopping centers, a sense of community versus a sense of privacy, and a place where kids walk to school versus being driven to a regional school. The Conservation Fund in Atlanta reported that respondents in their survey picked new urban options by margins ranging from 71%-78%.”
KB Home Swings to 1st-Qtr Loss. “KB Home says it swung to a loss in FQ1 as the homebuilder took a large write-down amid the worsening housing crisis. KBH lost $268.2 million, $3.47/share, in the quarter ended Feb. 29. It earned $27.6M, or $0.36/share, a year ago. The latest period includes a charge of $223.9M in write-downs related to falling home prices. The loss is larger than $1.17/share analysts expected. Revenue dropped 43% to $794.2M from $1.39 billion last year. The average selling price fell 7%.”
KB CEO "Not Pleased" With Results. “KB Home CEO Jeffrey Mezger: The nosedive in new orders [in Q1] was linked to the company's strategy to hold pricing steady in an effort to preserve margins… With that strategy backfiring… management moved quickly in February to reposition some communities… leading to some price cutting that… was rolled into $223.9 million in pre-tax impairment charges on 88 projects. The charges shrunk gross margins to--6.2%... CFO Dom Cecere: Roughly $36M or 16% of KBH’s impairment charges were related to unconsolidated JVs… The company's total investment in JVs at the end of the quarter was approximately $281M, down from $413M a year ago.”
Broken Home Market For U.S. Homebuilders. “KB Home CEO Jeffrey Mezger: "It is likely to take some time for the market to absorb the current excess housing supply and for consumer confidence to improve. Until prices stabilize and consumer confidence returns, we believe inventory levels will remain significantly out of balance with demand. Stuart Miller, CEO of Lennar (NYSE:LEN): "Concurrently, lower consumer confidence has quieted demand among prospective home buyers and deterred them from a buying decision, while contraction in the lending markets has reduced the availability of credit for those prospective home buyers that do wish to buy a home."
Developers Seek Relief In State-Land Deals. “Developers who purchased land in northeast Phoenix's Desert Ridge area when times were good are seeking relief from the terms of their purchase from the Arizona State Land Department. Meritage Homes (NYSE:MTH) bought a 288-acre parcel between 56th and 64th streets for $92.2million in July 2005. It was reported in December that the company was attempting to change its payments... Toll Brothers is seeking relief for the 81-acre parcel it purchased for $19.7M in April 2006. State Land Commissioner Mark Winkelman: The department is limited in what relief it may provide. It can defer interest payments, or postpone infrastructure requirements.”
Big Home Builders Launch Solo Lobbying Effort. “Fifteen members of the National Homebuilders Association’s High Production Homebuilders Council… like KB Homes, Toll Brothers, Pulte Homes and Centex Corp — have struck out on their own in pursuit of aid and incentives… The builders… are seeking an expanded tax loss carryback program, which would effectively let them pare their current losses with previous years’ boom profits, resulting in a tax refund… Lobbyist C2 Group: The council members [didn’t] work through the NAHB [partly to disassociate themselves from] the association’s February announcement that it was cutting off Congress from its PAC money until Congress did more to stem the housing market collapse.”
Upscale Condos On Auction Block. “Earlier this year, Eight Orchids was marketed as an upscale, Asian-influenced part of the revitalization of Oakland's Chinatown. Developed by BayRock Residential, the 157-condominium project, priced the 770- to 1,645-square-feet homes starting at $550,888. Now the developer will start auctioning 41 of those condominiums at $245,000 on Sunday… Earlier this year, Lennar and Pulte Homes sold off condominiums in Benicia and San Pablo, respectively. DataQuick Information Systems: In the 94607 ZIP code, four new homes sold ranging from a low of $374,000-$518,000, most likely condominiums. On Trulia.com, a 1BR/1 bath resale condominium at Eight Orchids had an asking price of $349,888.”
Group Faces June Deadline To Raise $5 Million For Tahoe Landmark. “The Thunderbird Lodge Preservation Society is facing a June 1 deadline to raise $5 million in order to help keep the historic Lake Tahoe property open. Pulte Homes has agreed to permanently forgive a nearly $10M note and convey its interest in the property to the nonprofit preservation society [if] the deadline is met. The $5M would go toward an endowment fund designed to produce $300,000/year in interest to maintain the east shore lodge… Pulte acquired the property's former owner, Del Webb Corp., in 2001… Under terms of the Pulte gift, no money will be paid to the company.”
A Window of Opportunity for Pulte Homes and Housing Stocks? “Within the housing sector, Pulte Homes (NYSE:PHM) is an out-performer. While the (NYSEARCA:XHB) has bested the SPX on year-to-date basis, PHM has blow both out of the water. Since January, shares of the housing specialist have jumped more than 36%, outperforming the SPX by 51 percentage points during the past 60 days. Furthermore, the shares have found support at their 10-week and 20-week moving averages. PHM is currently pulling back to the former of these intermediate-term trendlines, and could use it as a springboard from which to move higher.”
Centex to Offer Custom Homes At Sullivan Ranch. Florida: “Centex Homes last week announced it would offer sites for custom homes at its residential development in Lake County. Centex has 30 available sites at Sullivan Ranch, located near the intersection of State Road 46 and Round Lake Road in Mount Dora, ranging in price from $99,000-$200,000. The subdivision is slated for 600 homes on 300 acres. The company would not release the estimated value of the project.”
Lennar Loss Is Smaller Than Expected; Shares Rise. “Lennar Corp reported a quarterly loss on Thursday as deliveries of new homes and new orders tumbled, but the results were not as bad as expected... The net loss came to $88.2 million, or $0.56/share, in FQ1 ended Feb. 29, compared with a profit of $68.6M, or $0.43/share, a year earlier. Analysts on average had expected a loss of $1.15/share.... The results included a charge of $0.38/share for valuation adjustments and write-offs… Lennar said FQ1 deliveries fell 60% to 3,596 homes. New orders sank 57% to 3,045, but the cancellation rate improved to 26% from 33% in FQ4. Revenue dropped 62% to $1.1 billion.”
Toll Brothers Credit Rating Under Review For Possible Downgrade. “Moody's Investors service said Thursday it's… placing all of the Toll Brothers ratings under review for a possible downgrade, including some senior unsecured debt that is one step away from junk status. Moody's is also reviewing subordinated debt that currently carries a junk bond rating of Ba2. Lower credit ratings make it more expensive for a company to borrow money. Moody's said Toll's inventory levels have been declining [more] slowly than the rest of the industry. [It] also pointed to Toll's exposure to mid-rise and high-rise buildings, [and] will consider Toll's “worst case” exposure on joint ventures with other builders.”
D.R. Horton Most Volatile in Sector. “As the quarter winds down, homebuilder D.R. Horton Inc. (NYSE:DHI) is the most volatile stock in the consumer discretionary sector of the S&P 500 index. The stock has an average "beta value," or measure of volatility, of 1.61, which implies that, in theory, it is 61% more volatile than the market in general.”
D-FW Slashed Starts in 2007. “Residential Strategies Inc.: Overall, starts by the 10 biggest Dallas-Fort Worth homebuilders dropped by more than 40% in 2007 compared with 2006… D.R. Horton Inc., the lead builder in North Texas in 2006, chopped its starts in 2007 by 57%– from more than 4,800 to fewer than 2,100 units last year… Centex Corp., which topped the builder list in 2007, reduced its starts almost 30% to 2,170 homes… Lennar Corp., which started almost 3,000 homes in Dallas-Fort Worth in 2006, began only about 800 last year, a drop of more than 70%... K. Hovnanian Homes [however,] trimmed local starts less than 20% in 2007.”
WCI CEO Home for Sale. “WCI Communities (WCI) CEO Jerry Starkey has put his six-bedroom house in Naples for sale at $14,250,000. The canal front home in the tony Port Royal neighborhood has been for sale only about three weeks… Starkey paid $1.9 million for his property in December 2003, according to Collier County property records, which values the house — built in 2005 — at $9,518,080.”
Home Builders Realize Best Incentive For Buyers Is Bottom Line. “Forget trips to Hawaii, luxury cars and 50-inch plasma screen televisions, now builders know the only incentives that work for buyers are cheaper homes and smaller monthly payments. Vickie Nyland, Taylor Morrison division president of the Bay Area: "In the core Bay Area market, they're really buying a monthly payment." Jonathan Dienhart, director of Published Research at Hanley-Wood Market Intelligence: "Builders aren't interested in making money on deposits. But once the home is closed and the buyers have moved in, that's where the deal ends. ... It's just an incentive to stave off cancellations."
Lennar CEO Downplays JV Exposure. “[On] Lennar's FQ1 balance sheet... the metrics the company has little control over were abysmal, although better than Wall Street expected by nearly half: It lost $88.2 million (including $107.1M in land valuation impairments and adjustments), its revenues fell 62% to $1.1 billion, and its new orders fell by 57% compared to FQ1 of last year... But it has $1.1B in cash on hand, owes nothing on its credit facility, and its total debt to capital is a low 38.2% with net homebuilding operations at 24.5%. In addition, it has raised its gross margin on home sales up to 14.3%.”
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