Homebuilder News: FBI Investigates Incentives [Housing Tracker]

by: Judy Weil

Quote Of The Day 

"They didn't care what you did with the money as long as the buyer paid the price they wanted for the house.” - Kurt DeWinter, a Henderson, Nev., agent, on the $70,000 commission he received from Beazer Homes (NYSE:BZH) for selling a $550,000 home two years ago. DeWinter also says he received a $50,000 incentive from the builder to buy his own $500K house, which is now in foreclosure. (WSJ, Aug. 16)

Homebuilder Stocks

Home Sales Increase As Prices Tumble. “The Las Vegas housing market in July…  posted the most home sales since September 2005… The seventh consecutive month home sales increased… Others are buoyed by the upswing in sales, but are tempering their enthusiasm on the pace of the recovery. The new-home market remains at its bottom in terms of sales, and two major local builders, KB Home (NYSE:KBH) and Pulte Homes (NYSE:PHM), announced last week another round of layoffs. The local economy remains weak and… the availability of credit for potential buyers remains a concern.” (In Business Las Vegas, Aug. 18)

Investors Embrace Covenant-Dodging Bonds. “Bonds issued by Hovnanian Enterprises (NYSE:HOV), Ply Gem and Nortek to pay off loans have all moved upward recently, despite the homebuilding-related companies' implied leverage ratio issues. Hovnanian's 11.5% '13 bonds were trading at 102-103 Thursday, up from 101 1/2-102 1/2 a week earlier... All the bonds were issued in May or June and proceeds were used to pay off the companies' bank debt, releasing the companies from the loans' restrictive covenants. The maturities on the bonds are five years, to make them more closely resemble the loans they replaced, but they have much higher interest rates.” (Credit Investment News, Aug. 18)

Tax Credit Stirs Interest, But What About Sales? “More than 18,000 visitors logged on to a NAHB Web site about the tax credit… in each of the first two days after the site was posted… The builders' group is planning a consumer-awareness campaign to get the word out about the tax credit, and builders are putting it into their sales programs… Centex Homes (CTX) CEO Tim Eller told analysts… that his company is looking for ways to take advantage of the government's largesse. Pulte Homes said last week it would match the credit, dollar for dollar, until Sept. 15.” (Chicago Tribune, Aug. 17)

FBI Probes Unusual Incentives for Home Buyers “When home sales began to slow at the start of the downturn, homebuilders offered buyers incentives -- instead of reducing prices -- to stimulate demand. The incentives included cars, tuition and credit-card payments, and even cash. Now, federal investigators are… looking into allegations that homebuilders, brokers and appraisers defrauded lenders by not disclosing unusually large incentives to buyers, which could have added as much as $100,000 to the price of a home… Centex’s Las Vegas division paid off car loans, credit-card bills and mortgage payments on existing homes to entice new buyers on homes priced between $350,000-$550,000. Those payments weren't always disclosed to lenders.” (WSJ, Aug. 16)

Kitchen And Bath Expo Held Sunday At Toll Brothers’ Communities. “Florida: Toll Brothers (NYSE:TOL) is hosting a kitchen and bath expo Sunday that will feature upgraded packages at no additional cost. “During this event we will be highlighting some of the newest kitchen and bath features available and offering special upgrades to new home buyers,” said Ken Thirtyacre, division president for Toll Brothers Florida West Division… Upgraded features offered include granite countertops, customized cabinetry, stainless steel appliances, under-cabinet lighting, glass block window and dual showerheads in the master bath.” (Naples News, Aug. 16)

Seniors Camp Out For Home Sites. “Senior citizens have been camped out in their cars since Thursday to buy the lot of their choice today, when a new section becomes available at Greenbriar Oceanaire Country Club and Golf Course. In a bad housing market, the response was remarkable because the new homes in this gated community are priced from $369,950-$437,950. Those prices do not include the cost of the lot or the monthly homeowners association fee. Developer Lennar (NYSE:LEN) is offering 55 home sites this morning, including 25 along the 18-hole championship golf course, and some on a cul-de-sac. More than 900 homes have been sold at the 1,400-home adult community.” (Asbury Park Press, Aug. 16)

Traders Remaining Guarded On Futures of Home Builders. “Home-builder stocks have posted decent gains since mid-July, but options traders appear less convinced of a bullish trend going forward… Trading in Toll Brothers [options] jumped to four times the normal level, with investors picking up 29,000 calls that allowed them to buy the stock and 7,000 puts that allowed them to sell it. While the call-to-put ratio suggests bullish positioning, several traders [sold] August calls before they expire on Friday. And other traders unloaded the longer-dated September contracts, specifically $22.50 calls, hoping Toll does not pull above that level before September 19… Trading in Lennar also surged, with investors picking up 2,000 calls and 17,000 puts.” (WSJ, Aug. 15)

Nancy Graham's Lennar Question. California: “When Nancy Graham arrived at the Centre City Development Corp. in December 2005, Lennar Corp. was working downtown to build Breeza, a 158-unit condominium project at Pacific Highway and Ash Street. CCDC had already approved the project; construction began soon after in early 2006. When she filled out her annual conflict-of-interest forms, Graham never disclosed receiving any income from Lennar, a company that had been a former business partner. CCDC executives are required to report their income, investments and positions in any business doing land development or construction downtown.” (Voice of San Diego, Aug. 15)

Home Builder Shuts Down Project. “Kern County: “K. Hovnanian Homes has decided, over the next several months, to indefinitely suspend construction activity at Rosemary Arbor and Lantana's Edge.” Homeowners who already live in the community say they expected to see the project finished… Local real estate expert Gary Crabtree says this builder's construction shut down does not come as a shock to him… New home sales are down 63% from this time last year. "Well, at this point in time there is no demand. There is a tremendous amount of foreclosures and the homeowners are opting to buy the foreclosures.” (KGET, Aug. 15)

BMHC Posts $32 Million 2Q Net Loss. “Building Materials Holding Corp. (BMHC) reported today a Q2 net loss of $31.9 million… a 6% improvement from Q1 but a swing from the $19.4M profit reported in Q2’07. Sales decreased 41% from the year-earlier period to $385M… Sales of building products fell 29% in Q2  from the year-earlier period, while construction services sales sank 51%. Gross margins shrank in the face of competitive pressures.  The company recorded $14.3M worth of impairments... BMHC said it expects its cutback initiatives will reduce its administrative expenses by $20M-$25M million over the next year.” (Builder Online, Aug. 15)


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