Homebuilders Report Drop in Sales

Discussion in 'Wall St. News' started by S2007S, Jan 10, 2007.

  1. S2007S


    I thought everything was looking better...guess not.

    Homebuilders Report Drop in Sales
    Tuesday January 9, 6:36 pm ET
    By David Koenig, AP Business Writer
    2 Homebuilders Say Orders Fell Late Last Year in Sign Housing Still Sluggish

    DALLAS (AP) -- D.R. Horton Inc., one of the nation's largest homebuilders, said Tuesday its late-2006 sales orders fell 28 percent, dampening sentiment that the housing sector may be recovering from a slump.

    The news was even worse from another builder, Meritage Homes Corp., which said net sales orders fell 42 percent and cancellations hit a record 48 percent.

    Housing contracts and sales of new homes have been falling for about a year after the industry enjoyed an unprecedented five-year boom. Economists and analysts are split about whether the housing market has bottomed. Each camp can cite economic statistics to support its view.

    Fort Worth-based D.R. Horton said it received orders for 8,771 homes worth $2.29 billion in the last three months of the year, compared with orders for 11,463 homes worth $3.17 billion a year earlier.

    Meritage, based in Scottsdale, Ariz., said net sales in the quarter were 1,201 homes totaling $356 million, down from a record 2,072 orders for $723 million a year earlier.

    But Horton also provided a glimmer of hope for those who believe housing is recovering, saying its cancellation rate -- the number of orders canceled divided by gross sales orders -- fell to 33 percent in the last three months of 2006 from 40 percent in the July-September quarter.

    Still, that's about twice the company's typical cancellation rate in the high teens, and Chairman Donald R. Horton said the company was forced to offer buyer incentives in many areas of the country.

    Daniel Oppenheim, an analyst for Bank of America, said the company appeared to suffer fewer last-minute cancelations, indicating it was more flexible in working with buyers who planned to back out.

    Margaret Whelan, an analyst for UBS, said the decline in the cancellation rate indicates that the housing market is stabilizing and buyers are increasingly confident. She predicted that price declines will slow over the coming months.

    In recent years, builders have bullishly bought up land with plans to take advantage of a hot real estate market. But they have retrenched in recent months.

    Last summer, Horton took pretax charges of $199 million to write down the value of land, options to purchase additional land, and pre-acquisition costs.

    Figures that Horton released Tuesday gave clues about geographic differences in the housing market.

    Net sales orders fell in every region, but the decline was sharpest in the Northeast (31.8 percent), the south central states including Texas (29.7 percent), and the West other than California (23.1 percent).

    Despite the slump in sales, average selling prices rose in those three regions. That didn't surprise Delores Conway, director of the Casden Real Estate Economics Forecast at the University of Southern California.

    Conway said builders will offer incentives -- from granite countertops to a free car -- before cutting prices in a development.

    "The price is going to be the last thing to fall," she said. "If they cut prices for new buyers, the previous buyers feel ripped off and they want the price cut too. (Builders) don't do that."

    Nationwide, Horton's average selling price fell 5.4 percent, with the sharpest declines in the Southwest (22.2 percent) and the Southeast (10.2 percent).

    Some areas in those regions, notably Phoenix, Las Vegas, and parts of Florida, had attracted investors who hoped to flip the houses or rent them rather than live in them. Added to the normal traffic of people selling their homes, this led to a glut of for-sale signs that depressed prices.

    Prices edged down 1.9 percent in California, where net orders fell 18.1 percent.

    The company didn't provide cancelations or cancellation rates by region.

    Conway said Horton's report, particularly the slowdown in cancelations, suggested that the housing market is nearing its bottom.

    But the slump could be prolonged, she said, if owners of existing homes who have delayed selling dump their houses on the market this spring.

    D.R. Horton plans to report quarterly earnings Jan. 23.

    Shares of Horton rose 8 cents, to $25.47, and Meritage shares fell 8 cents, to $43.34 in trading on the New York Stock Exchange.
  2. Meltdown city.

    Whoever called a bottom should be forced to eat an asphalt shingle.
  3. Wasnt Bill Gates and some others of notoriety buying homebuilders recently?

    Reminds me when they were shorting the dollar too..
  4. Not even close to getting better, in fact, it will prolly get much worse.

    Those stats that showed new home sales up last few months were off by 20%, and the Gov, which figures new home sales (vs existing which is done by the RE Industry), use commitments to buy, not actual sales. When people back out of a contract to buy, it is still tabulated as a sale. Historical ave is around 19% of the people backing out. That is now running around 38%!. The Gov stats don't take this into consideration, and they even admit it, but say its just a short term blip, so they ignore it! I believe they are just trying to make things look rosy so people will buy.

    Do listen to the builders, especially Toll Bros, which seem to be really honest about the whole thing. Ignore the monthly stats. Existing home sales BTW are based on actual sales.

    A record number of ARM's also adjust this year. And if for some reason we go into recession later this year...CYA real estate. The bottom line is that RE is still WAY overpriced based on historical norms (mortgage/income ratio). This has been stable for decades until creative financing was brought into the picture. Even with the lower rates (30 yr, not ARM's), its still WAY outta whack. One of two things has to happen (its inevitable).

    A) prices remain flat until incomes catch up.

    B) prices come off.

    We are not in a new paradigm. We are growing in population at the same percentage pace as we have for years, etc. Those that argue that the mort/income ratio is outdated are either in the RE industry, or home owners "hoping" their investments continue to rocket. Just think about it. If prices start spiking up again, who will be able to afford a home? There is a record number of foreclosures now because people were extremely stretched to afford house payments even with ARM's.

  5. thats because this is a DEBT BUBBLE... not just a real estate bubble.
  6. S2007S


    he was buying them all up, it was announced about a month ago he was investing in homebuilders. I think it was a foolish move. Its not over yet, looking for another 5-10% drop in housing prices by the end of 2007. Homebuilders have not seen bottom yet either. Most of these stocks I believe are ready to fall again.
  7. S2007S


    Construction jobs being lost on a daily basis, if unemployment starts to trend up and the economy ends up in a recession sometime in late 2007 forget about housing coming back for 3-4 years...

    and to think Alan Greenspan said it was over...:p
  8. I agree completely, and its not just a jobs issue. Americans are no longer using their home equity as ATM's. Half the luxury cars out there were financed by home equity loans.

    Guess what has been driving the economy the past few years? There is always some lag time, but late 2007 could get ugly. And if we go into recession, so does China. You think the commodity sell off is a big deal now? Just wait.

    This is all hypothetical, but I believe it will happen to some degree. However, I am not quite in the camp with the guy from ecomomy.com (Zandi). He sees a full on crash.
  9. S2007S


    No one sees it. With housing prices falling the use of taking any cash out of these houses is now extremely limited.