Builders Losing Money

From today's Tampa Tribune, more bad news from the homebuilding industry.

'U.S. - home builders, stuck with more than 500,000 unsold houses, may report the lowest earnings in five years because a rebound in the real estate market is too little too late to save 2007 sales.

Net income at D.R. Horton Inc., the industry's largest company, may plunge 60 percent in fiscal 2007 to $498 million, the worst since 2002 when the domestic economy was recovering from the slowest growth in more than a decade. The average drop in annual profits at America's four biggest home builders probably will be 55 percent, according to analysts surveyed by Bloomberg.

"The demand side of the market is stabilizing, but it doesn't mean that all of a sudden construction is going to be off to the races," said Michael Darda, chief economist of MKM Partners in Greenwich, Conn. He cited a 3.4 percent gain in new-home sales in November from the previous month.

New-home sales fell 18 percent in 2006 to 1.05 million, the biggest contraction since 1990, after median prices rose 41 percent in five years, making them unaffordable for many buyers, said David Berson, an economist at Fannie Mae, the largest mortgage buyer.'

But there's light at the end of the tunnel. Well, at least according to these guys.

'Sales will rise to 946,000 homes at an annualized pace in the third quarter and gain until at least the second half of 2008 after falling to a five-year low of 942,000 in the second quarter, the Chicago-based National Association of Realtors said last week.

Freddie Mac, the second-biggest mortgage buyer, and Mortgage Bankers Association predict more housing demand in the second half of this year. The National Association of Home Builders in Washington projects new-home sales will gain in every quarter of 2007.'

Lennar, which made a BOATLOAD of money over the past 5 years, has a different take.

'Stuart Miller, chief executive officer of Miami-based Lennar, the fourth-biggest U.S. home builder, isn't as optimistic.

"Market conditions continued to weaken during the fourth quarter and we have not yet seen tangible evidence of a market recovery," Miller said on Jan. 2. Lennar reported its first loss in more than a decade in the fiscal fourth quarter, which ended Nov. 30. Analysts believe Lennar's earnings will fall 51 percent in fiscal 2007.'

And remind us again - how has homebuilding affected overall economic growth in the US?

'New-home sales bottomed in the fourth quarter at an annual rate of 970,000, sliding from an all-time high of 1.3 million in 2005's third quarter, Berson said. The construction slump helped to slow U.S. economic growth in the fourth quarter to an annual rate of 1.6 percent, down from 5.6 percent in the 2006's first quarter, he said on Dec. 20.

Buyers canceled contracts to purchase homes at a record pace in the second half of 2006, swelling builders' inventories. Measured in terms of how long it would take to sell off the existing stock, inventory stood at 6.3 months in November, down from 7.2 months in July and up from 4.9 months a year ago, according to the Commerce Department.'

And my personal favorite: a tale of couple who smartly waited things out, and got a killer deal. My question is: could the price they paid still be undercut in years to come?

'That means buyers like David and Wendy Butler of Orlando are able to purchase an already-completed new home at a discount rather than ordering one and waiting for it to be built. During the five-year real estate boom that ended in 2006, that option was rare.

The Butlers are purchasing a four-bedroom, 3,700-square- foot house in Orlando built by Ashton Woods USA LLC for $545,000. The same home was listed at $768,000 three months ago, David Butler said. Nationally, the median home price probably will slide 5.4 percent in the current quarter to $231,700 from $244,800 a year ago, according to forecasts from Fannie Mae.

"People were saying the average homes in this neighborhood would be $1 million-plus, but there's so many homes on the market the prices have been tumbling," said David Butler, 45. "It's incredible really. All of a sudden, it's time to buy."'

I don't know why they titled this article, "Builders See Deep Losses In Spite Of Rebound". What rebound? To 1999 levels?


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