After reading an article in the WSJ about home builder stocks it suprised me to see that D.R. Horton has over a 5 year supply of land. To combat their stock free fall they are going to get agressive on pricing. Here is an exerpt from ZACKS earlier this week.
“D.R. Horton (NYSE: DHI – News) reported third quarter earnings of $0.35 per diluted share, inline with our estimate of $0.35, but well below the year-ago level of $0.93. Average selling prices on all orders taken in the third quarter fell 11.5%. The company said it has already implemented pricing initiatives to reduce inventory levels, which in some markets may result in more than a 10% price decline. With nationwide home inventories high, unaffordability low and lending standards tight, we believe price cuts and aggressive incentive use results in continued gross margin pressure. In turn, we have cut our FY07 EPS (fiscal year 2007 earnings per share) estimate to $1.40 from $1.65.”
The other foot is about to drop, over a third of the national builder profits come from California, margins are small in the rest of the country, so where are the new “more than 10% dclines” going to be, HERE.
They have a large development near me that just opened and they look like they are framing all 400 units at once. The other builders have slowed to a crawl of maybe 6 houses every two months per tract, I’m getting giddy about what hundreds of standing new inventory will do to the local market.
The “HERE” was referring to California, where the builders make most of their profits and have the most exposure. Sure, areas that have a lot of construction going on will see the earliest effect but it will come to a neighborhood near you. Areas primarily built or purchased during the bubble will see the earliest action but the wave has started. Two months ago I was on these boards complaining that the price decline were too far from me as well, but wave marched on and now it has hit my neighborhood. This won’t behave like a tornado, selectively driving prices down in specific areas, it will work like a virus and will spread.
The “HERE” was referring to California, where the builders make most of their profits and have the most exposure. Sure, areas that have a lot of construction going on will see the earliest effect but it will come to a neighborhood near you. Areas primarily built or purchased during the bubble will see the earliest action but the wave has started. Two months ago I was on these boards complaining that the price decline were too far from me as well, but wave marched on and now it has hit my neighborhood. This won’t behave like a tornado, selectively driving prices down in specific areas, it will work like a virus and will spread.
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