Cancellations up dramatically;
Forecast cut;
Sales down significantly year over year;
Inventory up tremendously.
Beazer Homes USA: said net home sales for the two months ended Aug. 31 fell 49% from the year ago; Their cancellation rate rose to 50% from 26%.
KB Home cut its forecast today;
Hovnanian Enterprises reported a second straight quarter of declining earnings and orders
>
Sources:
Beazer trims 2006 outlook
John Spence
MarketWatch,10:00 AM ET Sep 7, 2006
http://tinyurl.com/f9k5a
US stock futures fall on inflation, housing fears
Chris Sanders
Reuters, Thu Sep 7, 2006 4:53am ET
http://tinyurl.com/fkz7v
barry: your buddy Liesman and the other CNBC bobble-heads keep repeating “real estate only 5% of the economy” even tho we all know that cooler heads have remarked that its various tentacles (not just new building and wages but also consumer confidence/spending from tapping illusory home prices) may have contributed as much as 1% of the recent avg 3% GDP growth rate. so that’s 1/3 of activity. big gap there betw 5% and approx 33%. look out below
Housing demand in our major markets during the second quarter continued to outstrip supply, producing the highest number of net new orders for any single quarterly period in our Company’s history… we are comfortable raising our earnings guidance for 2005 to $9.00 per diluted share.” – B. Karatz, June 16, 2005
“Net orders continued to show strength within our operating regions, providing important evidence of the fundamental health of our business…. a favorable outlook for our markets going forward have led us to increase our 2005 earnings guidance to $9.30 per diluted share.” – B. Karatz, Sep. 22, 2005
“While year-over-year net order comparisons posted double-digit increases in each quarter of the year, our net order growth moderated in the fourth quarter… [however] the strengths within our business, economic factors, including positive job growth and demographic trends in the markets we serve, support our favorable outlook and earnings projection of $11.25 per share for 2006.” – B. Karatz, Dec. 15, 2005
“There are signs of cooling in the hottest markets on both coasts and a shift in investor activity from buying to selling, resulting in less demand and increased supply in certain markets… [but] we feel confident in maintaining our earnings estimate of $11.25 per diluted share for 2006.” – B. Karatz, Feb. 28, 2006
“The country’s current-year home sales will likely fall well short of the record rates we have seen in the recent past as the market works through inventory build-ups, including a spike in investor/speculator resale inventory, higher interest rates and higher cancellation rates… we believe it is prudent to revise our 2006 earnings forecast downward to $10.00 per diluted share.” – B. Karatz, June 16, 2006
“Our earnings expectations for the third quarter and full year reflect an increasingly challenging housing market, where the supply of new and resale home inventories has built up in recent months in markets that have experienced rapid price appreciation or substantial investor activity, or both, in the past few years,” said Bruce Karatz, Chairman and CEO. september 7, 2006
to be continued………
on top of that
KB Home reviewing stock option grants to CEO:KBH43.19, +0.17, +0.4%) is reviewing the stock option grants given to CEO Bruce Karatz, The Wall Street Journal reported Wednesday, citing a company spokeswoman. Outside counsel is helping the home builder with the probe, the spokeswoman told the newspaper. Karatz has received nearly $100 million from cashing out many unusually timed options, the report said, citing regulatory filings it’s reviewed.
he deserves the options…….
http://www.immobilienblasen.blogspot.com/
to scorpio.
in the bubbleday that were the same that hyped every builderbeat and every number from the re komplex because of the huge benefits for the economy.
i´ve stopped watching cnbc since dezember 2005.
the time is much better spent in the blogworld!
http://www.immobilienblasen.blogspot.com/
scorpio-
A 3% growth rate means that the economy is 103% the size that is was one year before. If real estate only accounted for 1 of those 3 percent of growth, then it would be less than 1% of the total economy. I’m not arguing that the 5% is correct, but the logic of your argument is flawed.
The cancellations and reduced guidance didn’t scare me.
The upward revision yesterday in unit labor costs scared me ALOT. That report, combined with CAT announcing price increases, has shaken my belief the FED may not be done after all.
I personally think the renewed fear of higher interest rates is driving the negative action in the HBs as much as anything.
Off the topic, but I just read a good post on CPI / BLS, might be of interest to some folks here:
http://cafehayek.typepad.com/hayek/2006/09/cpi_bias.html
Barry, given what seems the all but inevitability of stocks like these falling significantly, why aren’t you short more? It sounds like you’re pretty much all cash.
I had KBH puts for over a year and made something like 95% on them. I sold when their price/book was getting close to 1 (1.2) and they started to bounce up a little. I had reas that historically, they fall back to around a p/b of 1. But reading more about the continued over-building, and also another opion that predicted their p/b will approach .6, I ‘ve loaded up on puts for KBH, LEN and CTX, all expiring late winter and early spring. And some more for Jan 08 in a taxable account where I hope to hold it for a long term gain.
sw, you’re comparing apples and oranges. there’s a difference between the contribution to gdp growth from real estate and real estate activities – which let’s say for argument’s sake is 1% of the 3%, or 33% contribution – and the size of real estate and real estate related activities as a % of gdp. if the real estate were less than 1% of the total economy and contributed 33% of gdp growth well, it’s obvious, that either real estate is growing exponentially or some of our assumptions are incorrect. and i’d argue the latter.
yes, obviously real estate is more than 1% of the economy. I was trying to point out that its rediculous to say that its 33% of the economy, as scorpio seemed to be claiming. he was comparing “real estate is 5% of the entire economy” to “real estate is 33% of recent growth”.
The homie stocks look washed out and have been unable to make much progress on the downside despite the increasing !%#storm of bad news. I doubt it’s a major turn. But I am becoming a bit nervous about my 4 month-old short position
JMF, that is hilarious. Well, not actually funny but sardonic.
Wayne:
Don’t worry. As long as nobody ever buys another new home again, you will be fine.
Shorting stocks thru book value takes nads the size of basketballs, making trousers an unrealistic option.
Kilts?
You can short stocks past book value if you have good reason to believe that the book value is overstated. The majority of the book value of homebuilders is real estate. So if real estate values are expected to drop, you should expect their book value to drop. Add in the tendency for cyclical stocks to overshoot fair value, and you can easily justify shorting past book value. But you better be prepared for the stock to bounce off book value the whole way down.
S, agreed. ;-)
” I was trying to point out that its rediculous to say that its 33% of the economy,”
Why? It was probably half the jobs created the last 5 years and the totality of jobs say in California.
If you think real estate is such an insignificant part of the economy, please enlighten us as to where the growth in jobs and the economy has been.
These big home-builders suffer from one big problem: they pretty much have to continue to build homes no matter what the environment, even if they do so in lower volumes than they have in recent years. Smaller developers can hang up their hats and wait it out- not doing anything in the meantime. In this way, the larger home builders are a lot like GM and Ford- having to continue in a business when they know full well that the near-term outlook is quite dark. And like the car markers, they probably won’t really react until a couple years have gone by and they are more or less forced to. In the meantime, they’ll sacrifice shareholder value for continuity of operations.
Listening to homebuilders CC’s they refuse to acknowledge that lax lending got us to where we are today. There is/was no bubble and this whole thing is demographically driven.
But when you go onto their websites they are offering homes at 4% for 3 years, or 2% for 1 year…
They know EXACTLY what is going on, they are just hoping the stockholders dont figure it out.
JOE is the perfect short. It’s overvalued and in the real estate space.
Santa Clara Copunty (heart of Silicon Valley) median resale price is -$47K in the last three weeks. Month-end August numbers are rumored to be crash-like.
You can track the figures here:
http://www.viewfromsiliconvalley.com/id125.html
Centex routinely slow paying subcontractors…
WCI was really freaky today, swung 10% in the space of an hour on no news.
imo to really understand what is going on in housing come to florida. unless you drive by it everyday (i see four large counties a month) you can’t begin to comprehend the extent of the overbuilding, a 15 year supply of condos and townhouses going up all at once.
single family is better but still there is too much supply and prices went to far to fast.
condos and townhouses are dead for at least 6 to 8 years.
seen it happen before.
Ryan, if you can short JOE tell me where. I have been trying to short JOE through Etrade and Aderitrade for weeks. It is the god awful weakest company I have seen. But neither of my brokers ever has any to lend.
JOE is not only unavailable to borrow but shares got called in by etrade maybe three weeks ago. This triggered a massive squeeze which pushed it up to 51.
WCI shares have also been unavailable and got called in by scott trade today.
So much fun ‘n games in the day-to-day trading of the Homies, but today was super, extra special…
They (whoever “they” are) usually like to take them up in the first half-hour of trading. Then the sellers hit the bids for a while, and often the shares get a lift from company buybacks throughout the day.
Most of these companies have been buying back stock all the way down. Most of them are borrowing the money to do the buybacks. There’s an irony there. The Homies are borrowing against the homes they haven’t sold, just like their spec customers!
There’s a logic to what the Homies are doing with the buybacks. Everyone knows that book value per share is a joke. But how do they hold it up when they’re walking away from options and the inventory isn’t moving? One way is to buy back shares. Another is to keep prices look like they aren’t falling by disguising the price cuts as incentives and booking them as SG&A costs.
Anyway, the way I see today (and I could be wrong but)…
Today the specialists got hit with an avalanche of selling at the open so they had to take in the inventory, then lift the stocks once the selling subsided, which brought in traders looking to play the bounce. That triggered a lot of short covering that lasted until 2:30 until they ran out of weak shorts and suckers, and the bounce players unloaded.
Throw in options expiration coming up and we can count on a lot more fun like today in the next week. But to get the next leg down kicked off for most of them (MDC started one yesterday, btw) I think we’re going to need some more nasty economic news – the kind that takes the whole market down.
I don’t think we’ve seen the kind of capitulation selling in the sector yet that would characterize a real washout.
In response to …
imo to really understand what is going on in housing come to florida. unless you drive by it everyday (i see four large counties a month) you can’t begin to comprehend the extent of the overbuilding, a 15 year supply of condos and townhouses going up all at once.
single family is better but still there is too much supply and prices went to far to fast.
condos and townhouses are dead for at least 6 to 8 years.
You are not kidding. I live in South Florida (was born and raised) and have never, ever seen anything like the mania of the past few years. As for construction? I just got back from a Caribbean cruise out of Miami. I could literally see 15 cranes from the north side of the ship throwing up condos, and probably another 20 to the west and southwest. I had a post about this on my blog a little while back. Suffice it to say that we are pretty much ground zero for the unfolding implosion. Oh and by the way, inventory in my neck of the woods (While stable to down slightly in the past few weeks) is up 250%+ since last year around this time. Sales have been down about 40%-50% YOY, depending on the month, according to the Florida Association of Realtors. The house across the street from me has been on the market since the December timeframe with several listing price cuts (though IF they sell, it’ll still be for about $20,000 more than they paid back in 2004). The key word being “If.”
With regard to JOE, just buy put options. The implied volatility isn’t that high. Everyone wants to short it but the puts cannot become too expensive due to put-call parity.
per Ryan:
“With regard to JOE, just buy put options. The implied volatility isn’t that high. Everyone wants to short it but the puts cannot become too expensive due to put-call parity.”
I agree that it looks like a classic POS to short and deep ITM puts are priced well, but I get a little nervous about something that everybody wants to short to the point that no shares can be borrowed. I think I’ll wait a month or two and let it bounce to clear things up, as I already have puts on XHB and don’t want to over-commit to a hope. :)
JOE ======
after Thursday’s closing bell said it plans to exit homebuilding in Florida, resulting a reduction in its workforce. In connection with the plan, St. Joe said it expects to take a charge to earnings of about $10.7 million. The charge consists of about $2.3 million for one-time, cash termination benefits to employees and $8.4 million of non-cash charges related to the write-off of capitalized homebuilding costs at several communities. About $9 million of the charges will be recognized in the third quarter, the Jacksonville, Fla.-based real estate operating company said
http://www.pulteplus.com/landing.htm
$ 99,000 Pulte Giveaway and Getaway
It looks like switching from paper products to homebuilding didn’t work out for JOE. That’s a company in search of a business.
Wow. Marty Whitman’s shop was heavily invested in JOE in their RE offering and their value fund according to my recollection. His last shareholder letter was singing their praises. JOE is a huge landholder down their. Back to basics I guess. I wonder what % of revenues are being lost.
while the Housing industry is shot , the Home Builders have re-acted fairly well over the last 6 weeks ….. not sure if they’ve reached their bottom , but almost each one is up — slihtly — over that time frame
any thoughts ??