24/7 Wall St.

Everyone keeps predicting one or more of the large US Homebuilders is going to implode because of their overbuilding and inability to sell new units at their old highly profitable margins.  Most of these have large land bank losses from property options being written off.  inventories are through the roof, no pun intended.  Well, you’ve seen and heard the news.

What we wanted to do was show a list of the old major homebuilders to show how the stocks have sold off over the last year and even how low the market caps have become in the sector.  Dubai has signaled it wants to buy into a homebuilder, and that was before Abu Dhabi injected $7.5 Billion into Citigroup.

Measuring stock price alone is no way to judge, but looking at the sell-offs from the recent highs may be a judge.  Some are down more than 80% from their 52-week highs.

Tick    PRICE        CHANGE            $52-WEEK      MKT-CAP
DHI    $10.23    (-$0.35; -3.31%)  $10.46-31.13     $3.22B   
TOL    $18.12    (-$0.01; -0.06%)  $18.12-35.64     $2.84B   
LEN    $14.08    (-$0.42; -2.90%)  $14.50-56.54     $2.26B   
PHM    $8.92    (-$0.24; -2.62%)   $9.00-35.56        $2.28B   
CTX    $17.93    (-$0.45; -2.45%)  $18.34-58.42      $2.18B   
NVR    $442.59 (+$8.59; +1.98%) $398.96-851.96  $2.27B   
KBH    $18.65    (-$1.00; -5.09%)  $19.61-56.08      $1.92B   
MDC    $32.15   (-$0.40; -1.23%)   $32.49-60.34      $1.47B   
RYL    $19.76    (-$0.26; -1.30%)   $19.97-60.13      $831.58M   
HOV    $6.95      (+0.02; +0.29%)    $6.92-38.66        $432.32M   
BZH    $7.12      (+0.15; -2.06%)      $7.06-48.60        $279.16M

We aren’t going to make a determination yet as to which ones will live and which ones will bite the dust.  Unfortunately you can’t even trust the balance sheets right now because there is simply no way to calculate the off-book transactions, the value writedowns that each will fess up to, and how many of these homes that were juiced-up and sold above market with rebates and incentives that some of the builders will ultimately have to take back at some point in the future.

At least one or some will likely fail.  History would dictate that some cannot survive the malaise if it continues at this rate.  Ultimately, some will thrive after this dust storm settles.  But "ultimately" can be a long ways off.

If you noticed the news this morning you saw a 4.5% decrease in housing prices in Q3 2007 over Q3 2006, and that was after a 2.2% decrease in Q2.  There is no price rebound expected in 2008, and foreclosures are expected to rise as well.

The SPDR S&P Homebuilders ETF (AMEX:XHB) shares are down 0.8% at $17.05 late in the day.

DR Horton (DHI), Toll Brothers (TOL), Lennar (LEN),Pulte (PHM), Centex (CTX), NVR Inc. (NVR), MDC Holdings (MDC), Ryland (RYL), Hovnanian (HOV), Beazer (BZH)……

Jon C. Ogg
November 27, 2008

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