||Home Builders' Health Improves
America's biggest home builders are posting the largest gains in sales and new orders in years, fueling speculation that the sector is starting to turn the corner.
Although many builders reported continued losses for the first quarter, the losses are narrowing when compared with earlier quarters and the companies are citing a significant jump in traffic. Builder stocks, which have risen 31% so far this year as measured by the Dow Jones U.S. Home Construction index, advanced further amid last week's news, with every major competitor moving higher.
Meritage Homes Corp., based in Scottsdale, Ariz., said that it incurred a first-quarter loss of $4.8 million, or 15 cents a share, compared with a loss of $6.7 million or 21 cents a share, a year earlier. The company also said the number of home-sale contracts closed during the latest quarter rose 12%, while new orders jumped 36%.
"As buyers realize the market is tightening, we are seeing a greater sense of urgency than we have for quite some time," said Steven J. Hilton, the chief executive of Meritage, which saw the strongest quarterly orders since the second quarter of 2009. "The market has clearly turned in a more positive direction, and we are switching over to offense rather than defense," he added during the company's conference call.
Also last week, PulteGroup Inc., based in Bloomfield Hills, Mich., posted a first-quarter loss of $11.7 million, or three cents a share, compared with a year-earlier loss of $39.5 million, or 10 cents a share. While the builder, one of the nation's largest, saw its closings decline, the company's orders climbed 15%.
Ryland Group Inc., which is based in Westlake Village, Calif., reported a first-quarter loss of $5.1 million, or 11 cents a share, compared with a loss of $19.5 million, or 44 cents a share, a year earlier. Closings increased 25% and orders jumped 46%.
Most home builders are seeing orders increase as buyers leave the sidelines: Of the seven large builders that have reported quarterly results recently, the average order increase has been 24%, according to ISI Homebuilding Research. NVR Inc. recently said its orders increased 31% from the prior year, while D.R. Horton Inc., the nation's largest builder, said its fiscal second-quarter orders climbed 19%.
The healthier quarterly results further boosted shares of publicly traded home builders, all of which have experienced double-digit gains this year as investors bet housing is improving. Ryland was recently trading up 13% on the New York Stock Exchange, while Pulte traded up 10%. Shares of Meritage gained 2.9%.
Builders say April's sales were brisk, leaving the companies optimistic that they will report even stronger quarterly results later this year and giving them enough confidence to raise prices in some markets, including those hit hard by the housing crash.
Some analysts say home builders are benefiting in part from low inventories of existing homes, which are being snapped up by investors and foreign buyers, who often pay cash. That has prompted a number of consumers to start considering new homes.
"While foreclosed or other distressed inventory is certainly still a factor in the market, every day it gets a little older and little more run-down," Pulte CEO Richard Dugas said. "With investors often snapping up the best units available, traditional home buyers are likely seeing the remaining units as less of a compelling alternative."
To be sure, some builders are being cautious and waiting before declaring that the market has finally struck bottom, because conditions could easily weaken again. The foreclosure crisis continues to depress prices, while many deals are being scuttled because buyers can't secure funding for a mortgage.
"We are pleased with the start of 2012," Ryland CEO Larry Nicholson said. "Hopefully, this momentum will continue through the second quarter and give us the operational visibility that has been missing in our industry for so long."
(Source: The Wall Street Journal, 04/30/12)
With new-home sales picking up in 2012, the April issue of "The Pitch" features a special section devoted to Real Estate. Download a copy of "The Pitch" by clicking here.