Homebuilders: Scant Good News [Housing Tracker]

Quote Of The Day 

"It's impossible for us to keep up with the number of communities that are coming and going in our business activities." - Marshall Ames, the media coordinator for Lennar Corp., on reports that the homebuilder was pulling out of a subdivision project in Ocala, Fla.  (Trading Markets, July 22^nd)

Homebuilder Stocks

Pulte Homes Delays Residents' Takeover Of Sun City. “Developer Pulte Homes (PHM) said it would not turn over the reins [to] Sun City Hilton Head until the community is completely developed.  That’s… a change from previous plans that would have given residents control after 90% of the homes were built and sold… Pulte took… control of the association's seven-member board in January... Pulte has built 6,600 homes in Sun City and plans to build 8,200. It has built about 80% of the planned homes. Pulte general manager Jon Cherry: "At 90% build-out, we'd still have 810 lots remaining. We can't not have a seat at the table with 800-plus lots remaining." (Island Packet, July 23^rd) 

WCI Communities Upgrading Notes Offer.  “WCI Communities Inc. (WCI) has upgraded its offer to replace $125 million in 4% notes — which the company has said it can’t repay if the holders demand payment on Aug. 5 — with new notes paying 17.5% and the right to purchase about 33.7 shares of company stock — at $0.01 each — for each $1,000 in debt. The stock couldn’t be purchased until a year from the swap. Earlier this month, the company had offered the exchange for notes paying 16%. Like that offer, the new offer expires at midnight Aug. 4. At least 90% of the debt-holders must agree to the swap.” (News Press, July 23^rd)

Court Rules For Matawan In Train Station Suit. “The Appellate Division of the New Jersey Supreme Court ruled July 14 that the borough of Matawan and its council did not act improperly when they passed a resolution in December 2002 designating the Columbia Group as the redeveloper for the train station… Borough Administrator Fred Carr: The Columbia Group has teamed up with K. Hovnanian (HOV) and Mack-Cali Realty Corp. (CLI) as the redevelopers for Matawan's portion of the project. K. Hovnanian would be responsible for the residential portion, the Columbia Group would be responsible for the office space built and Mack-Cali would take care of the commercial and retail venues.” (Independent, July 22^nd)

Centex Could Face Wrongful Termination Lawsuit. “A former division president for Centex Homes… plans to file a wrongful termination complaint against the homebuilder. Douglas Pautsch, Jr., a 10-year Centex (CTX) veteran, was let go earlier this month when the builder consolidated its California Central Valley division [with] Sacramento and Reno, Nevada. Pautsch had been president of the division overseeing the two latter markets as well as… the San Francisco Bay area. His dismissal occurred only weeks after Pautsch filed a complaint against the company, in which he alleges the builder reneged on paying him $355,000 in bonus money he claims to have earned during the company’s latest fiscal year.”  (Builder Online, July 22^nd)

Toll Bros. Sells Final House. Philadelphia: “Toll Brothers (TOL) began construction on Charlestown Meadows in early 2004. It took four and a half years to complete the development that is composed of 191 lots on 77 acres… Despite Toll Brothers' selling its last house in Charlestown Meadows, in many of the national developer's communities the picture is not so bright… In addition to Charlestown Meadows, Toll Brothers has built the nearby communities of Byers Station in Chester Springs, and the community of Woodledge at Whitford Hills in Exton.” (Daily Local, July 22^nd) 

GS Carolina Developments Hit Slowdown. South Carolina: “Two major projects being developed by GS Carolina have slowed to a near standstill over the summer, though sales agents on site at Massey on Doby's Bridge Road say the market is beginning to pick back up… Two weeks ago M/I Homes (MHO), one of the Massey builders, had sold eight homes since February, according to sales agent Joyce Buchanan… Tiffany Davis, a Ryland Homes sales agent: In recent weeks Ryland (RYL), the other phase 1 builder, sold three homes, Davis said… both Ryland and M/I have cut down on their "inventory," or speculation, houses in Massey.” (Fort Mill Times, July 22^nd)

Land Sells For A Song. California: “Two homebuilders unloaded residential tracts in Bakersfield last month for substantially less than they paid at the height of the boom. The fire-price sales indicate some developers might be willing or eager to trim portfolios as land value here declines... Regional builder Ennis Homes Inc. sold two southwest parcels for less than $1.5 million, county records show. Ennis bought the land in 2005 [for] more than $8.2 million. KB Home (KBH) sold a northeast parcel for $765,000, records show. The company bought the land for more than $3.3 million in 2005. It’s at least the third such transaction locally since the market slipped.”  (Bakersfield Californian, July 22^nd)

Most Of Schulz Ranch To Be Auctioned Off. Nevada: “Most of the land planned for the 521-home Schulz Ranch subdivision will be auctioned off next week to pay for a loan of one of the project’s developers. Schulz Ranch Developers, managed by Lennar Communities of Reno (LEN), defaulted on a $26 million loan in March it had taken out with Missouri-based First Bank to fund work on the subdivision. About $12 million of that hasn’t been paid as of this month, according to the bank, and the property is being foreclosed. Thirteen parcels totaling 90 acres of the approximately 125-acre subdivision will be auctioned July 29.”  (Nevada Appeal, July 22^nd) 

Homebuilder Pulls Plug On SR200 Development In Ocala, Fla. “Lennar Homes was going to enter Marion County with the gated JB Ranch retirement community in the State Road 200 corridor, but left the area after building a handful of model homes… The last notices of commencement for construction were issued to Lennar in January. Ironically, one was for a sales office trailer. Lennar is now embroiled in a breach of contract lawsuit with Boyd Development's JB Ranch Associates. Although Lennar pulled out, JB Ranch is moving forward with Ocala residential construction company Armstrong Homes, a frequent Boyd Development partner, as the primary builder.”  (Trading Markets, July 22^nd) 

Residents Sue Over Hercules Rd. Development. Hockessin, Delaware: “Residents have filed a second suit over plans for a 160-unit subdivision on the former Hercules Golf Course, this time over concerns that contaminated dust from the project could leave the site during construction. Homeowners in Brandywine Spring Manor have filed for an injunction in Chancery Court that if granted, would stop Toll Brothers from beginning site work later this week. A prior suit was filed against New Castle County on April 30, charging that the County Council was wrong in approving plans for Greenville Overlook in February, because the developer’s strategy for managing the subdivision’s traffic was inadequate and presented safety concerns.” (Community Pub, July 22^nd) 

Pali Research Starts KB Home (KBH) at Buy. “Pali Research initiates coverage on KB Home with a Buy rating and $22 price target, citing valuation: “KBH stands out thanks to its ability to recognize old strategies were not workable in this environment, then actually executing aggressively to change its ways. Overpriced inventory was jettisoned while significant cash generation occurred… Throw in a valuation at, or below, its peers and we believe investors have a winning combination... While this non-consensus call has its risks in this environment, we like the tradeoff." (Street Insider, July 21^st) 

Las Vegas Review-Journal Real Estate Column. “KB Home is moving forward with construction and sales of affordable townhomes at Inspirada, a master-planned community in west Henderson. The Monet collection, as it's being called, is a good example of how KB is building smaller floor plans in response to current market conditions, KB spokesman Craig LeMessurier said.”  (iStock Analyst, July 21^st)

Hovnanian Chairman Shows the Midas Touch. “The [stock price] chart highlights large insider buys and sells by Hovnanian’s chairman Kevork Hovnanian. From October 2004-July 2005, the chairman sold over 800K shares near the peak of the housing boom for… almost $54 million.  After a decline from $70/share to under $5 in January, Mr. Hovnanian decided to start buying back what he sold in '05.  So far this year, he has bought back nearly 75% of the stock he sold, for over 90% less than he originally sold it for!  And his purchases this year have both been at or near short-term bottoms as well.  Talk about buy low, sell high.” (Bespoke Investment Group, July 21^st) [Click to enlarge]

Pulte Homes Cuts 11% of its Georgia Staff.  “There were Cutbacks this weekend from a top national homebuilder as the Commerce Department reports construction of single family homes was at a 17-year low in June. The latest to feel the economic downturn is the Georgia Division of Pulte Homes. The Company confirmed that it's cutting 11% of its Georgia staff, or some 24 employees out of a staff of 200. Pulte says the jobs cut across all parts of the Company except sales, and that workers will be given a chance to apply for other positions within the national organization.” (11 Alive, July 21^st)

Meritage Shares Rise After Revised Credit Accord. “July 18 SEC filing: Shares of home builder Meritage Homes Corp (MTH) rose 9% on Monday after the company said it had reached an agreement to revise the terms of a credit line. Guaranty Bank has agreed to reduce the borrowing capacity on its credit line to $500 million from $800M and increased its interest rate by 1 percentage point.” (Reuters UK, July 21^st)

 

Seeking Alpha's Housing Tracker is a collection of housing-related excerpts from various sources, grouped by topic. Feel free to post any interesting links on the subject in the comments section below.

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Comments

[deaverb]

Wonderful source material data. Alpha strikes again! And a fast read to boot. With no pretense. Love this kind of raw data presentation with no pretense.

[HBWOW]

Comparing the market volatility to the sevenities and eighties, we now experience more in one hour than one month twenty plus years ago. The manipulators and day traders aided by looser SEC regulations and/or supervision/review of trading, the rich (plus a lot of foreigners) are taking the investment wealth from the middle class Americans who already have lost considerable real estate wealth.
July 22 was a banner example of Wachovia annoucing bad results
and that day not of WB but many of the major bank stocks saw
incredible recoveries in stock pricing. HOW and WHY?

[billddrummer]

Hi Judy,

Excellent compilation, and thanks for including the story about Carson City land. The state capital was swept up in the boom as well, and now land has gone begging for buyers.

The owner of the property you mentioned also has huge land exposure in the Central Valley of California, from Sacramento to Bakersfield. Some of the subsidiaries have experienced foreclosures on land purchased in 2004 and 2005. The holding company also has exposure in the Northern NV market.

Excellent reporting as usual. Thanks!

[Judy Weil,SA Editor]

Thanks, Bill!

[mythoughts]

Anyone want to buy Lennar stock. Wait a few months and buy it below $10 a share.

[billddrummer]

Hi Judy,

Redux to my previous comment, and it's my pleasure to give you proper credit for this compilation:

When I said "Northern NV market," I was referring to Reno/Sparks. Carson City is considered part of the Northern NV market by most national surveying outfits, because it's only 30 miles south of Reno. In truth, Carson City residents consider themselves a separate community, even though there's some commuter traffic between Carson and Reno.

Right now there's construction on a freeway extension that will speed up the commute significantly. The interesting thing about the freeway extension is that it was first proposed fully 30 years ago. It may be completed by 2010, at a cost nearly triple the first set of bids. Such is the nature of NV road construction!