Wednesday, March 7, 2007

Homebuilders See Tough Year

From Bloomberg:

A year after the housing slump began, the spring selling season is off to a rocky start with a glut of unsold properties and buyers like the Binghams putting off purchases, thwarting any chance of a recovery. The National Association of Home Builders in Washington now expects sales to fall for the sixth consecutive quarter after last month predicting a gain. The biggest stock market rout in four years last week, a jump in subprime mortgage failures and concerns about a possible recession are keeping consumers on edge.


Builders are bracing for another tough year after seeing 2006 sales plunge 17 percent, the most since 1990. For some, such as Toll Brothers Inc., the largest U.S. builder of luxury homes, the lackluster spring market is a surprise. Chairman and Chief Executive Officer Robert Toll told investors three months ago the market may be poised to rebound. It didn't happen.

``We're all a little more disappointed than we were two weeks ago,'' Toll said Feb. 22 on a conference call, responding to questions about February sales. ``We didn't have anywhere near the bump up that we usually see.''

The same day, Horsham, Pennsylvania-based Toll Brothers cut the number of homes it expects to build to 6,000 to 7,000, the second reduction in four months. In August, the company's estimate was 7,000 to 8,000 homes. Toll Brothers also lowered its fiscal year profit outlook on Feb. 22.

Miami-based Lennar Corp., the biggest U.S. builder by revenue, expects new home deliveries to tumble 20 percent this year. Hovnanian Enterprises Inc. of Red Bank, New Jersey, the industry's sixth-largest company, reported a fiscal first-quarter loss after the number of contracts signed slid 23 percent.

We're seeing some very large drops -- 20%+ and 1000 less homes indicates demand is waning. In addition, we still have a ton of inventory on the market at current demand levels that will take awhile to work off.

I thought housing was going to lead the US into recession by the current quarter. However, as the industry still languishes I think the blog Calculated Risk had it right: we're going to see lots of little cuts emerge in the US economy over the coming months. Expect to see declining construction employment, lower mortgage equity withdrawal numbers and lower home construction impacting overall GDP growth.

So far housing's problems have remained in the housing market. Only time will tell if that lasts.