Realtors See Home Sales Falling As Builders Cut Profit Outlooks
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
September 7, 2006
Evidence mounted that the housing slowdown is in full force, with builders delivering gloomy news and a real-estate group projecting a significant drop in sales of new and existing homes and a sharp deceleration in price appreciation.
New home sales this year are expected to fall 16.1% to 1.08 million and existing home sales to dip 7.6% to 6.54 million, as the market works through an inventory backlog, according to the National Association of Realtors. NAR's latest projections released Thursday also have housing starts dropping 9.6% to 1.87 million.
Home prices will no longer post double-digit gains, the group projected. The median existing-home price will grow 2.8% this year to $225,900, with the median new home price rising only 0.2%, according to NAR. The trade association said prices for new homes were depressed by builders cutting prices and offering incentives to reduce inventory.
Beazer Homes Inc. on Thursday again cut its earnings forecast for 2006, blaming higher cancellation rates and weakening sales as the deluge of negative news from the home-building group continues. Wednesday, home builder KB Home cut its profit projection, while single-family home builder Hovnanian Enterprises Inc. reported a 34% decline in its third-quarter profit.
David Lereah, NAR's chief economist, said the dramatic downshift in price appreciation was noteworthy. "A year ago we had record home sales and tight supply with buyers bidding over the asking price," Mr. Lereah said in a prepared statement.
"Under these conditions, we'll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory," he added. The cooling housing market means investors who purchased homes last year intending to sell them shortly thereafter could face losses.
"Buyers in most of the country who plan to stay in their home for a normal period of homeownership can pretty well bank on those historic averages, but people who purchased last year with the intent of flipping are likely to get burned," Mr. Lereah said.
Atlanta-based Beazer said net home sales for the two months ended Aug. 31 fell 49% from the year earlier as the cancellation rate rose to 50% from 26% in the same period in the previous year.
"As compared to prior years, a higher percentage of home closings are being deferred or cancelled, immediately prior to closing in many cases, due to worsening buyer sentiment and the inability of buyers to sell their existing homes," the company said.
Beazer said in expects to close on fewer homes in its fiscal fourth quarter than anticipated, and trimmed its 2006 per-share profit forecast to a range of $8 to $8.50 a share.
In July, the company lowered its annual estimate to $9.25 to $9.75 a share as the housing market began to slump. Beazer said its revised 2006 outlook "also contemplates potential charges to exit non-strategic land positions currently under review." It estimates it will deliver between 12,000 and 13,500 homes in fiscal 2007. In fiscal 2005 the company closed 18,146 homes.
KB Home cut its profit projection for the year ending Nov. 30 to between $8 and $8.50 a share, from a June forecast of $10 a share, reflecting what it called "an increasingly challenging" housing market.
The home builder said unit net orders "continue to be adversely affected by higher cancellation rates" in many markets. Traffic to KB Home's new-home communities and gross unit orders were each down about 11% during the third quarter.
The Los Angeles company, which has operations on the West Coast, in the Southwest, in the Southeast and in the central U.S., also said it expects to report earnings for the third quarter ended Aug. 31 of $1.85 to $1.95 a share, down from year-earlier net income of $227.5 million, or $2.55 a share. It expects to report net orders for the quarter of 5,989 units, down 43% from a year earlier.
Hovnanian reported the lower profit as the company struggled with higher costs, slower-paced orders and increased cancellations.
The Red Bank, N.J., company reported net income of $77 million, or $1.15 a share, for the quarter ended July 31, down from $116.1 million, or $1.76 a share, a year earlier. The company booked $11.4 million in write-offs for walk-away costs and an additional $800,000 in land write-downs for the latest quarter.
Revenue rose 18% to $1.55 billion from $1.31 billion in the prior-year period. Costs rose 26% to $1.43 billion from $1.13 billion a year earlier.
Net contracts for the third quarter, excluding joint ventures, declined 19% to 3,349 contracts. On the same basis, the dollar value of net contracts decreased nearly 24% to $1.1 billion from $1.4 billion last year. Hovnanian's contract-cancellation rate rose to 33% from 24%.
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
September 7, 2006
Evidence mounted that the housing slowdown is in full force, with builders delivering gloomy news and a real-estate group projecting a significant drop in sales of new and existing homes and a sharp deceleration in price appreciation.
New home sales this year are expected to fall 16.1% to 1.08 million and existing home sales to dip 7.6% to 6.54 million, as the market works through an inventory backlog, according to the National Association of Realtors. NAR's latest projections released Thursday also have housing starts dropping 9.6% to 1.87 million.
Home prices will no longer post double-digit gains, the group projected. The median existing-home price will grow 2.8% this year to $225,900, with the median new home price rising only 0.2%, according to NAR. The trade association said prices for new homes were depressed by builders cutting prices and offering incentives to reduce inventory.
Beazer Homes Inc. on Thursday again cut its earnings forecast for 2006, blaming higher cancellation rates and weakening sales as the deluge of negative news from the home-building group continues. Wednesday, home builder KB Home cut its profit projection, while single-family home builder Hovnanian Enterprises Inc. reported a 34% decline in its third-quarter profit.
David Lereah, NAR's chief economist, said the dramatic downshift in price appreciation was noteworthy. "A year ago we had record home sales and tight supply with buyers bidding over the asking price," Mr. Lereah said in a prepared statement.
"Under these conditions, we'll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory," he added. The cooling housing market means investors who purchased homes last year intending to sell them shortly thereafter could face losses.
"Buyers in most of the country who plan to stay in their home for a normal period of homeownership can pretty well bank on those historic averages, but people who purchased last year with the intent of flipping are likely to get burned," Mr. Lereah said.
Atlanta-based Beazer said net home sales for the two months ended Aug. 31 fell 49% from the year earlier as the cancellation rate rose to 50% from 26% in the same period in the previous year.
"As compared to prior years, a higher percentage of home closings are being deferred or cancelled, immediately prior to closing in many cases, due to worsening buyer sentiment and the inability of buyers to sell their existing homes," the company said.
Beazer said in expects to close on fewer homes in its fiscal fourth quarter than anticipated, and trimmed its 2006 per-share profit forecast to a range of $8 to $8.50 a share.
In July, the company lowered its annual estimate to $9.25 to $9.75 a share as the housing market began to slump. Beazer said its revised 2006 outlook "also contemplates potential charges to exit non-strategic land positions currently under review." It estimates it will deliver between 12,000 and 13,500 homes in fiscal 2007. In fiscal 2005 the company closed 18,146 homes.
KB Home cut its profit projection for the year ending Nov. 30 to between $8 and $8.50 a share, from a June forecast of $10 a share, reflecting what it called "an increasingly challenging" housing market.
The home builder said unit net orders "continue to be adversely affected by higher cancellation rates" in many markets. Traffic to KB Home's new-home communities and gross unit orders were each down about 11% during the third quarter.
The Los Angeles company, which has operations on the West Coast, in the Southwest, in the Southeast and in the central U.S., also said it expects to report earnings for the third quarter ended Aug. 31 of $1.85 to $1.95 a share, down from year-earlier net income of $227.5 million, or $2.55 a share. It expects to report net orders for the quarter of 5,989 units, down 43% from a year earlier.
Hovnanian reported the lower profit as the company struggled with higher costs, slower-paced orders and increased cancellations.
The Red Bank, N.J., company reported net income of $77 million, or $1.15 a share, for the quarter ended July 31, down from $116.1 million, or $1.76 a share, a year earlier. The company booked $11.4 million in write-offs for walk-away costs and an additional $800,000 in land write-downs for the latest quarter.
Revenue rose 18% to $1.55 billion from $1.31 billion in the prior-year period. Costs rose 26% to $1.43 billion from $1.13 billion a year earlier.
Net contracts for the third quarter, excluding joint ventures, declined 19% to 3,349 contracts. On the same basis, the dollar value of net contracts decreased nearly 24% to $1.1 billion from $1.4 billion last year. Hovnanian's contract-cancellation rate rose to 33% from 24%.
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