One of the few predictions I made in late 2007 about what was to come in the future (
Dec 4, 2007: December 2007 Thoughts / Roadmap) that was an airball was the call that quite a few homebuilders would go bust. At the time home builders were so desperate to get rid of inventory, we had example such as
Lennar (
LEN) selling land at 60% of book value. (
Dec 3, 2007: How Overpriced is Land in the US? 60%?) While this is a very fragmented business there are a number of national and regional public players .... many of us highlighted a few led by
Standard Pacific (
SPF) and
Beazer Homes (
BZH) set to bid goodbye. (
Jan 29, 2008: Credit Default Swaps Paint Ugly Picture for Homebuilders) (
Jan 11, 2008: Standard Pacific (SPF) - the First Major Homebuilder to Go?)
Hovnanian (
HOV) was incrementally better but just by a tad (
Jan 24, 2009: Bloomberg - Hovnanian May Fail Absent Miracle)
Well apparently miracles do happen - all these companies remain alive... and with stocks trading in the $1.65-2.21 range at last check. Actually considering that aside from banks the home builders are the nexus of the greatest financial disaster in 80 years, it is quite remarkable. But I guess Schumpeter's "Creative Destruction" is now old school - I've seen more covenant extensions and adjustments in the past 12 months than the previous 12 years combined. I suppose if the banks can't take the hits to their balance sheet from larger companies they will just keep extending life, never calling in their chips. And then stomp on the small guys.
I mentioned yesterday that the homebuilders were showing relative strength in a quite ugly market - I did not mean the names above which were back to their old tricks, losing 5-10%ish, but some of the more stable fare. There was
a prominent Wall Street Journal article that may have contributed to this or perhaps it is the new and existing home sales we'll see here in the next 48 hours. As we continue to cheer that May sales are better than April, and June is better than May (as they are each year due to house buying seasonality) I suppose we can clap with our head under the sand. Perhaps we can gyrate this whole market up a few % if the numbers "really surprise" us - considering the handouts from all sides of government and Fed, along with 30-40% price drops year over year, (and more if you get the right foreclosure) you'd assume home sales would be up 50% year over year.
What is funny is how one of the first bills passed by Congress to "help the homeowner" was ... wait for it... a backdoor handout to the homebuilders. And the banks. Cramerica - bought and paid for.
- (Jul 5, 2008: Washington Post - Vital Part of Housing Bill is Brainchild of Banks)
- (Apr 4, 2008: Congress is Rushing to Help Homeowners Out!! (Not))
Older readers might remember that story from April - ...
