As housing markets cooled, profits at several major home-building companies were sawed in half in the latest-reported quarter compared to the same quarter last year, while stock prices have generally recovered from annual lows in July.
In their latest quarterly earnings reports, publicly traded builders Centex Corp., D.R. Horton Inc., Pulte Homes Inc. and Standard Pacific Corp. said that earnings were down more than 50 percent in the most recent quarter compared to the same quarter last year. For the three-month period that ended Sept. 30, Standard Pacific reported a 68 percent drop in net income compared to the same period in 2005 — from $96.4 million to $30.8 million.
Centex reported net earnings of $137.4 million in the quarter ended Sept. 30, down 58.9 percent compared to net earnings in the same quarter last year. Pulte reported a 51.9 percent drop in quarterly earnings compared to the same quarter last year — falling from $395.4 million to $190.2 million. And D.R. Horton quarterly earnings dropped 50.7 percent — from $563.8 million in fourth-quarter 2005 to $277.7 million in fourth-quarter 2006.
It has been a slower-than-anticipated year for several home-building companies, as the overall U.S. housing market has descended from an unprecedented and prolonged boom that sent home sales and home prices soaring well above normal conditions.
Housing experts have blamed overbuilding, rising interest rates and lack of affordability as reasons for the slowing market, and forecasters generally have agreed that the market slowdown more resembles a “landing” than a “crash.”
Even so, several builders have ramped up incentives to entice buyers and real estate agents in an environment of slowing sales, and have also sought ways to reduce land holdings and contracts as they jump out of stagnant markets.
The National Association of Realtors reported this month that sales of single-family homes, apartment condos and co-ops dropped 12.7 percent in the third quarter compared to third-quarter 2005. New-home starts hit a six-year low in October, according to Commerce Department statistics, and the Realtor group projects that new-home sales will drop 16.8 percent this year and fall 8.7 percent next year.
Stock prices per share have fluctuated widely over the past calendar year for many large home builders. Share prices among eight major builders generally hit an annual high in January this year before bottoming out in July, rebounding in August and holding roughly steady through October, dipping earlier this month and rising since then. For several builders, prices per share dropped to less than half of their January value in July.
From January to July, the Centex Corp. stock price dropped from $79.40 to $42.90 per share and closed the day on Nov. 24 at $54.44. The price per share for D.R. Horton stock has ranged from $41.66 in January to $19.52 in July and closed trading at $25.56 Monday. The price per share of Hovnanian Enterprises stock has ranged from $54.59 in January to $24.79 this summer, and closed trading at $33.18 on Nov. 24.
The price per share has ranged from $81.99 to $37.89 for KB Home stock; $66.44 to $38.66 per share for Lennar stock, $44.70 to $26.02 for Pulte Homes stock, $43.05 to $20.24 for Standard Pacific stock and $39.98 to $22.22 in Toll Brothers Inc. stock so far this year.
Major builder KB Home announced on Oct. 10 that it was delaying its final results for third-quarter 2006. In its partial earnings statement, the company announced expected net income of $155.3 million for the quarter ended Aug. 31, down about 32 percent from the $227.5 million reported for third-quarter 2005. The company announced this month that CEO Bruce Karatz, who had led the company for 34 years, has resigned and agreed to pay $13 million to KB Home after an investigation found that the company had incorrectly reported stock-options grants.
Builder Toll Brothers Inc. had the slightest movement in quarterly net income, which fell from $215.5 million in third-quarter 2005 to $174,632 million in third-quarter 2006 — a drop of 19 percent. And Hovnanian Enterprises reported that net income available to common stockholders fell from $116.1 million in the three-month period ended July 31, 2005, to $74.4 million for the same quarter this year — a drop of 35.9 percent.
Lennar Corp. reported a 38.7 percent decrease in net earnings for the quarter ended Aug. 31 compared to the same quarter last year — dropping from $337.3 million to $206.7 million. That company’s operating earnings took the biggest quarterly hit in the Western region, falling from $298 million in the quarter ended Aug. 31, 2005, compared with $129.4 million in the same quarter this year.
Pulte Homes reported that its income from continuing operations before income taxes dropped most substantially in California, falling from $170.9 million in the quarter ended Sept. 30, 2005, to $33 million for the same quarter this year. And income from continuing operation dropped from $85.4 million in the Northeast region for the quarter ended Sept. 30 to $30.2 million for the same quarter this year; dropped from $52.5 million to $3.5 million in the Midwest region, year-over-year; and fell from 4.7 million in income to a loss of $6.2 million for the Central region.
Donald R. Horton, chairman of the board for D.R. Horton Inc., noted in a statement this month that his company reduced its total home-building inventory by $662 million and the total number of homes under construction by about 27 percent. D.R. Horton builds homes in 27 states and 84 market areas. The company reported 51,172 homes closed for the 2006 fiscal year, valued at $13.4 million. That compares to 53,099 homes closed in fiscal year 2005, valued at $14.5 million.
As of July 31, Hovnanian reported a backlog of 11,861 homes worth $4.3 billion — that compares to a backlog of 11,331 homes worth $4.2 billion as of July 31, 2005. Hovnanian and other builders have reported increasing cancellation rates as market conditions have weakened. In its latest quarterly report, Hovnanian noted that cancellation rates have increased in each quarter since second-quarter 2005. In that quarter, the cancellation rate was 21 percent, while the rate had risen to 33 percent by the third quarter of this year.
Standard Pacific reduced its backlog of homes (including joint ventures) from 7,971 for the quarter ended Sept. 30, 2005, to 4,681 for the same quarter this year, and also reduced the number of building sites the company owns or controls (including joint ventures) from 71,393 in the quarter ended Sept. 30, 2005, to 63,504 for the same quarter this year.
Lennar is among the highest-capitalized public home-building companies, with market capitalization of $7.99 billion. Pulte has a market capitalization of $7.91 billion, followed by D.R. Horton at $7.83 billion, Centex at $6.28 billion, Toll Brothers at $4.63 billion, KB Home at $4.44 billion, Hovnanian Enterprises at $2.01 billion, and Standard Pacific at $1.5 billion.
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