Wall Street swung a megaton wrecking ball at real estate stocks in September.
Every one of the 10 companies that comprise the hypothetical Inman Index of real estate stocks suffered a one-month loss and all of the issues have lost at least 10 percent, if not much more, of their value so far this year.
Hardest hit among the 10 companies last month were home builder D.R. Horton and online broker ZipRealty.
The bad news for Horton and other builders began early in the month when the National Association of Realtors trade group announced its Pending Home Sales Index had dropped more than 12 percent from 107.1 in July 2006 to 89.9 in July 2007, signaling further declines in future home sales. Then a government report showed a July-to-August decline in housing starts; a separate survey reported that builder confidence had faltered; and the bad news went on from there. Not even the Federal Reserve’s half-point cuts in two key interest rates were enough to help builders dig themselves out of their deepening hole.
D.R. Horton’s shares dropped more than 14 percent from $14.96 to $12.81 in September. Analysts at securities firm USB initiated coverage of the company toward the end of the month with a “sell” recommendation.
Toll Bros., another home builder that’s also a component of the Inman Index, lost 6 percent of its share-price value in September as its shares fell from $21.29 to $19.99.
D.R. Horton CFO Bill Wheat reportedly told investors at a conference that the housing market was burdened by too much inventory and that the company intended to cut costs and debt to respond to downward pressure on home prices, according to an Associated Press story. At the same conference, Toll Bros. CEO Robert Toll reportedly told investors that it was too soon to call the bottom of the housing market’s slump.
Meanwhile, shares of ZipRealty also suffered a drop of more than 14 percent from $7.45 to $6.38 in September. The only news of note was the company’s award of stock options to two recently hired executives.
Perhaps the biggest surprise in September’s raw data was First American Financial, which had been the only Inman Index issue in positive territory for the first eight months of this year. In the most recent month, however, the title company’s shares suffered a 12 percent drop from $41.55 to $36.62.
Investors’ turnabout on FirstAm occurred after the company announced it would lay off 1,900 employees in the second and third quarters, a move that was expected to generate annual savings of $108 million. FirstAm also said it would curtail or eliminate certain executive benefits and perks, a change that was anticipated to produce an additional $12 million in savings annually, according to a company statement. The company has approximately 40,000 employees, 5,500 of whom are located in India or the Philippines, according to news reports.
FirstAm also announced two subsidiary-level management changes: Landon V. Taylor, a 10-year company veteran, was named president of First American Title’s Strategic Markets Division and was appointed to that entity’s board of directors, and Andrew Macdonald was promoted to senior vice president of corporate development at First Advantage Corp.
The Inman Index overall lost 6.8 percent of its value in September and was down almost 33 percent for the first nine months of this year. Four of the 10 companies have lost half their value since Jan. 1: Countrywide was off 55 percent as of Sept. 30, while D.R. Horton and Move were both off 51 percent, and IndyMac was off 49 percent.
In comparison, the Dow Jones Industrials Average and NASDAQ Composite Indices posted 4 percent gains for September and 11 percent gains for the nine-month period. The Standard & Poor’s 500 Index added 3.6 percent in September and is up 7 percent for the year so far.
Marcie Geffner is a real estate reporter in Los Angeles.
Copyright 2007 Marcie Geffner. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without the author’s written permission.