Friday, October 31, 2008

M/I Homes - Sell of Land, Layoff People

"We're facing what may well be the most difficult time in the history of the building industry," Robert H. Schottenstein told financial analysts yesterday in addressing the company's third-quarter financials.

The Columbus homebuilder said it lost $58.7 million in the three-month period as it continued to struggle with low demand for new homes.

Included in the Columbus homebuilder's loss were pretax charges of $43.5 million for asset impairments, reflecting the housing downturn's effects on land and property values, and a loss from operations of $14.9 million. M/I's per-share loss for the quarter was $4.18, compared with a $1.73-a-share loss a year ago.

Yet as it continues to sell land and cut expenses, including layoffs, M/I has a few things going for it, Schottenstein said.

During the quarter, the company reduced its debt to zero. At the beginning of 2007, Schottenstein said, M/I owed $410 million on its homebuilding credit line. M/I reduced its debt-to-capital ratio over that period from 44 percent to 32 percent.

Meanwhile, it also is reducing the number of communities in which it builds homes. Schottenstein said the company had 9,530 lots at the end of the quarter, 43 percent fewer than a year earlier and down nearly a third from the beginning of 2008.
Schottenstein also said M/I has had positive cash flow for eight quarters in a row.

M/I's shares increased $1.45 yesterday to close at $11.95, nearly a 14 percent boost.
However, Schottenstein also warned of job cuts ahead in the face of lower demand. M/I delivered 555 homes in the third quarter, down 29 percent from the third quarter of 2007. It also booked 456 new contracts in the quarter, a 19 percent decline.
Through the first nine months of 2008, the company's new contracts are down 30 percent, to 1,540.

"Demand is weak, consumer confidence is at or near a historical low, unemployment is rising, and tightened mortgage lending standards, combined with the unprecedented turmoil in the financial markets, have further contributed to very difficult conditions for homebuilders," Schottenstein said.

Related terms - M/I Shottenstein, MI Homes, M/I Homes bankruptcy rumors, low demand for new homes, home demand, MI Homes layoffs, MI homes sells land MI Homes Selling Land, MI Homes layoffs

Thursday, October 30, 2008

Standard Pacific - Losses up, Sales Down

Big Homebuilder Standard Pacific Corp. on Thursday said its third-quarter net loss tripled after a $368.4 million pretax charge to buy down the value of homes and land.

The housing slump seems to be worsening for some.

"Housing market conditions deteriorated further during the quarter," said CEO Jeffrey Peterson, in a statement. "It does not appear at this time that the earlier efforts by the federal government to stabilize the housing market across the country has had any meaningful impact."

Standard Pacific said net new home orders fell 32 percent in the quarter to 921 homes. The worst performance was in Texas, followed by a tie between Southern California and the Carolinas.

Standard's housing backlog of new homes completed but not yet delivered fell 59% to $395.7 million. New home deliveries was down 24 percent to 1,188.

California, which comprised half of revenue for Standard Pacific , saw sales fall by 31 percent. The Southwest was down 42 percent and the Southeast fell 46 percent.

Standard Pacific develops homes in California, Arizona, Texas, Colorado, Nevada, Florida and the Carolinas.

Gunstra Builders of Indianapolis Shuts Down Most Sales Offices


Gunstra Builders, a large Indianapolis area homebuilder, has shut most of its sales offices and stopped communicating with clients, leaving buyers at its projects wondering if Gunstra will stay in business or fall prey to the nation's housing downturn.

One of Gunstra's partially finished projects is a 77-townhouse development called Monon on Main in Carmel's new Arts & Design District. Residents there are exchanging e-mails to figure out what's going on with Gunstra, which hasn't staffed its sales office on the site for over a week.

At Blackthorne, a housing development in Plainfield zoned for 322 units, Gunstra has turned management over to another company and stopped new construction with only 23 homes sold.
Lafayette-based Gunstra hasn't commented publicly on its viability. Calls to its main office went unanswered Tuesday and Wednesday.

Phones are disconnected to at least seven Gunstra communities where the company is building homes in Indianapolis, Carmel, Fishers, Plainfield and Zionsville.

"They've retrenched. I am under the impression they are hunkering down . . . to weather the storm," said Jeff Watkins, owner of Environmental Services Associates in Carmel, who serves as a spokesman for residents of Gunstra's Monon on Main townhome project. He said he has talked to Gunstra officials recently.

About 38 units at Monon on Main have been sold, with others sitting unsold and some partially built, Watkins said. Construction has stopped. On Wednesday, townhomes sat partially built on a silent, weedy quarter-block that holds a trailer-sized trash bin and stacks of bricks.

Soori Ardalan, who runs Soori Gallery in a townhome at Monon on Main, said Gunstra recently told her by e-mail it no longer would respond to maintenance issues she has with the home she bought almost a year ago and she would have to turn to a warranty company.

"I don't know what's happening," Ardalan said, calling herself "very disappointed" with Gunstra's disappearance. Besides her concerns about getting repairs done on her unit, she said residents also wonder if they need to take control of their residents association from Gunstra.
The city of Carmel has pushed redevelopment of its old downtown, and Monon on Main occupies a key site on the north side of Main Street.

"Monon on Main is a pretty high-profile project. If this means it's going to end up . . . unfinished, that's not what we had in mind," said Mike Hollibaugh, Carmel director of community services. He said he is trying to find out the status of Gunstra.

The company, which specializes in condominiums and townhomes, was started in 1976 by Bruce Gunstra, a former construction manager for National Homes Corp. He expanded into the Indianapolis market in 1984, and the company has built hundreds of homes since.
In Plainfield, Gunstra has notified residents of its Blackthorne development that a new management company has taken over running the fledging homeowners association, a resident said. With the development far from done, a promised clubhouse and swimming pool haven't been built.

Earlier this year, a nursing home developer arranged with Gunstra to buy 9.3 acres in the Blackthorne subdivision for a 264-bed facility, but the rezoning request was denied by Plainfield.
Homebuilders in Indiana and elsewhere find themselves under financial stress as a result of their own overbuilding, a large inventory of unsold older homes on the market and the end of a period of easy-to-get mortgages requiring small down payments during the housing boom years of 2002-2006.

In the metro area, new home construction has plummeted to an estimated 5,000 units this year compared with a peak of more than 15,000 in 2001 and 7,331 last year.
Among the major builders who have disappeared from the Indianapolis market in the past 18 months are locally based Davis Homes, which shut its doors in July, and Los Angeles-based KB Homes, which pulled out last summer. Is Gunstra going Bankrupt?

Wednesday, October 29, 2008

Centex Posts Smaller Loss, but huge recenue cut

Centex Corp. posted a smaller net loss for its fiscal second quarter Tuesday, but the housing slump cut the struggling home builder’s revenue by more than half.

Dallas, Texas-based Centex (NYSE: CTX) said that it lost $172 million, or $1.38 per share, for the quarter that ended Sept. 30. That compares to a loss of $644 million, or $5.26 a share, in the year-ago quarter.

Factoring out an after-tax gain of $30 million for the sale of its Westwood Insurance Agency, Centex recorded a third quarter net loss from continuing operations of $202 million, or $1.62 per diluted share – an improvement from the year-ago comparable loss of $645 million, or $5.27 per diluted share.

The narrowing of the net loss resulted from an $873 million reduction in paper losses taken for impairments on land and joint ventures.

The bottom-line improvement was not indicative of Centex’s top-line performace. The company’s revenue plummeted 54 percent, to $1.01 billion, matching the 54 percent drop in sales orders, which fell to 2,728. Factoring out results from Centex’s Financial Services business, the company posted a 55 percent drop in home-building revenue – to $953 million – as closings plunged 48 percent.

Centex has long been one of the most active home builders in the Triangle. The company ranked No. 1 on Triangle Business Journal’s list of residential homebuilders for years before falling into second place with 928 homes completed in 2007. This year has been hard on Centex’s national and local operations, as evidenced by longtime Raleigh division President Hampton Pitts resigning in July after 16 years with the company.

Thursday, October 23, 2008

Pulte Homes Reports Eighth Straight Loss as Sales Slump Deepens

From Bloomberg - Oct. 22 -- Pulte Homes Inc., the third-largest U.S. homebuilder, reported its eighth consecutive quarterly loss as the frozen credit markets reduced mortgage lending, deepening the housing recession.

The third-quarter net loss narrowed to $280.4 million, or $1.11 a share, from $787.9 million, or $3.12, a year earlier, the Bloomfield Hills, Michigan-based company said today in a statement. The loss was more than analysts estimated. Revenue fell 37 percent to $1.56 billion from $2.5 billion a year ago.

Construction of single-family homes fell in September to the lowest in 26 years as builders cut production to match vanishing demand. Mortgage rates are rising, unemployment is increasing and only the most-credit worthy homebuyers are able to borrow, just as the growth in foreclosures across the country adds to the inventory of homes for sale.

``The competition between the builders is going to become ruthless,'' Vicki Bryan, senior high-yield analyst at Gimme Credit LLC, said in an interview before the results were issued. ``There's a chance this year could top last year as far as horrible quotient.''

Pulte, the builder of Del-Webb homes for retirees, was projected to report a net loss of 53 cents a share, according to the average estimate of 12 analysts in a Bloomberg survey.

The shares fell 60 cents, or 5.7 percent, to $9.95, in New York Stock Exchange composite trading, giving the company a market value of $2.6 billion. Pulte dropped 33 percent in the past 12 months.

Also after the close of regular trading today, Ryland Group Inc., the California homebuilder that lost 31 percent of its value in the past year, reported a third-quarter loss as home sales fell and increasing foreclosures pushed down prices.

The net loss in the three months ended Sept. 30 was $65.7 million, or $1.54 a share, compared with a net loss of $54.7 million, or $1.30 a share, a year earlier, Calabasas, California- based Ryland said today in a Business Wire statement.

The average price for a Pulte home in the second quarter fell 11 percent to $320,000. Pulte, founded in 1950 by William Pulte, the company's largest shareholder, sold the most homes in the second quarter in Arizona, Nevada and New Mexico.

Pulte's results came a day after NVR Inc., the builder of Ryan Homes, reported a 60 percent decline in net income.

NVR is the only major homebuilder to remain profitable in the three-year housing slump. NVR has remained profitable because it uses options to control land. That has prevented the company from having to reduce the estimated value of its land assets significantly.
In a July survey, the Federal Reserve said that 75 percent of U.S. lenders indicated they'd tightened their standards for prime mortgage lending.

Employers cut the most jobs in five years in September, pushing the unemployment rate to 6.1 percent as nonfarm payrolls fell by 159,000, the U.S. Labor Department said on Oct. 3.
U.S. housing starts will drop to 525,000 in the second quarter of 2009, a record 70 percent decline from the peak in the third quarter of 2005, according to a Mortgage Bankers Association forecast. Mortgage originations for home purchases will fall 20 percent this year to $912 billion, according to Jay Brinkmann, the association's chief economist.

Homebuilder Ryland Group posts loss of $65.7 million

From the LA Times

Calabasas-based home builder Ryland Group Inc. reported a third-quarter loss of $65.7 million Wednesday as revenue dropped 26.7%.The hard-hit builder's sales were $526.2 million during the period of July 1 through Sept. 30, down from $717.5 million for the same period a year earlier.

The loss of $1.54 a share exceeded 11 analysts' average projection of $1.10 a share, according to a Bloomberg survey. Ryland released the earnings results after the close of regular trading. The company's shares fell $1.10 to $17.90. The stock has dropped 35% this year. Company officials declined to comment, saying they would do so in a conference call with analysts today.
Ryland builds homes in 17 states. Some of the firm's California developments are in areas particularly hard-hit by the housing crash, including the Inland Empire and the Coachella Valley. Like other construction businesses, the firm has been hurt by a reduction in demand and prices for homes. Ryland closed escrow on 2,017 homes in the quarter, compared with 2,495 closings the same period last year. The company's average closing price on a home for the quarter was $254,000, down from $284,000.

Friday, October 17, 2008

Florida Home Builders Association Executive Director Quits

With the state's home building industry in a slump and cutbacks in the industry's Tallahassee-based trade group, the Florida Home Builders Association said today that its executive director has resigned to pursue other opportunities. J. Emmett Reed, CEO and executive vice president, will step down Jan. 1 and be succeeded by longtime FBA staffer Paul Thompson.

In recent years Thompson has been overseeing marketing and handling the group's big annual trade show in Orlando, the Southeast Building Conference.Florida Home Builders Association President Jay Carlson said that "Reed's many contributions to the success of our association will leave an enduring legacy." Reed worked for the group 11 years in various roles, including membership director, and was the driving force behind creation of the educational Foundation and Future Builders of America program.

He said in a prepared statement today that he cherished his time with the builders and "will have nothing but fond memories. But for me it's time for new challenges."

Thursday, October 16, 2008

Sacramento California Homebuilder and Developer Files Personal Chapter 11

Central Valley developer Christo Bardis has filed for Chapter 11 personal bankruptcy listing liabilities between $100 million to $500 million, and assets of $10 million to $50 million, according to filing this week with the U.S. Bankruptcy Court in Sacramento.

Mr. Bardis is co-founder of Reynen and Bardis Communities, a Sacramento-based developer with new-home communities in Elk Grove, Sacramento and West Sacramento in the Central Valley as well as in northern Nevada.

His partner, John Reynen, filed for personal bankruptcy earlier this year.
Both had given personal guarantees on loans used to buy land for the company.

Mr. Bardis told the Sacramento Bee newspaper that the filing of personal bankruptcy would help keep his company in business. The company has not filed for bankruptcy.

Pacific Lifestyle Homes of ORegon Files Chapter 11 Bankruptcy

A third Portland-area homebuilder has faltered amid the nationwide housing crisis.
Pacific Lifestyle Homes Inc. of Clark County says it will file Thursday for protection under bankruptcy laws. The 12-year-old company is one of the largest homebuilders in Oregon and southern Washington.

Earlier this year, Oregon builders Legend Homes and Renaissance Homes made similar Chapter 11 bankruptcy filings.

Pacific Lifestyle Homes founder Kevin Wann says the company has about $56 million in bank debt and the company has 24 employees — down from 115 people three years ago.
Wann's bankruptcy consultant Clyde Hamstreet says he expects the company will be restructured and survive.

Ugh, what homebuilder will go bankrupt next?

Confidence in U.S. Homebuilding Market Hits All Timee Low - Credit Markets May Worsen

Bloomberg says:

Confidence among U.S. homebuilders slid in October to the lowest level since record-keeping began in 1985, a sign the crisis in credit markets may deepen the worst housing recession in a generation.

The National Association of Home Builders/Wells Fargo index of builder confidence decreased to 14, less than forecast, from 17 in September, the Washington-based association said today. A reading less than 50 means most respondents view conditions as poor.
The meltdown in worldwide financial markets that has clogged credit and sent U.S. stocks plunging is likely to worsen the economic slump. Home sales and construction will probably keep dropping as access to loans is restricted, weighing on growth well into 2009.

"Tight credit standards, rising unemployment and the potential for further home-price declines will continue to dampen housing demand and the still significant housing inventory overhang will continue to weigh on construction activity,'' Stephen Stanley, chief U.S. economist at RBS Greenwich Capital Markets in Greenwich, Connecticut, said before the report.

The builder confidence index was forecast to fall to 17 this month from an originally reported reading of 18 for September, according to the median estimate of 41 economists surveyed by Bloomberg News. Projections ranged from 15 to 20.
Wall Street

Today's report "reflects builders' assessments of the recent events on Wall Street, the rapid deterioration in job markets and the corresponding weakness in consumer confidence,'' NAHB chief economist David Seiders said in the statement. "The impacts of the record-breaking housing contraction have spilled over to other key sectors of the economy and weighed heavily on financial markets.''

Other reports earlier today showed the credit crisis is taking a toll on other parts of the economy. Industrial output fell 6 percent in the third quarter, the most since 1991, and a factory index for the Philadelphia region hit an 18-year low this month.

The builders' confidence gauge, which was first published in January 1985, averaged 27 last year. The confidence survey asks builders to characterize current sales as "good,'' "fair'' or "poor'' and to gauge prospective buyers' traffic. The survey also asks participants to gauge the outlook for the next six months.
The group's index of current single-family home sales fell to 14 this month from 17 in September.

Expectations Plunge
The index of buyer traffic decreased to 12 from 14. A measure of sales expectations for the next six months plunged to 19 from 28.

Confidence deteriorated in all four regions, led by declines in the South and Northeast.
U.S. foreclosure filings rose to a record in August as falling home prices made it harder to sell or refinance homes to pay off mortgages, RealtyTrac Inc., an Irvine, California-based seller of foreclosure data, said on Sept. 12.

The Commerce Department may report tomorrow that builders in September began work on 870,000 homes at an annual rate, the fewest since 1991, according to the median estimate in a Bloomberg survey. Building permits probably also fell.

Combined sales of new and existing homes have fallen 36 percent from their peaks in mid-2005. Home construction has declined 61 percent from a peak in January 2006. The supply of unsold homes on the market remains above 10 months' worth of sales, signaling homebuilding is likely to continue falling.

Lennar Corp., the second-largest U.S. homebuilder, on Sept. 23 reported its sixth straight quarterly loss as potential buyers struggled to get mortgages and rising foreclosures increased the supply of homes on the market.

"The weakness in the market actually accelerated as a result of increased foreclosures, weakened consumer confidence and tightened mortgage lending standards,'' Chief Executive Officer Stuart Miller said in a statement.

How will the credit crisis affect the homebuilding industry?

Wednesday, October 15, 2008

Firch 2009 Homebuilder Outlook - New Construction Continues to Fall

New home construction and sales will fall further next year as U.S. homebuilders continue to face tough market conditions for at least another year, concludes Fitch Ratings in a report released Tuesday.

Next year, there is a 60 percent chance that total new home construction will fall by almost 13 percent from projected 2008 levels, new home sales by 7 percent and existing home sales by 3 percent, the credit ratings firm said in a 173-page report.

If the U.S. should enter a sharp recession, however, Fitch said the combination of home priced declines, job losses and weaker consumer confidence will likely result in lower housing starts, weaker new and existing home sales.

"If mortgage rates should again rise or credit terms tighten further, then our housing forecasts could turn even more pessimistic," analyst Robert Curran wrote in the report. "And of course, if the economy, possibly now in a modest recession, slides into a sharp recession, then the downturn would not only deepen, but could extend further into 2009 or even 2010."

As a result, the firm expects the homebuilding sector will face more intense operational and financial pressures next year.

While home prices have fallen in many markets that saw dramatic home appreciation during the housing boom, many would-be buyers have stayed on the sidelines because of uneasiness over the economy.

Fitch expects homebuilders will close 2008 with revenues down by 34 percent to 40 percent, on average.

The firm's outlook for the sector is "Negative."

Fitch expects housing weakness to persist into 2009, despite recent government initiatives like the $700 billion U.S. government bailout and other efforts to prop up the nation's financial sector.

Still, should the nation avoid a pronounced recession, Fitch said housing could begin to stabilize toward the end of next year.

In that scenario, the firm sees the demand for new homes bottoming out early in 2009 and then picking up later in the year.

Fitch said Texas, the Washington D.C. area and southeastern states, excluding Florida, could be among the first markets to see a recovery.

Tuesday, October 14, 2008

Homebuilder TOUSA Files Chapter 11 Bankruptcy

Homebuilder TOUSA Inc., which has been operating under bankruptcy protection since January, said Tuesday it has filed its plan of reorganization with the bankruptcy court.
The plan would convert more than $300 million in second-lien debt to equity and do away with about $1 billion in bond debt and another $600 million of unsecured obligations, the company said.

TOUSA also would issue new debt with the aim of fully paying off claims by first-lien bank creditors and partially paying claims for second-lien bank creditors, although both payouts would be subject to the outcome of pending litigation.

Holders of TOUSA common stock would not receive anything under the reorganization plan.
The company expects to have between $125 million and $145 million in cash once it emerges from bankruptcy.

TOUSA Chief Executive John Boken said the plan would allow the builder to emerge from Chapter 11 "with a stronger balance sheet and greater financial flexibility that will position TOUSA to compete effectively in the industry and to continue to deliver quality homes to our customers."

The builder said affiliates Universal Land Title Inc., Preferred Home Mortgage Co. and Alliance Insurance and Information Services will remain part of the company once it emerges from bankruptcy.

TOUSA has operations in 10 states. It filed for bankruptcy protection in January, citing the flagging sales as the housing slump worsened. It filed its plan with U.S. Bankruptcy Court for the Southern District of Florida, Fort Lauderdale Division.

Monday, October 13, 2008

Homebuilders looking to offer Smaller, less expansive, less expensive homes

When the U.S. housing market hit the skids, homebuilders like KB Home that thrived by offering large homes and expensive amenities began to rethink their home designs with an eye toward making smaller, less costly homes.

Three years into the downturn, that trend appears to be intensifying, as many builders scramble to make their wares palatable and affordable to first-time buyers and compete with a trove of preowned homes and deeply discounted foreclosed homes on the market.
Los Angeles-based KB, which builds homes to order, began downsizing some of its floor plans last year.

"That worked for a time, but the market continued to move away from us," Chief Executive Jeffrey Mezger said recently. The company initially pared down 3,400-square-foot (316-square-meter) homes that sold for around $450,000 to smaller, 2,400-square-foot (223-square-meter) homes selling for around $300,000.

Today in Business with ReutersNations coordinate bid to revive economies IMF prepared to aid HungaryStocks rise sharply after vows of new bank capital Now, the builder is shrinking floor plans again. It recently launched a new line of homes in foreclosure-ravaged Southern California that start at 1,230 square feet (114 square meters) and are priced a little over $200,000.
Other builders, including Warmington Homes and John Laing Homes, have taken similar steps, as the industry seeks to stem losses due to falling home prices, tighter mortgage lending standards and skittish buyers. New home sales fell in August to the slowest pace in 17 years, while the median sale price fell 5.5 percent to $221,900.

The trend in smaller homes is a reversal of more than two decades of expanding floorplans, during which median size single-family went from less than 1,600 square feet (149 square meters) to more than 2,200 square feet (204 square meters).

That steady drive by builders to erect increasingly bigger homes peaked during the housing boom. Derided by some as McMansions, these super-sized homes packed with amenities helped drive up home prices even more.

Beyond competing with preowned homes on the market, declining home prices have also made it less profitable to build large homes, said Nishu Sood, a Deutsche Bank analyst.
"The only way to respond to the lower price environment ... is to make the home smaller," Sood said. "As you kind of reduce the floor plan size, we're getting back to more the way things were historically, kind of undoing the excesses, not just from a price perspective but home size and (fewer amenities)."

KB Home began to rollout its most recent iteration of smaller homes earlier this summer in Beaumont, California, as part of a development dubbed Highland Vista.
The homes are 1,230 square feet (114 square meters) and have three to five bedrooms.
Previous KB Home developments in the Beaumont area were built with homes in the 3,000-square-foot (279-square-meter) range.

"We really looked at what can the first-time buyer afford based on the median income for those markets and that's kind of how we designed our house to meet that price point that would attract those buyers," said Steve Ruffner, president of KB Home's Southern California Coastal Division.

The company plans to roll out more of these smaller floor plans nationwide beginning next year.
The homes, while smaller, feature large open spaces, a so-called great room often linking the living room and dining room area that might have previously been walled off. The homes also have a two-car garage standard and storage space.

"The square footage isn't the focus, it's really the utility and efficiency and flexibility of the home that is our focus," Ruffner said. "You could have a three-bedroom, 2,500 square-foot (232-square-meter) single-story home and all you had was wide hallways and bigger rooms. It wasn't really giving (buyers) the utility."
"The trend definitely is going to be, I think, getting back to the basics: What people can afford is the type of home they're going to buy."
That's the driving thought behind Warmington Homes' Summer Park Estates development in Galt, California.

At Summer Park, the company is building out the third phase of the development with homes that are markedly smaller than previous phases.
The older homes averaged 3,500 square feet (325 square meters) and typically sold in the mid to high $500,000 range. In contrast, the newer homes average 2,200 square feet (204 square meters) and will be priced in the low $300,000 range.

"We will continue to build smaller houses and that's a function of price, because financing is more difficult to get today," said Allen Morris, senior vice president of sales and marketing for Warmington Homes, which is based in Costa Mesa, California.

Homebuyers' tastes, possibly influenced by tighter mortgage lending, are also helping drive the changing trends in new homes.

Big formal entries, high ceilings and lavish light fixtures are also not as high a priority among many buyers these days, said Linda Mamet, vice president of sales and marketing for Irvine, California-based John Laing Homes.

Stock Market Rally Leaves Most Homebuilders Behind

NEW YORK, Oct 13 (Reuters) - The broader market rally this morning bypassed most U.S. home builders on Monday after several analysts issued notes describing very stale order trends and weak traffic in the homebuilders field.

The Dow Jones U.S. Home Builders index was down as much as 1.3 percent in morning trading while the broader market was up about 5.5 percent.

It has been recently reported that sales center traffic at the weakest levels since January 2001, when he started his "Neighborhood Watch" report, which surveys 150 sales managers in 20 markets monthly.

The fourth quarter "may prove (to be) the weakest climate for new home sales since the production homebuilding business effectively began in the late 1940s," Reichardt wrote.
Toll Brothers Inc (TOL.N:) shares were both down -- Toll nearly 2 percent at $20 and Ryland as much as 4.9 percent at almost $19 -- after Credit Suisse analyst Dan Oppenheim downgraded both. Ryland was downgraded to "neutral" from "outperform" and Toll to "underperform" from "neutral."

Another hit to asset values as home prices continue to fall has not yet been factored into Toll's share price, making it too expensive "given its premium valuation and its high-end focus," wrote Oppenheim, who sees sees an additional 45 percent decline in raw land values and extremely weak order trends over the next several quarters.

One builder looked good though, as Oppenheim upgraded Meritage Homes Corp (MTH.N:) to "neutral" from "underperform," however, and its shares bucked the trend by rising as 14 percent, or $15.96.

Friday, October 10, 2008

How Bad is the Florida Housing Market? Florida Housing Market Stats

The Star Tribune reports on Florida. “Fort Myers is the spring home of the Minnesota Twins, and so many Minnesotans visit or live here for at least part of the year that some have called it ‘Edina by the sea.’ It may still feel like paradise…but a short drive or a foreclosure bus tour reveals what was left behind when the housing bubble burst. Just east of Fort Myers, the weekend tours wind through Lehigh Acres, a once-fast-growing city of about 70,000 that’s been hard hit by the housing meltdown. It’s easy to reserve a tee time at the local Copperhead Golf Club, where fairways are lined with vacant houses and undeveloped lots.”
“‘You can get a house that sold for $700,000 three years ago in the $200,000s today,’ the starter told a group of hackers from the Midwest last week.”

“There were a staggering 22,000 foreclosure filings in Lee County, where Fort Myers is located, in 2007-08, compared with 1,600 in 2005-06.”

“In south Florida today, even the most informal conversations quickly turn to the economy and the housing free fall. There were few signs of a rebound at Copperhead Golf Course last week. ‘Come back Sunday,’ an employee said as he helped the Midwesterners pack up their clubs. ‘We’re really hurting on Sunday.’”

The Naples News. “September’s snapshot of home sales in the Fort Myers area is a picture of climbing sales yet growing inventory. September’s median sales price slipped another 6 percent from August to $126,250. That’s 42 percent lower than a year ago at $218,000.”

“The ratio of homes sold compared with new homes listed, which indicates to Realtors if the market is reaching a balance, fell to 33 percent compared with 39 percent in August. The drop came as the number of newly listed homes spiked 27 percent to 2,277 in September from 1,850 the month before. Realtors were encouraged by a 25 percent jump in pending sales as more than 1,400 contracts were signed in September. But as borrowers have struggled to receive loans, those pending sales may not translate to sealed deals.”
“The total number of homes on the market, 12,614, was the highest it’s been since November when there were more than 13,400 listed.”

“A leading economist said Southwest Florida’s housing market continues to sit on the bottom. Hank Fishkind was the keynote speaker at the conference, hosted by the Chamber of Southwest Florida. At last year’s event, Fishkind said the Southwest Florida housing market had bottomed out.”
“‘It just keeps banging along the bottom,’ he said. ‘Certainly, I couldn’t anticipate the financial panic.’”
“Fishkind said foreclosures in Lee County seem to have peaked, with year-to-date numbers down, but foreclosures in Collier County doubled in the same period. ‘It looks to me like we’ve seen the worst. Collier County’s going to have some problems going forward though,’ he said. ‘I didn’t think we’d see the surge in foreclosures in Collier County. I think it’s the last of the speculators throwing in the towel — or being forced to.’”

The News Press. “‘When we see a recession due to housing and credit issues, as we are seeing now, Florida suffers more than the rest of the U.S. and Southwest Florida suffers more than the rest of the state,’ Fishkind said. ‘Florida, in general, and Southwest Florida, in particular, depends on the ability of people in Northern states to move here. If they can’t sell their house in Boston … they can’t move here.’”

“At last year’s conference, Fishkind also predicted a two-year recovery period. ‘It’s never an easy task to pick the top and the bottom of a market,’ he said. ‘I’ve been at this 30 years and I’ve made my share of mistakes.’”

The Miami Herald. “Just how busy is Miami bankruptcy lawyer Michael Brooks these days? ‘If I wanted to schedule appointments Monday through Sunday, 9 to 6, I could do it,’ Brooks said. ‘It’s getting to the point where we’re turning away business.’”

“Nearly 13,500 personal bankruptcy filings were recorded in the first nine months of this year in the U.S. Bankruptcy Court for the Southern District of Florida, an increase of 75 percent from the almost 7,700 filed during the same period in 2007.”

“Bankruptcy trustees and lawyers attribute the surge in filings in South Florida to the area’s rising tide of foreclosures, brought on by falling property values and costly mortgage loans. ‘In the old days, people were saving their home from foreclosure [by filing for bankruptcy],’ said Jeffrey Tromberg, a lawyer for the Florida Debt Relief Center in Fort Lauderdale. ‘Now, more often than not, they are walking away from their home. They are no longer even attempting to save their home in bankruptcy.’”

“Most of what Brooks sees are people who bought multiple investment properties on the west coast of the state or north of Palm Beach County and who can no longer keep up with what they owe. ‘People are surrendering these properties left and right,’ Brooks said.”

“For months, South Florida business leaders have been thanking their lucky stars for Europe. A Miami vacation, a Fort Lauderdale Beach condominium, a boat made in West Palm Beach — all seemed cheap when you were paying in euros. Now, it seems, it may be time to pay the piper.”
“Marine-industry consultant Jim Bronstien heard an interesting story. ‘There were a number of offers for very large yachts, and the offers were rescinded after the market fell 700 points,’ said Bronstien, of Marine Business Advisors in Palm Beach County.” “He said the industry has a lot tied to Europe’s fortunes. ‘I think anybody who isn’t a little bit concerned would be ill-advised,’ Bronstien said. ‘The world is changing pretty rapidly.’”

“A Coral Gables lawyer has been charged with helping to broker a crooked mortgage deal that used identity theft to buy a Coconut Grove house for more than three times what it was worth. Delaila Estefano and two men were charged last week with first-degree grand theft, organized fraud and using a fake ID.”

“According to an arrest warrant released Monday, someone in February used the identity of Bernardo Humbero Barreira to obtain a $484,286.06 mortgage from lender Citi Mortgage for a house owned by Romney. The price tag: $600,000. But co-defendant John Romney had paid just $185,000 for the two-bedroom, one-bathroom house just six days earlier. No payments have been made on the loan, police said.”

From Miami Today. “As foreclosures have spiked and loans become more difficult to come by, divorce proceedings have been prolonged, and in some cases, couples have put off a pending split. And in the case of death, homes have become controversial as parts of wills.”
“In cases of death, especially if it is the last living parent, a house left to split between children can be a messy matter, said Circuit Court Judge Celeste H. Muir, probate division. This is usually because most of the parents’ wealth is tied up into their home, Judge Muir said. ‘When somebody dies, if their will says they sell the house, it becomes a problem,’ she said. ‘The usual scenario is the children are expecting the proceeds to be 2006 prices and not 2008.’”

The Tampa Tribune. “The developer of Element, a 395-unit building under construction, has decided to turn the whole building into a luxury apartment complex, said John Akin, senior VP for development of Atlanta-based Novare Group. Akin would not say how many condo units have sold but said there were not enough contracts to finish the building as a condominium.”
“‘It will be a condo-quality apartment complex,’ Akin said.”

“Swaths of vacant land dot downtown streets. Some just happen to be the size of condo developers’ dried up dreams. Now, the big questions are what will be built on the land, and how long will it take to sell it?”

“‘We’ve got places where we could run cattle if we wanted,’ said Wilson Stair, the city’s urban planner.”

The Orlando Sentinel. “Orange County government will buy and fix up as many as 200 foreclosed homes in the next year, and sell them to moderate- and low-income buyers to help clean up neighborhoods worst hit by the mortgage meltdown. A $28 million federal housing grant will pay for the program, which could remove as many as 1,000 homes from the foreclosure ranks before the aid runs out in 2013.”

Orlando Housing Market - “Inside Orlando’s city limits alone, 5,000 properties went into foreclosure last year, according to data from Realty Trac. Financial experts say that number could continue growing until next year. ‘This is just a drop in the bucket,’ Commissioner Teresa Jacobs said.”

From WPTV. “At EZ Cash Pawn in West Palm Beach, they don’t need some wall street guru to tell them the economy is tanking. Shop owner Bob Desantis says their shelves are so stacked with electronics, musical insturments, guns, fishing poles, scuba gear - you name it, that they’re having to turn business away. With the housing bust, construction workers come through the door every day, he says, trying to get cash for unused power tools.”

“‘I have to decline it,’ says Desantis, ‘I have no choice. I have tools in the warehouse now. Every single tool you can think about. Electronics, plumbing tools.’”

“At Provident Jewelry and Loan on Clematis Street, store owner Robert Samuels says all kinds of people are coming through his door. ‘It’s crept from the lower and lower middle class to the middle and upper middle class,’ says Samuels.”

The Palm Beach Post. “A mortgage fraud ring used bogus deals for 13 homes in Palm Beach County to steal more than $1 million from lenders, Florida Attorney General Bill McCollum said Wednesday. Using straw buyers, Johnson Cuffy applied for mortgages. Once the loans closed, the straw buyers posed as owners and took home equity lines of credit from the lenders. The participants kept some of the proceeds and moved the rest through nonexistent companies to Johnson Cuffy, McCollum said.”

“Don Suozzo long dreamed of living on the beach. He couldn’t afford it. ‘I’ve been looking to get on the beach for 20 years, and the pricing was absolutely horrendous,’ Suozzo said. ‘The best we found was $300,000 and four or five blocks from the ocean.’”

“Then came the post-boom storm of mortgage defaults, and Suozzo started shopping for deals. In May, he became the proud owner of an oceanfront condo in Highland Beach. He paid $290,000 for the 2,240-square-foot unit. The previous owner paid $782,000 for the unit in 2005, then lost the condo to foreclosure.”

“During the first eight months of 2008, 18,065 properties in Palm Beach County went into some stage of foreclosure, according to the Palm Beach County Clerk and Comptroller’s Office. That’s more than in the previous two years combined.”

“With lenders willing to deal, foreclosures are the most active corner of the housing market, said Laurie Davies, a foreclosure specialist in Boca Raton. ‘Everybody’s looking for a fantastic buy,’ Davies said. ‘A lot of houses are going for 30 percent to 40 percent less than they should be.’”
“And compared to the bubble-inflated prices of 2005 and early 2006, the discounts are even bigger. Davies points to a couple of recent foreclosure sales that sold for half of their previous prices. In Wellington’s Olympia development, a home recently sold for $238,000 after going for $530,000 in 2006. At CitySide in West Palm Beach, a townhouse sold for $180,000 in July after trading for $505,000 in 2006.”

“Professionals in the gambling business have some pretty pointed opinions about the Wall Street titans who brought you the current financial crisis. ‘The problem is they were playing with other people’s money,’ says a stern-faced Alexander Havenick, whose firm runs poker parlors and dog racing tracks in the Miami and Fort Myers areas. ‘Would you do that with your own money?’”

“In Havenick’s business, everyone places his or her own bets, whether on a racing greyhound or three kings. Handing money over to Wall Street middle men with a taste for crumby mortgages has turned out to be a bad wager for the American public, he says.”

“Charles Anderer, publisher of the Casino Journal and Indian Gaming Business magazines, couldn’t agree more. ‘It’s a mug’s game,’ says Anderer, speaking of the state of affairs in the roller-coaster stock market and the other dealings by those financiers. ‘They say Wall Street has been operating like a casino lately, but that’s an insult to the casinos.’”

Centex Suspends Cash Dividends - A week after selling Insurance Agency

Dallas-based homebuilder Centex Corp. said Thursday that it is suspending its cash stock dividend because of deteriorating economic conditions.

The company said that during the last four quarters it has paid about $20 million in dividends.

On Thursday, Centex’s stock closed at down 14 percent for the day at $10.17 – a new low for the year.

Moody’s Investors Service on Wednesday downgraded of Centex’s debt ratings.

Just Last Week Dallas-based homebuilder Centex Corp. said Wednesday that it has sold an insurance subsidiary. Centex said it sold its Westwood Insurance Agency to ZC Sterling of Atlanta for $55 million in cash and other undisclosed terms.
The transaction closed on Sept. 30. Westwood is a California-based firm which provides insurance to homebuilder customers. Under terms of the sale agreement, Westwood will continue to provide insurance services to Centex customers, the companies said.

The Westwood transaction is the latest in a series of sales by Centex which is focusing on its core building business. The big builder lost $150 million in the quarter ended June 30.

How Can I tell If a Homebuilder is Stable or is going Bankrupt?

Question: I'm interested in purchasing a home in Del Webb's Shadow Hills project in Indio, Calif. I note that Pulte Homes, which builds the homes there and may even own Del Webb (or vice versa), is on the danger list on the Home Builder Implode-O-Meter Web site. Any thoughts or recommendations? Should I stay away from this Del Webb community?

Answer: Pulte Homes Inc. owns Del Webb, of that I'm sure. But otherwise, who knows? This is a tough, tough market, and only time will tell which builders survive and which do not. I hesitate to give more than general advice about any particular builder because I have no greater insight than anyone else, save for perhaps a stock analyst, who should be able to go over the company's financials and determine whether or not it has any staying power left. But I will say this, though: Pulte did pretty well in J.D. Power Co.'s most recent home-builder customer satisfaction study. Why is this important? Because in times like these, the first thing many builders cut back is customer service. Once buyers close and move in, they are often forgotten because a troubled builder is concentrating on selling other homes, not making previous buyers happy. But Pulte brands (which besides Del Webb include DiVosta Homes) ranked highest is customer satisfaction in 11 of the 33 markets surveyed. You can find the rankings for all 33 markets here. "In 2008, a wide variety of home builders perform(ed) well," said J.D. Power's Paula Sonkin. "In the midst of the volatility that has defined the overall housing market during the past two years and has caused several home-building companies to go out of business, many local and regional builders have seized the opportunity to attract and serve potential home buyers."

Also, let me point out what the Home Builder Implode-O-Meter itself points out: The builders on its watch list are not necessarily in deep do-do. The companies may have gone through some kind of adverse change -- perhaps a key executive has stepped aside -- but they are still up and running, the Web site notes in its fine print. Other possible setbacks include a steep and rapid decline in the firm's value -- and what big builder hasn't experienced that kind of fall from grace? -- or there may have been a rescue by a parent company.

Beyond that, it's always wise to make sure your prospective builder has a solid foundation, not just in these troubled times but always. Doing this kind of legwork isn't simple, but it is worth it. Otherwise, you could end up going down with the ship. There isn't any precise way to research a builder's staying power, but here are some steps you can take to protect yourself against the possibility the company might fail:

1. Check with your local courthouse to see if any of the builder's subcontractors and material suppliers have filed liens because they have not been paid. "Follow the money," says an Idaho builder who asked to remain anonymous for fear of being ostracized by his colleagues. "Once a lien has been filed, 70% of all builders won't be able to dig out from under. So this rolls right to the issue of stability." It's not uncommon for a builder to use his cash to meet his own payroll before paying any or all the 120 or so vendors who work on a house, hoping he can use cash from the next sale that comes through the door to pay for the work and materials on the previous sale. Subs and suppliers often let a builder slide because they want to keep working too. But only for so long. When it becomes evident to them that the company is in dire straights, they file liens against the builder so they'll be in the line of creditors should the builder file for bankruptcy.

2. Talk with the subcontractors you see working on the project. "We hear from subs about slow pay problems long before a builder files for bankruptcy," a Maryland consumer affairs expert advised me a long time ago. Even if they aren't being paid on time -- a sure sign of cash flow problems -- they might remain mum. But one or two may be angry enough or so far behind that they'll spill the beans. After all, they are consumers too. While you are walking the job, look for tell-tale signs of problems. Lack of activity is one. The absence of building materials is another. Sales are slow these days, to be sure. But if there are no signs of activity, the pace may be too slow to carry the project.

3. Require the builder to provide lien releases signed by every vendor on the job saying they have been paid. This may be a logistical nightmare for the builder, but if he wants your business, he may agree. Sales are hard to come by these days, so a builder who is in good shape may agree to do this just to ease your concerns.

4. Ask for permission to speak with the builder's bankers about his financial strength. Lenders are often the last to know when a builder is in trouble. Still, a builder who balks at your request may or may not be trying to hide his difficulties. But in today's troubled times, a sound company shouldn't have any problem with this request either. And if the builder does agree, the bank has a duty to be honest. If not, it could be held liable if the builder folds.

5. Demand that your deposit money be held in a separate escrow account. In most states, builders are permitted to place earnest monies into their own accounts and use the funds to operate their businesses. But in today's market, some will use your money to finish the previous buyer's house, again hoping to use the next buyer's money to work on yours. Builders may balk at first, but if it means the difference between a sale and no sale, they should cave. "I've never seen a single builder blow a deal over (earnest money), not one," says an Ohio buyer-broker.

6. Ask for the names of the company's most recent buyers to get their take on the builder. One of the first places a builder in trouble will cut is warranty work, so you'll want to know whether or not the company is attending to so-called "punch list" items in a timely manner. Also ask if the builder cut corners, switched suppliers in midstream -- say from one appliance maker to another -- without notice or permission, or has generally failed to be responsive.

7. Add a "springing" provision to the sales contract. This is a clause that allows you to back out of the deal if the builder files for bankruptcy. Builders typically won't let a buyer amend their standard contracts. But today's housing market calls for extraordinary measures, so a sound builder shouldn't have any trouble with this consumer protection.

8. Another place builders tend to cut early is office personnel. If the company lays off construction staff, it could simply be phasing down to get in step with the slowing market. But if there is no one to answer the phone and direct calls, trouble may be brewing. Ditto if the builder has canned project superintendents, estimators or design and sales and marketing staff. These are all "lifeline" positions, so if these key personnel slots are vacant, buyer beware.

9. Consider taking out a construction loan, one that automatically switches to a permanent mortgage when the house is completed, in your name. That way, the builder will be paid in draws only as various phases of construction are completed. If the builder fails, you'll be left with a partially completed house that very likely will cost your more to finish than you originally planned to spend. But at least the unfinished place will be yours. You won't lose your deposit, and your house won't be tied up in legal proceedings.

10. Make sure the builder offers a third-party warranty. This won't protect you if the business goes under while the house is under construction. But if the builders goes belly up after you move in, the warranty company should step forward to make whatever repairs are necessary. Many builders have their own one-year warranties. But they aren't worth a hoot if the builder is no longer around to back it up.

Nationally syndicated columnist Lew Sichelman has been covering the housing market for 35 years. Because of the volume of mail he receives, he cannot answer individual questions, nor can all questions be answered in this space. E-mail

Trend Homes, Arizona Builder - Najafi Reorg/Buyout Chapter 11

J. Craig Anderson - Oct. 10, 2008 12:00 AM
The Arizona Republic

This year has been a difficult one for Trend Homes, but in some ways the Chandler-based home builder has been fortunate.

It was on the brink of insolvency in January when private equity firm Najafi Cos. agreed to purchase the bulk of its assets through a Chapter 11 bankruptcy proceeding.

Now, the second incarnation of Trend Homes, or as company CEO Reed Porter calls it, "T2," is trying to pick up where its failed predecessor left off.
Porter spoke with The Arizona Republic recently about the company's recent troubles and where things stand today.

Question: How is the company's health now compared with a year ago?

Answer: First of all, it is a new company. The Najafi Cos. formed a new legal entity. They acquired assets of the old company through the bankruptcy, including homes, lots, computers and other equipment. They also purchased the names Trend Homes and Classic Communities and hired all the (50) old employees, too. But it is a brand-new company that doesn't have any of the old issues.

Q: What led Trend Homes to file for bankruptcy protection in January?

A: It was kind of what would be known as a prepackaged bankruptcy. The deal was heavily negotiated with the creditors. Najafi wanted to buy the company's assets, but those assets had decreased substantially because of the housing market. They were no longer worth as much as the debt. So the old Trend Homes sold almost all of its assets to Najafi through what's known as a 363 sale, which can only happen through Chapter 11 reorganization. It's a complex process that allowed Najafi to purchase assets and assume some of the debt. The old (company) is still in Chapter 11.

Q: What's the relationship like with Najafi, and what role does Trend's new owner play in day-to-day operations?

A: We now have new credit that allows the company a fresh start to go ahead and continue to do business, and we can offer homes at today's market price. We're no longer hanging around with a bunch of overpriced assets. Our new home prices are competitive with foreclosures and short sales, and we're ready to go. Trend's six communities completed construction on all the unfinished homes this summer. We're eager to get some new homes sold in those communities.

Q: Several weeks ago, the company was trying to reach an agreement with its former land bank, Taro Properties Arizona, to buy nearly 500 vacant lots inside the partially built Cooley Station North subdivision in Gilbert that were going into foreclosure. What was the outcome of those talks?

A: When Taro filed for bankruptcy (in August), that stayed the foreclosure. We're still trying to put a deal together to buy those lots, but there's no plan at all. Certainly we have an interest in continuing to build homes there. The new Trend Homes will continue to build homes in six of the old Trend's seven communities, but Cooley Station North is being treated differently because it has a different bank. For whatever reason, they didn't like the terms that the other bank liked.

Q: Even though you don't have any plans to continue building homes inside Cooley Station North, you are still the sole member of its homeowners association board of directors. Are you planning to step down from that position?

A: That's being worked out through the Taro bankruptcy. The new Trend Homes doesn't have any assets in Cooley Station North, but Taro owns 65 percent of the property. The last thing (Taro) wants is for the property to decrease in value. They've got $30 million worth of land that they're trying to protect. The management company is still operating, but everyone's doing all they can to cut costs and services during these difficult times. It's a challenge everywhere. Every single partially built community is having trouble with the HOA.

Renaissance Custom Homes LLC of Portland Files Bankruptcy

Robert D. Miller Jr., the acting U.S. Trustee overseeing the bankruptcy proceedings for Renaissance Custom Homes LLC, has appointed a committee to represent the Lake Oswego home builders’ largest unsecured creditors.

Citing a weakened residential housing market, Renaissance sought protection from its creditors on Sept. 25 by filing under Chapter 11 of the U.S. Bankruptcy Code. It was the third major home builder to file bankruptcy this year.

Hal Keever, vice president of WH Pacific, will chair the unsecured creditors committee.

Other members include David Howells, president of Howells Custom Cabinets, Sean Loth, corporate officer of Precision Countertops; Chris Cory of Curtis Heintz Excavation Inc.; Thomas Courtney, vice president of TruGreen LandCare LLC; Scott Crawford, president of Rex Hill Masonry Inc.; Katherine Bailey, recovery officer for US Bank; Steven Johnson, chief financial officer of Parr Lumber Co.; and Kory MacGregor, president of Roth Heating & Cooling.

Renaissance had consolidated assets of $115 million and liabilities of $110 million as of June 30.

It simultaneously filed bankruptcy for three of its companies: Renaissance Custom Homes LLC, Renaissance Development Corp. and the Lakes at Fishers Landing LLC.

The company hopes to exit from bankruptcy by next spring.

Earlier this year, Legend Homes, Portland’s ninth-largest home builder, filed bankruptcy. Clackamas homebuilder Tony Marnella and three of his companies also filed bankruptcy this year.

Thursday, October 9, 2008

How to Protect Yourself Against a Homebuilder Bankruptcy

When a homebuilder goes bankrupt, the company's creditors aren't the only ones who suffer. Often, so do those who have paid sometimes hefty deposits for houses that remain unbuilt and new homeowners living in a development with half-built homes and incomplete amenities.

In the past year, the tumbling housing market has claimed such large builders as Fort Lauderdale, Fla.-based Levitt & Sons, a unit of Levitt Corp., Elliott Building Group in Pennsylvania, Turner-Dunn Homes Inc. in Arizona, Kara Homes Inc. in New Jersey and Neumann Homes Inc. in Illinois.

When these builders file for bankruptcy, subcontractors stop working, unfinished homes in various stages dot the communities, crippling liens are placed on occupied homes, clubhouses are incomplete and swimming pools and parks are never built.

People who have placed deposits on homes either never get their money back or face delays of months or years before it is returned.

"The houses sit until someone comes in and decides to complete them," says Tracy Cross, of Tracy Cross & Associates, a Schaumburg, Illinois-based real estate research firm. The buyers "can't move in, they can't get their deposit back and they can't get out of the contract."

In November, Levitt and Sons became the nation's largest builder to file for bankruptcy. In its bankruptcy filing, the company lists assets of less than $1 million and debts of more than $100 million.

Some home builders such as Centex Corp. and Pulte Homes Inc. aim to survive by selling houses at bargain prices, scrapping growth plans and slashing jobs. But as the housing market continues its downward slide, other home builders could find their companies in jeopardy.

Problems for homeowners and buyers

Attorney Brian Meltzer, of Meltzer, Purtill & Stelle LLC, in Chicago, Ill., has represented home builders for more than 30 years. He notes that these bankruptcies create numerous problems for homeowners. One of the most pressing issues will be warranty service issues on their homes.

Cross believes that homeowners living in a bankrupted new home community have few options when their home has a major problem. If the foundation has cracks, the floors aren't level, the roof is leaking or the foundation is shifting, the homeowner will have to pay for the repairs. If a new entity takes over the development, it can help the homeowner -- but it has no obligation to do so.

As for the houses partly under construction, what most likely happens is that the lenders or another entity step in and hire the trades to finish those houses. The home buyer will then get the house he or she contracted for. In the meantime, the home buyer is "stuck" and can't get out of the legally binding contract.

How can potential buyers protect themselves?

Both Cross and Allen C. Balk, at Meltzer, Purtill & Stelle LLC, recommend checking out the builder before purchasing a home. Look at the progress in the subdivision. Drive around. Is anyone working? If it looks like there isn't that much production, it may be indicative of other issues.

Knock on doors and ask people if they are happy with their home. If you decide you want to live in that community, purchase a completed inventory home, which eliminates much of the risk.

Look up the company on the Internet. If it's a public company, you'll be able to find out how it's doing in different markets. Find out if land is being revalued.

Buyers should also make sure that their earnest money is in a third party escrow account because if there is a bankruptcy there is a right to terminate the deal.

"If the money is not in such an account, you become an unsecured creditor," he added. However, this provision can vary from state to state so it's up to the buyer to find out if this is done in their state.

Buyers sometimes can add a "springing provision" to their contract. This is a clause in the contract that allows the buyer to walk away if the builder files for bankruptcy protection. Most contracts don't contain them. This clause only "springs" into effect with a bankruptcy filing.

"There is nothing wrong with asking your lawyer to put this in the contract," says Balk. "It's important to check with your state to see how enforceable this clause is."

Greenspan Says Major Homebuilders Face Chapter 11 Bankruptcy in 2008, 2009

The collapse of the subprime mortgage market may push some big U.S. home builders toward Chapter 11 bankruptcy protection starting next year, according to bankruptcy advisers and lawyers who specialize in the real estate industry.

The weakest publicly held builders are staying out of bankruptcy by relying on the profit they made when sales boomed, and on the public debt they sold in those years, said Ronald Greenspan, a lawyer and financial adviser to the creditors of four bankrupt subprime mortgage lenders. Home builders issued $3.6 billion in public debt in 2005 and 2006, though only $600 million of that comes due this year, he said.

"There is no sword over the industry's head yet," Greenspan said Saturday at a conference of the American Bankruptcy Institute in Washington. "That doesn't mean the industry is not wounded. Instead, the breaking point could come in 2008 or 2009."

The real estate market has been powered in recent years by subprime homebuyers, who typically have shaky credit histories. Now that such loans are no longer being made, demand for new homes will plunge, pushed down even further by the more than one million homes now in foreclosure, Greenspan said. At least 30 home lenders have halted operations or sought buyers in the past 12 months, including 5 that went bankrupt since November.

None of the major, publicly traded home builders have declared bankruptcy, though there are signs that many are in financial trouble, Greenspan said, declining to name specific companies. The value of shareholder equity for some companies equals or exceeds the value of the undeveloped land that the companies have under contract, Greenspan said. As the housing downturn continues, that land will fall in value.

Today in Marketplace by Bloomberg
Bank of America moves quickly to cut jobs after earnings disappointSony profit helped by camera sales, but game console still trailing rivalsMicrosoft profit soars 23 percent, beating expectationsThe perceived risk of owning the bonds of some of the biggest U.S. home builders has risen since a wave of bankruptcies hit the mortgage industry that caters to homebuyers with poor credit histories. Credit default swaps have more than doubled in price since Feb. 1 for two of the four biggest builders, D.R. Horton and Pulte Homes, and for Toll Brothers, the big luxury-home builder.

Credit default swaps are financial instruments based on bonds and loans that are used to speculate on a borrower's ability to repay debt, and were created to shield bondholders from default.

Kara Homes, a New Jersey builder, was one of the first major, closely held home builders to file for Chapter 11 bankruptcy protection, in October. Such regional builders are likely to precede any of the big public companies into insolvency, said Kara's bankruptcy lawyer, David Bruck.

By 2008 or 2009, some of the larger companies will have to restructure as the housing crunch continues, he said, adding, "It's only a matter of time."

D.R. Horton Dumps Land at Big Loss for Tax Benefits

As it struggles through the housing crisis, home builder D.R. Horton Inc. is unloading land across California at big discounts.

Horton, the nation's largest home builder by unit volume, is jettisoning thousands of house lots in far-flung areas, partly to reap the tax benefits from selling property at a loss.

Michael Corkery/The Wall Street Journal

D.R. Horton recently sold this undeveloped parcel in Chino Hills, Calif., a hard-hit housing market east of Los Angeles.

As builders try to survive one of the worst housing downturns in U.S. history, land buyers and brokers expect more such tax-motivated fire sales of undeveloped land this year. That could set a new low for land prices in California and other troubled housing markets. The sales also could indicate a shift for big builders: from developing huge swaths of land in the exurbs, to building smaller developments closer to metropolitan areas.

Horton two weeks ago sold about 2,000 house lots in Desert Hot Springs, a blue-collar community in the far reaches of Southern California's Inland Empire, for $7.8 million, according to county records. William Shopoff, a land investor who bid unsuccessfully for the property, estimates Horton paid about $110 million for the land before spending to prepare the property for development by grading and installing infrastructure such as sewers.

Horton also recently sold a four-acre parcel in Escondido, near San Diego, for $4.4 million, about 25% of what it paid for the property in 2005, according to the county assessor.

Horton, based in Fort Worth, Texas, declined to comment for this article.

Buyers of some of Horton's land in Southern California include a venture between Foremost Communities Inc. and Starwood Capital Group LLC, which together bought 250 house lots from the builder, according to a person familiar with the matter. The investors plan to hold the lots until the market recovers, this person said. A spokesperson for the venture didn't return a call.

As new-home sales sank to a 17-year low, builders can no longer count on doubling their investments by buying undeveloped parcels, preparing the property and selling the homes on it. Horton, which built nearly 53,000 homes at the peak of the housing boom in 2006, has posted quarterly losses since the April-June quarter of last year.

The fire sales are a silver lining in those clouds. Tax law allows companies to apply losses from land and other asset sales to past profits and reap a tax refund. More sales are expected soon because the companies can apply losses only to profits earned as far back as two years and 2006 was the last profitable full year for most builders.

Horton told investors in June that it expects to receive a tax refund of $519 million over the next two years. At the end of last year, Lennar Corp. pocketed a $200 million tax refund after taking a 60% discount on its sale of 11,100 house lots to a joint venture it formed with Morgan Stanley.

"There's going to be a rash of builders shedding assets," said Tom Reimers, executive vice president of O'Donnell/Atkins, a real-estate advisory firm in Irvine, Calif. "It's all tax-motivated."

By dumping land, builders are chasing cash that allows them to keep current with lenders and pay overhead expenses.

Horton had $851.2 million in cash on hand at the end of its fiscal third quarter, June 30, up from $270 million at the end of last year, according to research firm Zelman & Associates. Horton owes about $210 million in annual interest payments, according to Zelman.

So far, most publicly traded home builders have managed to muddle through the housing mess. One reason is the builders' financing arrangements. Many such large companies have long-term corporate debt that doesn't come due for another year or two, giving them breathing room amid the credit crunch. The builders typically don't need lender approval to keep building as long as they honor certain debt agreements at a corporate level.
Most closely held builders, on the other hand, use project-specific financing, in which they need a bank's approval to start each new development. Lenders have completely cut off credit to most small builders, forcing many to file for bankruptcy protection. Analysts expect more than half of the nation's small and midsize builders will fold during the housing downturn, which has already forced such private companies as Levitt & Sons of Fort Lauderdale, Fla., and Kimball Hill Homes of Rolling Meadows, Ill., to file for bankruptcy.

Still, big builders like Horton aren't out of the woods. Horton has $585 million in debt that needs to be paid off in 2009, $362 million due in 2010 and $450 million in 2011, according to Zelman.

Horton's recent land sales also could reflect an industry shift. Over the next few years, builders will likely build smaller developments closer to large metro areas, where house prices are expected to recover faster than in the far-flung regions. That contrasts with 2005, when builders bought massive parcels in California's exurbs and earned big profits as land values skyrocketed during the housing boom.

Horton, for example, is interested in buying 50- to 150-lot parcels that are already developed and closer to certain cities in the San Francisco Bay area, says a person familiar with the company's thinking.

"The builders are going to build in the better locations for the next few years, and live to see another day," said Steve Reilly, a land broker with Prudential Realty in Danville, Calif. "The downside is they are never going to see the kind of margins when lots were doubling and tripling in value in the time it took to build a house."

From the Wall Street Journal

Royce Builders Winding Down Operations

The president of Royce Builders, one of Houston's top home building firms, said today the company has laid off a substantial number of employees and that operations are winding down.

The company's credit lines have been cut as its lenders limit their exposure to real estate, said John Speer, president of the 24-year-old Houston-based homebuilder.

"When we got squeezed on the ability to start houses it affected our cash flow," he said.

The company, which earlier this year had about 220 employees, now has about 60. There were some layoffs earlier this year.

Speer said Royce is working with its lenders to complete homes that already have been started. It is also negotiating with vendors who have liens against the company.

Royce has between 60 and 80 homes that are under construction and will be completed, Speer said. Another 70 or 80 that have been contracted but not yet started are unlikely to be built.

"We'll get them their earnest money back," Speer said.

The builder has not filed for bankruptcy, but it was unclear how the company would emerge from its current situation.

Sheridan Homes of Texas Files Chapter 11 - Vacant Lots and Unoccupied Homes Left

Plano-based Sheridan Homes of Texas is among at least four North Texas home builders to file for bankruptcy protection this year as the housing industry continues to struggle nationwide.

When it filed for Chapter 11 protection in early August, Sheridan reported 100 vacant lots and 80 finished but unoccupied homes.

In addition, the company was building five homes in Grand Prairie and Waxahachie that had already been sold, court records show.

"Because of [Sheridan’s] precarious financial position, the [company] was unable to fund the completion of the homes and deliver them to the buyers," the company said in court documents.

Buescher Homes, Goff Homes and Steelman Homes are other North Texas builders that have filed for bankruptcy this year, according to court filings.

Large national home builders, including Fort Worth-based D.R. Horton, are feeling the pain of the national slowdown. Horton reported a loss of $1.8 billion between September 2007 and June 2008.

The company sold 36 percent fewer homes in April, May and June than the year before.

"The home-building industry is not in a recession," Chairman Donald R. Horton told shareholders in January. "It’s in a depression."

Sheridan’s outlook

An attorney representing Sheridan Homes did not return phone calls seeking comment.

Phone service for the builder’s Plano offices and several model homes appeared to be disconnected.

A call to a number posted on sales signs went unreturned.

Sheridan has 34 properties posted for foreclosure in the Oct. 7 auction. They are in Mansfield, south Arlington, Azle, Fort Worth and Grand Prairie, according to a list from All American Title Service in North Richland Hills.

Sheridan Homes builds in the Dallas and Fort Worth areas; its houses are generally priced from the mid-$100,000s to the low $200,000s, according to the company’s Web site.

Homes on Decoy Drive and White Willow Lane in south Arlington were vacant Thursday afternoon.

What appeared to be model homes were empty, and at least two were on the foreclosure list.

The landscaping at the brick and limestone homes was unkempt, with weeds growing.

What’s ahead

North Texas home builders have been under pressure to sell homes against stiff competition, and they have faced higher building costs, said David Brown, director of the Dallas-Fort Worth region for Metrostudy. As a result, home builders have had decreased profitability.

"The margins have been really low," he said. "Profitability has been a real challenge."

Still, he said home builders in Texas are not suffering as much as those in other areas of the country, such as Florida, where the sales slump is deeper.

The Home Builder Implode-o-Meter Web site,, lists 77 builders that have gone out of business around the country since late 2006.

Beazer President Says Toughest Time in History of Homebuilding Industry

Charleston, S.C.:

New home permits are down… More and more homes are remaining empty and homebuilders are holding on to more inventory than ever.

“Its really hard right now, it’s probably the toughest time in the history of this industry,” said Frank Finlaw, Charleston Division President for Beazer Homes.

But Phillip Ford, VP, Trident Homebuilders Association, says panic and rumors are making the situation worse: “I just refinanced my house, my in laws just bought a new house. There are mortgage options out there you just have to look for them. There are opportunities out there, it’s not dried up.”

Classic Southern Homes (NC Homebuilder) Files Chapter 7 Bankruptcy

Charlotte home builder Classic Southern Homes Inc. has filed for Chapter 7 liquidation, according to a company filing in U.S. Bankruptcy Court here.

The company has more than 50 creditors, and its debts are between $1 million and $10 million, the filing states.

Court documents say Classic Southern has between $100,000 and $500,000 in assets.

Classic Southern was launched in 1998. The company is at 526 Sedgewood Lake Drive, near Randolph and Wendover roads.

According to its Web site, Classic Southern builds and renovates homes for “the discriminating client.”

Classic Southern Homes’ attorney, A. Burton Shuford, couldn’t be reached for comment.

Kimball Hill - Bankrupt Homebuilder Update - Chapter 11 Homebuilders

Bankrupt homebuilder Kimball Hill Inc., is poised to decide by late November whether it will accept an equity buyout or provide a recovery plan to pay off creditors, just as the global financial crisis grips the credit markets.

About five companies, including equity investors and other home builders, have made overtures to buy all or part of the Rolling Meadows-based company, Chief Executive Officer Kenneth Love said Wednesday during an interview. He declined to name the suitors.

"Our ultimate goal is to exit Chapter 11," said Love. "But at the same time, we recognize that we have responsibilities. ... We have not rejected any possible scenarios."

The homebuilder filed for Chapter 11 bankruptcy protection in April due to lower demand for homes and during one of the country's worst housing markets in decades. Kimball Hill sold 1,800 homes from October 2007 through Sept. 30, compared to 3,200 for the same period the year before. It listed assets of $795.5 million and debt of $631.9 million as of last Dec. 31.

This has been one of the worst housing markets in decades, but don't count builders out just yet, said Alan Lev, president of the Home Builders Association of Greater Chicago, based in Addison.

"Sales have been slower than a few years ago, but we're still selling product, just less of it," said Lev. "We're all tied together to the financial crisis, your 401(k), the economy, the credit companies, the real estate and home building markets."

That slump has led Kimball Hill to reduce its workforce from 1,100 to 400 and to exit markets in Florida, Ohio, Oregon and Wisconsin. It continues doing business in Illinois, Nevada, Texas and California.

Since the bankruptcy filing, the company has asked the court for two extensions to prepare its recovery plan. The extensions were necessary to continue discussions with creditors on a plan that would be successful, said Love. He was hired in 2005 by the founder's son and longtime leader, David Hill, who died of cancer in July.

"We're looking at all possibilities, and it will be a matter of weeks, not months, when we'll have our restructuring plan in place," Love said.

Kimball Hill's greatest challenge now is the financial crisis that has gripped the markets worldwide. Credit markets have dried up, and with them, some opportunities to quickly resolve Kimball Hill's woes, he said.

"The credit crisis may be a challenge for all companies, even those that are not in Chapter 11," Love said.

The CEO said he is committed to helping Kimball Hill until the plan is filed and approved in court. After that, Love is unsure of his future.

"I've committed to the board and the banks that I'm here to see us through to the best outcome," Love said. "Up to the point when the reorganization is confirmed (in court), I'll be here. After that, I'm not sure what I'll choose to do."

Love also remains optimistic about the housing market, believing it will have a modest upturn next year and down the road.

"Three to five years from now, the housing market will look dramatically different from it does today," Love said.

Housing Pain Gauge: Nearly 1 in 6 Owners 'Under Water'

The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults -- the very misfortune that touched off the credit crisis last year.

The result of homeowners being "under water" is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.

And having more homeowners under water is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home's value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.

About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody's

The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners under water in this period than any time in our history."

Among people who bought within the past five years, it's worse: 29% are under water on their mortgages, according to an estimate by real-estate Web site

The majority of homeowners still have equity, and even among those who don't, many continue to make their mortgage payments on time. The financial-bailout legislation could at least "keep things from getting much worse" by helping banks avoid the need to tighten credit further, says Celia Chen, director of housing economics at Still, she expects housing credit to remain tight and home prices to decline in much of the country for another year or so.

Prices are back to 2003 levels in the San Diego and Boston metropolitan areas, and back to 2004 levels in Las Vegas, Los Angeles, San Francisco, Fort Lauderdale, Fla., and Minneapolis, according to First American CoreLogic, a data firm in Santa Ana, Calif.

Stephanie and Jason Kirschenman thought they were being prudent when they agreed in late 2004 to buy a new four-bedroom home in Lodi, Calif., for $458,000. They put a substantial 20% down and chose a loan with a fixed interest rate for the first 10 years. Two years later, they took out a second mortgage to pay off some bills.

At the time, the home was appraised for about $550,000. But a mortgage broker recently estimated its value at well below the $380,000 the family owes on it, says Ms. Kirschenman. "We were quite shocked," she says.

The Kirschenmans, who both work for a company that makes trailer hitches, thought about sending the keys to the lender. But their financial planner, Christopher Olsen, helped persuade them to stick with the house, noting that they could still afford the payments.

Others aren't so lucky. Among mortgages on one- to four-family homes, 9.16% were a month or more overdue or were in foreclosure in the second quarter, according to the Mortgage Bankers Association. That compared with 6.52% a year before and was the highest level since the association began such surveys 39 years ago.

Falling values have contributed to a sharp pullback in mortgage lending. In the third quarter, mortgage lending fell to the lowest level in eight years -- down 44% in a year -- says the publication Inside Mortgage Finance.

One reason is that as home values slip, growing numbers of would-be borrowers lack sufficient equity to refinance. The falling values also make mortgage lending look riskier to banks, spurring them to tighten credit standards.

Most mortgages in default were issued in 2006 and 2007, when lending standards were loosest and the housing market was peaking. Many who bought then made small down payments or none, so they had little equity in their homes from the start.

The performance of loans made earlier is getting worse, too, as price declines deplete the equity people built up. In Las Vegas, 6% of home loans made in 2004 are now 30 days or more overdue, up from 3.7% a year earlier, according to research firm LPS Applied Analytics.

In July, Congress enacted legislation designed to help borrowers who owe more than their homes are worth by allowing them to refinance into a government-backed loan, provided their mortgage company forgives part of their principal. It's not clear how many borrowers the program will help, because before reducing the principal, lenders would almost always try first to freeze or reduce borrowers' interest rate to make payments more affordable, says Tom Deutsch, deputy executive director of the American Securitization Forum, an industry group.

In contrast with the 12 million home borrowers estimated to be under water, 64 million have equity in their homes. These include 24 million households who own their homes free and clear, and 40 million whose homes remain worth more than is owed on them.

Even so, some borrowers fret that declining prices and tighter lending standards could make it hard for them to tap their equity.

Steven Schneider, a mortgage broker in Miami, bought his home at the end of 1992. When he refinanced about four years ago, he pulled out $150,000 in cash that he intended to use to build an addition. The transaction raised his total debt to about $350,000, at a time when his home had a value of about $650,000.

Recently, Mr. Schneider pulled out roughly $90,000 by tapping a home-equity line of credit. He says he put the funds in a money-market account that yields less than the 5% interest rate on the loan. "I was afraid they were going to shut down" access to the credit line, says Mr. Schneider. He figures his home, once valued at $750,000, now is worth about $600,000.

How much pain homeowners feel varies greatly from place to place. The most severe drops in home values are in parts of California, Florida, Nevada, Arizona and other areas where speculation pushed prices up and builders far overestimated demand.

Within metro areas, neighborhoods with short commutes are holding up better than others. And in many parts of Texas and North Carolina, home prices have continued to rise slowly, have leveled off or have declined only modestly.

On a national basis, home prices peaked in mid-2006 after rising 86% since January 2000, according to the First American index. Since peaking, that index has fallen 13.

The declines have made homes more affordable, bringing prices in many areas closer to their long-term relationship to incomes. In the second quarter, the median home price of about $203,000 was 1.9 times average pretax household income, according to That was close to 1.87 times income for 1985 through 2000, prior to the housing boom.

Housing markets don't tend to turn around quickly. The price slump in California in the early 1990s, for instance, was a long grind. According to the S&P/Case-Shiller home-price indexes, Los Angeles prices peaked in June 1990 and didn't bottom until March 1996. They didn't get back to their 1990 peak until 2000.

Wednesday, October 8, 2008

Lennar Shares up after cutting dividend

Major home builders' stocks were trading slightly higher on Wednesday, swept up in a market surge after coordinated rate cuts by the Federal Reserve and other global central banks.

The Dow Jones U.S. Homebuilders index rose about 1 percent in morning trading, with Atlanta-based Beazer Homes USA Inc up about 5 percent at $5.02 and posting the strongest gains among the top 10 builders.

Lennar Corporation shares were up 2.8 percent at $10.74, a day after the No. 2 U.S. builder cut its dividend 75 percent to 4 cents per share.

"We concluded it is prudent to preserve cash to fund future operations and opportunities," Chief Executive Stuart Miller said in a statement.

UBS analyst David Goldberg also deemed the move a prudent one, writing in a client note that cash flow generation could slow further for builders in 2009.
In response to the deteriorating market, builders have shifted their focus from profit and growth to cash generation by ramping up incentives and selling the land and inventory they accumulated at peak prices during boom times.

D.R. Horton Inc the biggest U.S. builder, halved its dividend in May. Other builders may well need to follow suit, said Morningstar analyst Eric Landry.

"It's likely that these home builders are going to enter an even more difficult period in terms of cash generation," Landry said. "It's likely to a be a more difficult environment going forward."

Monday, October 6, 2008