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Bill Miller, the famed Legg Mason fund manager, was on television last week. He said he is long on housing stocks.In Barron's Up and Down Wall Street column (subscription required), Doug Kass of Seabreeze Partners said he was short housing stocks - no big surprise there. Kass referred to order cancellation as the reasoning for his bearishness.
Typically, publicly traded homebuilders have cancellation rates of 15% of orders. However, that number has jumped considerably. Cancellation rates of publicly traded homebuilders:
- Centex (NYSE: CTX) - 37%
- DR Horton (NYSE: DHI) - 40%
- KB Homes (NYSE: KBH) - 53%
- Lennar (NYSE: LEN) - 31%
- Pulte Homes (NYSE: PHM) - 36%
- Beazer (NYSE: BZH) - 57%
- Hovnanian (NYSE: HOV) - 35%
- MDC Holdings (NYSE: MDC) - 49%
- Standard Pacific (NYSE: SPF) - 50%
TheFly's advice, Miller tends to be too early and Kass is often too negative when the worst is already priced in the stocks. I'd say, start following these stocks again, expecting a bottom in the spring and early summer.
The most recent rally is mostly from an oversold condition. I'd wait for another correction and see where the industry fundamentals stand.
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Reader Comments (Page 1 of 1)
1-06-2007 @ 12:23AM
David Cross said...
I grew up in the building biz and I hear echos of 1991. "things are going to turn around in the 2nd half of 2007" or " things will be better in about 6 months". I've heard it before. Stick a fork in this home building run - it's done. These companies can make and lose money faster than you can imagine. Lennar just took a $500 million write down. DR Horton is backing out of contracts to buy property. Miller is 5 years early. Kass is right.We don't need a big drop in home prices to kill these companies. Thats the wrong way to evaluate it. All we need is a drop in demand.The only thing holding these things up in that unemployment is very low. But, there are lots of laborors not working that wont and cant show up on the unemployment lines. 6 months from now, you will see more write downs and lower EPS estimates.