Homeowners lost $3.3 trillion in the value of their houses last year. A report from Zillow.com, picked up by Bloomberg, said that national home prices dropped 11.6% compared to 2007.
That makes stocks like Hovnanian (NYSE: HOV) and Beazer (NYSE: BZH) sells, even at current depressed levels. HOV shares are down to $1.64 from a 52-week high of $13.50. Beazer is off from a high of $12.40 to $0.98. The company could even face delisting over the next year if it cannot get its share price up.
There is a temptation to think that home-building stocks are so inexpensive that, if the companies can drop inventory prices enough, they can start to improve sales, even if the margins on each home sold are poor. But it is not that simple.
Beazer and Hovnanian would almost certainly like to dump inventory at very low prices, but they probably cannot book those losses. They have enough credit problems. Selling homes for $150,000 when they cost $200,000 is not a creditor's dream.
Stocks in the large housing companies could still go to zero. They are stuck between falling home prices and high inventory. They may be able to handle that for a few quarters, but once the end of the year rolls around, the problem will become acute for some of them
Douglas A. McIntyre is an editor at 24/7 Wall St.
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Reader Comments (Page 1 of 1)
2-03-2009 @ 2:21PM
BHarrison said...
Under the prevailing economic and market conditions, with a current 2 or 3 year EXCESS INVENTORY of homes, condos and commercial buildings, there is NOT going to be any type of viable "stimulus" for building homes, condos, or commercial buildings anytime soon. With declining market values, and continuing escalations in housing units and commercial buidings due to foreclosures and business bankruptcies, we will be fortunate if we can just hold the line until the end of 2009. "Common sense" goes a long ways in these matters.
No prudent and reasonable Developer (or their investors) are going to build houses, condos or commercial buildings under these circumstances. I work for many major developers as a consultant; and NONE of them are planning nay new projects in the foreseeable future.
2-03-2009 @ 2:32PM
BHarrison said...
On the flip side, whenever we 'hit bottom" and the slow recovery process begins, just remember that it generally takes as long to design and permit construction projects as it does to actually build the projects after the contracts are awarded. So, the "turn around" is about a year to a year and a half, or longer, "lag time" for DD - Design Development, etc. And no prudent Developer/investor is going to put the monies out to have "plans waiting on the shelf" for immediate construction. Start up of construction is toing to be rough and tumble. Many current manufacturers and suppliers are going to have gone out of business. The construction companies are going to have to be reorganized or started from scratch, etc. . . . So, when they talk about creating stimulus for the construction industry, it is time to use a little "common sense" about what is truly "realistic".
2-04-2009 @ 7:36AM
captbud4222 said...
I still can't believe that people don't understand where this all started. As soon as you (read publicly traded residential homebuilder) are able to produce more homes than can be purchased by the general public, the value of those homes depreciate because the home becomes a commodity rather than an investment..........when you( read publicly traded residential home builder) force the banks who you borrowed the money from to build the houses , to find them buyers or else the bank gets the house back ....... They (read Freddie Mac
Fannie Mae and a whole host of others.... you have the start of a reccession. We won't even talk about the fact that the ONLY reason the home builders are able to build homes that some people can afford, is because they flood the labor pool with illegals to form the labor force,, and there you have it .... one big F$##king mess.........