And click on some of the links. When I saw the downward trajectory in permits in early March that preceed starts, I really got alarmed. I had been very bullish on PHM in the short-term. Now it's long term. When you can buy a relatively-new house in foreclosure for 30% less than new - in an extremely tight economy like ours - you're gonna take it. 30% is a LOT of dough in today's economy. Plus - downpayments are rising, costs of loan are rising, credit scores to buy are rising - all these mitigate for the lowest possible price you can get. There's NO flex. Sales of new homes peak in Q1 every year. It's the selling season. If it's this bad now, by July these stocks will hit their previous lows because after the Spring the market cools off for the year. Plus, the Fed's money-pumping is to stop in June.
But long term, I am beginning to think that PHM will be "best of breed" because of the their Dell Webb product that none of the other builders have. They had 2,500 retirees show up for one of their new housing developments in FL recently. Between $6-$7/share over the next two years, investors will eventually double their money. The last housing turn lasted 8 years. We've been into this one for 6 years. There's two more to go. 2012 is going to be the recovery year, not 2011.
Builders are changing the way they do business and building starts will be impacted. Review the following:
In the past, most builders would load up on building permits to avoid code changes. But now it is about cash flow and builders buy permits just ahead of digging the hole.
Well, all my dire predictions have come true and yet PHM continues to rise. When a stock rises on horrible news, the bottom is usually in. This is a very good sign. And Goldmans pointed out something in their upgrade which was my reason for buying it in the first place - the 40% catch-up it would take for it just to perform inline with peers. There is only one period in the company's history - September 2010 to February 2011 - when it didn't perform inline with the XHB and peers. For the last 3 months it has traded inline with KBH and better than HOV and BZH. So if it trades up to $9 then that's just catch-up, nothing special. Goldmans has a 6 months target of $10 - that is AGGRESSIVE - a 40% rise. I'd be happy even with $8.50.
The reason for the drop in new home sales in California is a two headed whammy (that's now over): If a buyer wanted the new home tax credit - he had to buy the home by December; if the builder wanted to avoid the new code law that requires sprinklers in all new construction, he had to pull the permits by February 1st. So a lot of new home sales and permits got pulled forward, which is why part of this National report is so dismal. In California, they were down almost 40%. This is off-the-cliff statistics.
There is a very reliable California forecaster - Beaconomics - who predicts that California home prices (KBH, PHM, SPF, HOV) will stabilize by June 2011, and have a slight appreciation in 2H2011. He says that 2012 will see the first real year of modest median price appreciation. Believe it or not - except for the Central Valley - there is still a chronic housing shortage in the Golden State, and any kind of demand will begin to stabilize the market. Home prices have doubled in the SF Bay area every decade for 60 years. That pre-dates the current mess by a long-shot. Homes in a good area in SF hardly went down during 2009-10, and all Victorians went up in price 2008-Present. 2009-10 was the best time to buy a home out here in 15 years.
I've read (Suzie Orman) that by 2013 the special tax exclusion that the IRS allows for foreclosures and short sales will END. There won't be any strategic defaults after 2012, because the IRS will make you pay taxes on the "gift" of principle forgiveness that you got with a short sale. It's structured so you can't "walk away" from the investment.
I shorted 4K shares this morning at 7. I still believe that PHM will go through bankruptcy, wiping out the shareholders and reducing their debt. Take a look at what their debt trades for - junk status!
You really need to go out and look in your area to look at the quality of the foreclosures. Investors have picked over the crop and what is left is the bottom of the barrel.
These foreclosure buyers are going to get tired of looking and will step up to the real market. When this happens, things will turn fast. I couldn't believe how fast it turned in the DC area, it seems like over night and houses are selling in 5 days!
Also, new home buyers are not existing home buyers. Just like new car buyers will not buy used.
Current market conditions have held things down, it will turn soon.
I don't think "picked over" is accurate. You can only pick over what's in front of you, and not the pre-forclosures and all the other homes in the pipeline. It's not a static thing - like a pile of homes - it's an ever-refreshing wave of new foreclosures coming on to the market. That being said, everyone knows we are at or near bottom and cash buyers - because of stock market profits - are everywhere.
True about buyers ... some just seem to want new .... My dad was like that ... He bought 6 homes in his life and 4 were new .. he built one himself .. and bought one used.
I have bought 3 homes so far and 2 were new.
I also tend to buy cars new .. (but often regret it later).
I guess it depends on the market ... I believe you're in the Bay Area? Have you actually tried to buy one of the 30% discounted homes you mention? Were you putting up ALL cash? I'll bet its a lot harder to get a signed contract than you think on a well-maintained property.
Here in Arizona there are neighborhoods where the difference (new vs old) is much lower for comparable properties ... around 15%. Yup ... still signs out front listing 1% down .... thanks to FHA.
I'm not saying you're wrong about the 2012 turnaround ... although I'm going with Buffet and 2011 recovery ... but I believe that no one will know the whole (and true) story by looking at a single (regional) real estate market.