Monday, January 31, 2005

U.S. home builder shares slammed by high inventory

NEW YORK, Jan 31 (Reuters) - The shares of U.S. home builders tumbled Monday after a government report showed sales of new homes slowed in December, while the inventory of homes being built with no committed sale grew.

The Dow Jones U.S. Home Construction Index fell 0.69 percent in late morning trading. The shares of M.D.C. Holdings Inc. were off 1.1 percent at $70.98, while the shares of Lennar Corp. (LEN.N: Quote, Profile, Research) lost 1.67 percent to $55.32 on the New York Stock Exchange.

Monday morning, the U.S. Commerce Department said new single-family home sales fell 0.1 percent from November and 2 percent from December 2003. Sales in the Northeast and South fell 15.7 percent and 16.3 percent, respectively. Sales in the Midwest were up 55.5 percent from a month earlier. Sales in the West rose 6.3 percent.

"It certainly is consistent with what we've been seeing trend-wise in terms of a slowing down," said Raymond James & Associates analyst Rick Murray. "What's weighing on the stocks is not so much the disappointing sales number, but the inventory number is beginning to concern people."

The supply of new homes were at 4.8 months' worth in December, the highest since June 2000.

"You have two trends working here," Murray said. "Sales are slowing down and inventory are growing. That means the amount of speculative building going on continues. If there's excess inventory, builders are more apt to have to resort to incentives and possible price reduction."

The inventory number can make a precarious situation worse, said Robert Curran, Fitch Ratings senior director.

"It's a piling on thing," Curran said.

But Curran noted the amount of finished homes still unsold comprised 22.3 percent of the inventory in December 2004, less than the 23.9 percent in December 2003.

"I will be keeping an eye on that statistic," Curran said.

The further along in construction that the home remains unsold, the more it costs the builder.

"That's where you're likely to have to do some sort of a effort to move that," Curran said. "In the interim, you're paying real estate taxes, construction loans. You want to move that."

Still, the analysts said the December sales figures just reinforces the slowdown of the home building industry, which saw a record year in 2004. But they do not invest too much in the single month's unrevised figures.

"It's very hard to tell about numbers in the months of December, January and February," Curran said. "A few digits one way or another make a big difference. However, there's enough data to suggest that there's a little bit of slowing in demand."

As to the large increase seen in the Midwest, Curran dismissed that figure, which is the most sensitive to weather and the smallest of all the areas, as a "statistical dead spot."


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At 6:32 PM, Anonymous Anonymous said...

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