Home Buyers Get Cold Feet

By: Michael J. Martinez, Ji Qi + AP

Just when it seems like it can’t get worse for homebuilders, the sector disappoints again. Last week, D.R. Horton, the second largest homebuilder behind Lennar, said orders for new homes fell 39 percent in its fourth quarter. What’s more, its order cancellation rate hit 48 percent, from 38 percent the prior quarter. Other homebuilders also saw high cancellations, adding to the backlog of unsold homes and depressing prices.
Prior to this summer, many analysts thought the housing sector would right itself by the first half of 2008. But that was before credit market troubles intensified. “Private builders and sales-people at many subdivisions we spoke with said sales volume dropped significantly in August and cancellations shot up,” says James Wilson, housing analyst with JMP Securities, who rates homebuilders, “market perform.”
Major homebuilders’ costs are low because they’ve cut back on building, but it could take two to three years to sell their inventory. “There’s probably another 20 percent downturn in home building left to go,” says Banc of America Securities analyst Daniel Oppenhein. “Things will worsen through the end of the year, but after that, it’s going to largely depend on availability of the mortgages,” says Oppenhein, who rates major home builders “neutral.”

Sources: Thompson Financial; the companies

Article in the Lexington Herald Leader, Tuesday, October 23, 2007 on B7