Home Building Companies’ Profits Fall, Year-End Forecasts Lowered
Hopefully, Hovananian Enterprises and KB Home are reading this now. If they see that Florida home loan applications increased last week, perhaps the two home building companies would feel better about their future prospects.
As it stands now, neither has had a great 2006. Hovnanian Enterprises reported a 34% drop in fiscal third-quarter net income this week, while KB Home cut down on its its full-year earnings forecas. Overall, the homebuilding industry continues to suffer from a slowdown in the residential real estate market.
Lack of Florida mortgage loans leads to drop off
After the continuous growth of the housing sector in recent years, rising inventories of unsold homes have brought house price gains to a near standstill in 2006. That’s hampered the ability of homebuilders to sell new properties, knocking down their shares.
“Our earnings expectations for the third quarter and full year reflect an increasingly challenging housing market, where the supply of new and resale home inventories has built up in recent months in markets that have experienced rapid price appreciation or substantial investor activity, or both, in the past few years,” said Bruce Karatz, chief executive officer of KB Home.
Another problem for companies in this industry is that more and more buyers are using a Florida home mortgage on fixer-uppers, or exising homes that just need a few renovations. This decreases the need for new ones to be built right now.
KB shares fell 4.2% to $38.68 during Wednesday’s after-hours session. The stock has lost almost half its value so far this year.
Hovnanian shares climbed 1.5% to $25.86 during Wednesday’s late-trading session after the company stuck to a fiscal full-year earnings forecast of between $5.00 and $5.75 a share.
Despite the current slowdown, Hovnanian said that, including deliveries from unconsolidated joint ventures, it still expects to deliver more than 20,000 homes and generate net income in a range of $325 million to $375 million on revenues of more than $6 billion in fiscal 2006.
Not too shabby. As interest rates on Florida home loans continue to drop, demand should return. By the end of this year, home builders should be forecasting healthy profits and need for new construction as they move forward.
