By Melissa Wirkus
The housing market
slowdown was first thought to only be severely affecting individual
sellers of single-family homes, but now it is very apparent that home
building companies are being harshly affected as well.
Major home building companies across the country have been cutting their
prices in an effort to rid themselves of the overwhelming inventory
of homes they have in stock, especially in areas that experienced rapid
growth, like Arizona.
Although the sales of newly built homes have risen recently, it is because
the median price has also dropped as a result of a wave of price cuts.
An October 26, 2006 article by Glen Creno of The Arizona Republic, “Cool
down catching up with builders,” looks at how home builders are
reacting to decreased profits. “The stalled housing
market is hitting builders in their wallets, and the evidence is in
quarterly earnings out this week. Revenue and profits are down, and
slower sales and canceled deals are pressuring builders. They've responded
with layoffs and by unloading or revaluing land they bought in the housing
boom.”
“Most of the big builders have operations in Arizona, and the
Phoenix area has been a key market. Among them, Pulte Homes, the Michigan
builder that also owns the Del Webb retirement brand, and Scottsdale-based
Meritage Homes.”
One of the nation’s largest home builders, Pulte, recently released
information stating that its net income was down 50 percent from the
same period last year. This year it was $190.2 million compared with
$395.4 million at the same time last year.
“Pulte's revenue clicked lower, too. The builder brought in $3.79
billion in the year-earlier quarter and $3.56 billion this year. The
top-line number would have been lower but for the financial
services, or mortgage, businesses
that are helping prop up builder results and marginally higher prices.”
Meritage also reported less income and falling share earnings as well.
Not only are major home buildings companies presenting losses in revenue,
profits and income, but they are also canceling a variety of projects
that were supposed to begin in the near future. Most are focusing on
getting rid of the surplus of homes they have now before starting on
any new projects.
“Cancellations hit an all-time high of 37 percent. Meritage also
is adjusting its land position and re-bidding construction contracts.
The company had layoffs in some markets.”
So for right now, it seems like the best thing home building companies
can do to stimulate the market is to keep reducing prices. It has worked
so far recently, and it seems like it will continue to get buyers off
of the sidelines.
“‘We're bumping along the bottom,’ he said. ‘The
builders are kicking it in the tail, marketing their inventory. When
you cut a $195,000 house down to $118,500, that attracts buyers. That
will move the inventory out, and the permits will come up as builders
need to start producing again.’”