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Strategies & Market Trends : BAK - Investing -- Ignore unavailable to you. Want to Upgrade?

To: Flipper2058 who wrote (3021)	7/2/2012 11:32:30 AM
From: XoFruitCake	4 Recommendations Respond to of 3249

Re: Builders bullish on local housing markethttp://www.azcentral.com/business/r My hope is the builders have streamlined enough after 5 years they can get margins back to normal. Existing housing around here is vastly cheaper than new ones I think homebuilder are on a streamlined business model already (e.g. subcontracting all building activities...). Koll can give us the building 101 education. From what I learn in shorting hb in 06 and 07, the key to predict HB future earning is the size of the land and home inventory in their book and price that they paid for them. HB can always make money building house if their land inventory is cheap enough. They can undercut the price of existing home easy. The problem after the bubble is that their land inventory carry a cost that is way too high and if they cutting their home price too low, it will trigger a write down of the land inventory in the neighborhood. Big write down will trigger their loan covenants and force them to file bk or pay their banker deary. So they choose to write down the land value slowly and only sell very few homes in the last 2 to 3 years. When I went to LVS a couple months ago, I saw quite a few housing development there and their price is very competitive with the foreclosed home market around their neighborhood. So it is feasible and profitable to sell new homes in a very down RE market if the cost is low enough. The reason I am not very impressed with the latest HB earning is that HB has enough time to write down their land inventory by building homes on those marked down land. But most HB still didn't make money. What that said is that their inventory marked down still don't reflect the market price of the home. They are using the profitable sales to cover the not profitable sales. It is going to be a long process for HB to be consistently profitable again. The most interesting part of the latest earning to me is that their incentive hiding in SG&A is moving up on a per unit basis which is an indication that their price point is still too high and they need to use incentive to bring it down.