Three Top Builders Post Bigger Losses

Three of the nation's largest new-home builders have reported quarterly financial results that were even weaker than the year before, further proof that the housing market has entered a double-dip downturn.
PulteGroup Inc., Meritage Homes Corp. and Ryland Group Inc. all had bigger losses and lower revenue as closings showed continued weakness and prices remained depressed.
The grim results are expected to continue Friday, when the nation's biggest builder, DR Horton, will report earnings for its fiscal second quarter. Analysts polled by Thomson Reuters expect the company, on average, to report a loss of five cents a share on revenue of $761 million.
Home sales typically tick up in the spring selling season as buyers emerge from a winter lull and rush to close on purchases before the new school year starts.
But potential buyers continue to bypass new homes, in part because they can pay less for existing homes and because they fear that the values of new homes will erode.
Meanwhile, a growing number of buyers are snatching up foreclosures or other distressed homes, which are often priced at hefty discounts. And other potential new-home buyers can't qualify for a mortgage.
Stephen East, a building analyst with Ticonderoga Securities, said that the spring selling season has so far been even worse than most people expected. "Even some of the more bearish people didn't expect these trends, and it absolutely sets the tone for the rest of the year," Mr. East said. "There's no sense of urgency for the consumer to come out and buy."
Even the builders concede that conditions have deteriorated. "The market has gotten significantly weaker than it was a year ago, and that has driven prices and profitability down for everybody," said Steven Hilton, Meritage's chief executive, in a conference call with analysts and investors on Thursday.
"We thought the spring selling season was going to be stronger than it was," he added. "We still feel confident that we're going to make money this year. But I can't be so bold as to say—after losing $6-plus million in the quarter—that we're going to make more money than we did last year."
Late Wednesday, Ryland Group, which is based in Calabasas, Calif., reported a loss of $19.5 million, or 44 cents a share. A year earlier, the new-home builder posted a loss of $14.3 million, or 33 cents a share.
On Thursday, Pulte, based in Bloomfield Hills, Mich., said it had a loss of $40 million, or 10 cents a share, in the first quarter, compared with a loss of $12 million, or three cents, a year earlier.
Meritage, based in Scottsdale, Ariz., said its loss was $6.7 million, or 21 cents a share, in the first quarter, compared with a prior-year profit of $2.7 million, or eight cents a share.
On a brighter note, some builders say that traffic at new-home communities is picking up and could result in stronger sales in the summer. Pulte said that its new orders during the first quarter beat its internal forecasts.
Some builders are seeing margins improve, but that's not necessarily because home prices are recovering. Instead, more builders are offering fewer freebies to potential buyers and selling homes built on land that was left over from the boom and could be snapped up cheaply.
But margins could weaken as finished lots, or those ready for construction, run out, forcing builders to spend millions of dollars on land development.
Write to Dawn Wotapka at dawn.wotapka@dowjones.com
Source http://online.wsj.com/