Tuesday, August 03, 2010

D.R. Horton conference call comments: No more tax credits!

by Bill McBride on 8/03/2010 08:15:00 PM

A few quotes from homebuilder D.R. Horton conference call today ... (ht Mike in Long Island, Zach, Pat)

"Frankly, I don't want the tax credits to be re-enacted or be re-created or extended," CEO Donald Tomnitz said. "We want to get back to a normalized market. It's a lot easier ... designing your business with the current demand as opposed to having any kind of stimuluses or incentives to create abnormal demand."
CR Note: As I've noted before, the housing tax credit was a clear and unequivocal failure. Not only did most of the benefit go to people who were going to buy anyway, but the credit didn't reduce the overall supply. The credit just incentivized some people to move - and pulled some sales forward - and to the extent the credit went to new home sales, it was actually counterproductive by increasing the excess supply.

On the cancellation rate increase to 28%:
"I was surprised it only increased to 28%. But nevertheless we wanted to give every buyer the opportunity to buy and close on a home. And so if they had a pulse and they were warm, we wrote 'em," Tomnitz said. "And so as a result we did have some cancellations because people couldn't qualify."
CR Note: A normal cancellation rate for Horton is in the 16% to 20% range.

On the outlook:
"The next 12 to 24 months will be challenging in the homebuilding industry."
CR Note: Yes. Probably more home builders will go bankrupt during the "recovery" than during the bust.