Friday, December 20, 2013

Lawler: A Few More Home Builder Results, and Comments on the Increase in Lots Owned/Controlled by Large Home Builders

by Calculated Risk on 12/20/2013 02:47:00 PM

From housing economist Tom Lawler:

Lennar Corporation reported that net home orders in the quarter ended November 30, 2013 totaled 4,498, up 12.9% from the comparable quarter of 2012. Home deliveries totaled 5,650 last quarter, up 27.2% from the comparable quarter of 2012, at an average sales price of $307,000, up 17.6% from a year ago. The company’s order backlog at the end of November was 4,806, up 18.6% from last November.

Lennar noted in its press release that “the political and interest rate environment and our previously initiated price increases tempered new sales orders,” though the company was “still pleased” with its overall performance last quarter, as the company appeared to continue to gain market share – a “strategic goal” of the company. In its quarterly conference call, officials said that orders “improved sequentially” in October and November from the weak orders seen in September, and officials noted that sales in late summer had been weaker than expected.

Lennar’s average sales concession as a % of sales price last quarter was 6.3%, down from 9.0% in the comparable quarter of 2012 but up from 6.0% in the previous quarter.

Lennar continued its aggressive land/lot acquisitions, and in its conference call the company said it owned/controlled about 154,000 lots at the end of November, up about 20% from a year ago.

Lennar noted that while its “aggressive” pricing strategies led to significant margin improvements, labor and construction material costs last quarter were up about 12% from a year ago, and that labor costs were up by “more” than material costs. Several home builders have cited “supply-chain” issues (including labor “shortages) as contributing to the slower-than-desired pace of developing communities (and starting homes!), though some of these issues have apparently eased a bit very recently (if one believes the November surge in SF housing starts).

KB Home reported that net home orders in the quarter ended November 30, 2013 totaled 1,556, down 0.7% from the comparable quarter of 2012. The company’s sales cancellation rate, expressed as a % of gross orders, s 36% last quarter, up from 35% a year ago. Home deliveries last quarter totaled 2,038, down 4.0% from the comparable quarter of 2012, at an average sales price of $301,100, up 11.2% from a year ago. The company’s order backlog at the end of November was 2,557, 0.8% from last November.

KB officials noted that the combination of higher interest rates, higher home prices, and a dip in consumer confidence had significantly dampened home buyer demand, but officials said they believed this “pause” was temporary. Officials also noted that they expected slower home price appreciation next year, which they said would be “healthy.”

As with many other home builders, KB Home’s “bullish” view of the housing outlook was reflected in its aggressive acquisitions of land/lots. In its conference call an official said that KB Home owned/controlled “over 61,095 lots at the end of November, up 36.5% from last November.

While the vast majority of large home builders noted a “significant” slump in home orders in late summer/early fall, several reported some improvement recently, and most expect a substantial increase in home sales in 2014 -- and most (though not all) have positioned themselves accordingly with “aggressive” land/lot acquisitions. Below is a comparison of the latest number of lots owned/controlled by each of the above builders, compared to a year earlier (note: some are estimated based on builder-provided charts/graphs).

Lots Owned/Controlled, Large Publicly-Traded Home Builders
CompanyAs of:20132012% Change
D.R. Horton 30-Sep180,900152,70018.5%
The Ryland Group30-Sep39,69826,62949.1%
Meritage Homes30-Sep25,04616,00056.5%
MDC Holdings30-Sep15,80810,42851.6%
Standard Pacific30-Sep35,64330,15418.2%
M/I Homes30-Sep18,13310,42873.9%
Beazer Homes30-Sep28,00424,14716.0%
KB Home30-Nov61,09544,75236.5%
*approximate, based on conference call

Given that (1) home builders have acquired significant land/lot positions; and (2) supply chain/other issues kept overall housing production lower than planned in 2013, it appears as if builders are planning that overall SF housing production will increase significantly in 2014. That increased production, combined with vastly-improved margins at most builders, is likely to dampen significantly new home price gains next year.