Host of builders bleeding greenbacks
Two years ago, builders were making a ton of money. Today, they are happy to break even.
By JAMES THORNER, Times Staff Writer
Published September 23, 2007
For most home builders in the Tampa Bay area, the gold mine of 2005 has turned into the money pit of 2007.
How bad are the builders bleeding greenbacks?
Pulte Homes lost $122-million in Florida in the three months ending June 30. This is a builder that made $1.2-billion in profits in Florida from 2003 to 2006.
Lennar bled $214-million in just three months this year in its Southeast region, which prominently includes Florida. That's a half-billion-dollar swing from the same period in 2006 when the company made $300-million in the Southeast.
Standard-Pacific lost $24.6- million in its Southeast division and, in a note to its shareholders, singled out Tampa for dragging down business.
KB Home lost nearly $50-million in Florida, Georgia and North Carolina. Heavy into the Tampa-area suburbs, KB said it cut prices by a third locally since January, a move that's improved sales but decimated profits.
"I haven't talked to a happy builder in about two years," said Marvin Rose, a Tampa Bay area housing analyst who advises local builders. "Demand has completely evaporated. So what is out there for sale is moving slowly."
Despite new home starts plunging to 1997 levels, it's not as if builders themselves are evaporating. A big company like KB, for example, still offers myriad floor plans in about 20 new neighborhoods in the Tampa Bay area. No major builders have gone out of business locally, though Transeastern Homes, facing losses from projects such as Live Oak Preserve in New Tampa, was folded this year into Engle Homes, another brand owned by its parent company.
But survival has meant sacrifice. Builders have shed hundreds of employees, not counting the idled subcontractors that did the bulk of the building. Large land purchases that were supposed to fuel the next phase of the boom have been canceled.
One of the biggest was Pulte's decision this year to resign as master builder of Wiregrass Ranch in central Pasco County, a project the landowners envision will have more than 10,000 homes.
But the deepest scar has been financial as many builders' stocks settle in the basement. Not only are sales about a third of what they were at the peak, but profits have dried up through lower new home prices and the cost of incentives such as free appliances and swimming pools.
"Builders tell me they're just happy to break even this year," Rose said.
KB, active in places such as Tierra Del Sol in Land O'Lakes and Watergrass in Wesley Chapel, chopped average prices by about a third since the start of the year, Florida spokeswoman Cara Kane said. Some prices are approaching levels not seen since 2004.
"In some of our town home communities you can get in at $128,990," Kane said.
In some cases the price declines reflect a reduction in the size of the house. Since its entry into Tampa in 2001, KB made its mark selling homes in the 1,800- to 3,000-square-foot range, but now offers starter homes as small as 1,200 square feet in places such as Magnolia Trails in Gibsonton.
Competitors such as Windward Homes, a division of Hovnanian Enterprises, are also toying with shrinking home sizes in an attempt to lure cash-pressed buyers.
Windward's offerings in neighborhoods such as east Pasco's New River start at 1,046 square feet and cost as little as $170,000.
"We want to make the home affordable at a price where people buy them," Kane said.
But housing analyst Rose said prices haven't fallen enough if the goal is to revive new home sales. According to Rose's calculations, average prices have gone down less than 5 percent overall. Customers sit on the sidelines waiting for the weight of bad housing news to push prices down further.
Builders forgot basics amid booming profits
Builders also victimized themselves by selling too readily to investors in 2005 and 2006, said Tony Polito, a housing analyst in Tampa with Metrostudy, Houses bought by investors, new but empty, continue to compete with those offered by builders. Polito's company counted 4,200 unoccupied new homes in the Tampa Bay area, a surplus he rated as unusually high though down from the March peak of 4,745.
Some builders became so enraptured of the boom they forgot the fundamental fact that what goes up must come down, said Beat Kahli, developer of New River in Wesley Chapel.
Hovnanian, a large customer for lots at New River, doubled to become a $6-billion company. After a recently announced loss of $80-million in the latest business quarter, the New Jersey builder's been dogged by Wall Street.
"In my opinion they should have built a cash reserve," Kahli said. "Wall Street pushed them to get bigger and bigger and make more acquisitions. They weren't thinking about the next downturn."
In what may be some encouraging news, Centex Home's west Florida division said cancellation rates are declining as the builder attracts more serious live-in buyers and fewer fast-flipping investors.
For many of the biggest builders, anywhere from a quarter to a third of customers have walked away from contracts in 2006 and 2007.
Most analysts predict the new home market won't reach a healthy balance until 2009, when buyers and sellers can meet at prices that please both sides.
For most of this new century, the industry has been distorted, first by overdemand, and now by oversupply.
"We haven't had a normal market since 2002," Rose said.
James Thorner can be reached at email@example.com or (813) 226-3313. Read more and comment on area housing matters at Thorner's blog at blogs.tampabay.com/realestate.
New homes by the numbers
1,981 Housing starts in second quarter 2007
4,693 Housing starts in the second quarter of 2006
3,052 New single-family home closings in the second quarter of 2007
4,629 New single-family home closings in the second quarter of 2006
31 monthsLot supply, second quarter 2007
20 months Lot supply, second quarter 2006
Rough times for area builders
Beazer Homes Stock price plunges from $40 to $10 amid reports of FBI in-vestigation for possible fraud.
Pulte Homes New home buyers in Florida cancelled 28 percent of contracts this year.
Lennar Homes Southeast region, which includes Florida, makes a half a billion dollars less than it did last year.
Transeastern Homes Financially troubled builder disappears as a brand, absorbed by Engle Homes.
Standard Pacific Homes Deliveries in Florida down 53 percent from year ago.
[Last modified September 21, 2007, 20:12:27]
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