Wednesday, January 25, 2006

Centex Cancellations Increase in Sacramento

MarketWatch reports that Sacramento is one of six markets where homebuilder Centex has experienced the largest increase of cancellations.

Centex Corp. (CTX) is experiencing a slowdown in demand for homes in certain markets, but that won't stop the company from generating record earnings in fiscal 2006 and fiscal 2007, company executives said during a conference call Wednesday.

There's no question demand is slowing in certain markets, such as Phoenix and Washington, D.C., executives said. Cancellations ticked up 175 basis points to 27.2% in the fiscal third quarter ended Dec. 31. But Eller said this still falls within the company's historic cancellation rate average of 20% to 30%. The biggest cancellation increases came in Phoenix, Indianapolis, Minnesota, San Diego, Sacramento, Calif., and Reno, Nev.

To combat this, the company has started offering incentives and discounts, such as special 12-hour 'blowout' sales, to drive traffic and sales at some communities. Discounts averaged 2% in the quarter, but affected less than 10% of the company's total inventory, according to Chief Financial Officer Lel Echols.

Echols also emphasized the discounting sales were held in markets that had seen "heavy runups in prices in the last year," where the discounts simply brought prices back to levels they were at six months ago.

Chairman and Chief Executive Tim Eller said the company's wide geographical footprint should allow Centex to offset weaknesses in some markets with strength in others. "For example, frothy markets such as Phoenix and Washington, D.C. are moderating, but our operations in the Carolinas and Texas are accelerating," Eller said. "Right now, our Sacramento and San Diego operations are also moderating while our five other California markets continue to be strong."

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