Thursday, April 27, 2006

More Votes of Non-Confidence in the Sacramento Housing Market

When it rains, it pours. First Beazer, now Pulte and Centex.

From MarketWatch:

Pulte Homes Inc. (PHM) Chief Executive Richard Dugas expressed cautious optimism that his home-building company will achieve its 2006 target for earnings in the range of $6 and $6.25 a share despite a sharp slowdown in demand for houses in certain markets and uncertainty in others. However, many analysts are skeptical the company will meet its goal...

Still, Dugas said market watchers shouldn't paint the entire housing industry with one broad brush as conditions vary from market to market. Hardest hit are markets that experienced huge price increases over the past two years. Dugas said markets such as Sacramento, San Diego and Northern Virginia, appear to be in the midst of a material correction where house prices are falling, cancellations are surging, traffic is slowing and incentives are up.
From SmartMoney:
Centex shares headed for the cellar, dropping more than 8% on Thursday, after the Dallas-based home builder missed quarterly earnings estimates, lowered guidance and announced it was walking away from land deals in some overheated markets...

That was underscored by a $28 million charge, representing about 14 cents a share, stemming primarily from the forfeiture of land option deposits in the Washington, D.C., San Diego and Sacramento, Calif., areas. Centex management told analysts on a conference call Thursday that although land prices aren't falling, that doesn't mean it's time to start building huge developments in those areas either. Rather, the company is trying to align better its land holdings to changing conditions in those markets.
By the way, more Sacramento Centex sales on the horizon.

3 comments:

Lander said...

Hat tips to Ben Jones & Happy Renter.

Garth Farkley said...

Lander,

Between your site and Sacramento Housing Bubble, you cover the ground on the "other side" of RE in Sac. I am a born and bred RE Permabull, but you make a fascinating case as this compelling story has been unfolding.

I detect no trace of polemic or hype. Your snapshots of news and events are well written, concise and topical -- always spot on for the issue at hand. Compared to other RE blogs, yours is highly polished, extremely professional, eye-catching, inviting and appealing.

James in CA is all over the raw numbers, but you own the insight and analysis. Frankly you beat any other blog I've seen. If Sac were a bigger town you'd be "Nationwide" as ZZ Top once said.

You've linked James and commented there in the past. I recently noted that his numbers are nearing historical highs, at least in nominal inventory (though not per capita yet).

The nominal high water mark will be the first headline, and it will be huge if it comes. (I'm not predicting, just observing.)

But who will break the story? And will it be well written, professional, thorough and concretely supported? This looks like a job for SuperLand-er.

Another minor note, your link for median price chart may be broken. I want a discount on my monthly subscription fee. Oh, wait a minute, I forgot ... you provide this service gratis. Just like Superman.

Garth Farkley said...

Happy Renter,

Thanks for the link to Consumer Reports. It's interesting. Very similar to PMI risk index and other commercial indices. They all show Sac as out of whack. I do have some questions about the OFHEO numbers. These indices compare OFHEO house price index to income for their valuations.

I believe the OFHEO house price index excludes homes purchased with Jumbo loans. I'm not sure how that impacts the bottom line. My guess is that the OFHEO understates the level of house price inflation in the most costly places like San Diego, Boston, SF, etc. The technical reason is that, as I read it, OFHEO index compares the price of a given APN as that particular parcel of real estate sells from one month or year to the next. Then OFHEO averages out the increases for all the parcels that have resold during the reporting period to achieve a CPI for houses. It's a great concept and it's really astounding when you think of the sophistication of the record keeping and correlation involved. A real expert can correct me if I'm reading OFHEO wrong, but that's how their notes read. The problem is, if a house sells during the current reporting period with a Jumbo loan, and it sold with a conforming loan during the last period, then it just falls off the radar right? It's a tree falling in the forest as far as I can tell. So I conclude that the OFHEO index is understated for any region with substantial numbers of non-conforming loans. Sacramento should be included in that list. Any real expert can correct me if I’m wrong, please.

Here’s the link for OFHEO house price index:

http://www.ofheo.gov/media/pdf/4q05hpi.pdf