The news just kept getting worse today for home builders.Â First comments from the Federal Reserve’sÂ Chairman Bernanke seemed to indicate that the Fed would not be holding the line on increasing interest rates.Â Interest rates seem likely to increase for the 17th straight time in response to continuing concern about inflation.
Then there wasÂ more bad newsÂ for a number of major builders.Â Lennar, KB Home, Pulte, and DR Horton were all downgraded today by Wachovia Securites.Â There are worries the high inventory levels will adversely effect earnings.Â All four builders closedÂ lower in the marketÂ today.
Technical Olympic USA and Standard Pacific both closed out the day at 52 week lows.Â Technical Olympic issued their second quarter forecast, indicating that they project a 25-40% decline in orders from the second quarter of 2005.Â Standard Pacific received an earlier analyst downgrade, which adversely affected its performance.
Additional factors have been hurting home builders.Â According to the website of SNL Financial LC, home builder Hovnanian’s President and CEO Ara Hovnanian indicates the rise in incentives, pullback in prices and general slowdown have been fueled by investors leaving the market and dumping an extra supply of available homes. “Investors have largely withdrawn from the market, thereby reducing demand,” Hovnanian said during the conference call. “In addition, they have added to the supply of available homes by listing their recent purchases for resale. This has resulted in a significant growth in the resale listings in many markets.”
David Seiders, Chief Economist for the National Association of Home Builders states that “NAHB’s national housing forecast shows a moderate and orderly cooling-down process that began late last year and extends into the middle of 2007. In this regard, the forecast currently shows a 14% decline in total housing starts from the third quarter of 2005 to the third quarter of 2007.”
However, if current trends continue, that “soft landing” could start looking pretty rough.