There are two ways the home building market could get better: the slow way and the quicker way, Pulte CEO Richard Dugas told analysts during the company's third-quarter conference call Thursday morning.
Dugas called for a tax credit of $20,000 or more for home buyers, with no repayment provision like the $7,500 tax credit passed by Congress over the summer, plus a temporary mortgage interest rate buy down of between 150 and 200 basis points.
"This exact strategy was employed [during the 1970s]. It worked," Dugas said during the company's third-quarter conference call.
Later during the call, Dugas said home builders recently formed a stronger and more organized group with other trade associations to push for more stimulus directly aimed at the housing market.
"It has upped the ante for something else to be done in the industry," Dugas said. "It seems that housing is at the epicenter of the [economic problem], yet none of the stimulus is aimed at the heart of the patient."
And the help may come sooner rather than later, Dugas said. "Whatever we get done will take time, but I would not rule out a lame duck session to get something done for housing," he said. "The water is getting incredibly deep [for builders]."
Dugas said Congress' most recent stimulus plan did nothing to stimulate demand. And, while the impending Oct. 1 demise of third-party down payment assistance programs did give Pulte's traffic a slight lift, it fell flat by the end of September as the financial markets tanked and buyers who were interested walked away out of fear of commitment in uncertain times.
"The financial chaos froze people from buying completely," Dugas said. "We kept hearing the refrain, 'I'd like to buy at these prices, but...'"
Indeed, the company's third-quarter sales were worse than anticipated. It took orders for 3,008 houses, 34% fewer than the same quarter in 2007. And company officials intimated that things have deteriorated even further in October, not boding well for the fourth quarter. It had anticipated a loss before land-related charges of $0.37 a share to breaking even. Including land charges of $267 million, the company actually lost $1.11 a share. Without the charges, the company's losses would have been $28 million.
Because of all the uncertainty, Pulte did not offer guidance for its fourth-quarter earnings. Company officers did, however, stick to their prediction of having $1.6 billion to $1.8 billion in cash on hand by the end of 2008. On Sept. 30, the company had $1.2 billion of cash on its balance sheet. It has no debt under its revolving line of credit.
That stash will be critical next year as the company's revenue stream falls even further. The company's backlog on Sept. 30 was 5,885 houses worth $1.7 billion compared to 13,042 homes valued at $4.1 billion on the books the same time last year.
Pulte holds tight to its strategy of holding onto its good land rather than selling in bulk at huge losses to net tax refunds against profits made in earlier years. The company paid between $450 million and $470 million in taxes in 2006 that would be available to be recouped by land sale losses this year. Pulte executives estimate the company will be reclaiming about $248 million of that total.
While there are a few markets where Pulte would like to increase its presence, including the Carolinas, Minnesota, and Texas, Dugas said prices haven't fallen enough to justify investment now. "I am going to stress we are not going to buy dirt only to impair it in this market," he said.