Despite sales trends improving as the second quarter progressed, a slowdown on land acquisition, and average discounts of roughly 10 percent to 11 percent, business in the second quarter was still bad for The Ryland Group, said Ryland chairman, president, and CEO Chad Dreier.
"The housing market has not gotten any better since our last quarterly report," Dreier said Thursday afternoon during a quarterly conference call.
"In some areas the fundamentals got worse, as evidenced by the impairment charges we took in the quarter."
Ryland took pre-tax charges of $147.1 million for inventory valuations, adjustments, and write-offs. Land impairments were $127 million, with the balance taken in writing off options, Dreier said.
Breaking it down by division, Dreier said Ryland took $42 million of impairments in Northern California, $40 million in Las Vegas, $19 million in Phoenix, $14 million in Florida, and $12 million in Southern California. In all, 19 Ryland communities took impairments just in the second quarter. In Southern California, 96 percent of Ryland's communities were impaired.
"Continued sluggish sales in these markets led to another round of discounting, which compelled us to take the impairments," Dreier said Thursday. "We're disappointed in the magnitude of these charges, but it was a necessary step."
While Dreier said he does not expect to have to impair those properties again, there may yet be further discounting to be done in those areas.
"We do not write it down expecting more erosion," Dreier said. "But I would tell you from a marketing point of view, we would know in more difficult markets that we had to have more incentives than we had in the past."
Ryland reported a consolidated net loss of $52.4 million during the second quarter, compared to earnings of $94.8 million for the second quarter of 2006. The company's home building revenues decreased 38.3 percent to $722.6 million for the quarter, compared to $1.2 billion for the second quarter of 2006. Part of that can be put on a decrease in the company's average home sales price declining from $295,000 in 2006 to $292,000 in 2007.
Ryland's net sales also fell 17 percent year over year in the second quarter, from 3,023 in 2006 to 2,521 this year. Compared to the first quarter of 2007, sales were down most in Texas, and off in the Southeast and North, but Ryland's sales in the West were actually up 7 percent, Dreier said.
"Sales trends improved as the quarter progressed, although I'm hesitant to read too much into this, as the selling environment continues to be challenging across the country," he said.
"Our sales were up in the West, and the only thing I read into that is that we had a really lousy year last year in Vegas, Phoenix, and California," Dreier said.
Indeed, Ryland saw its cancellation rate jump from 28 percent in the first quarter to 34 percent in the second quarter. Dreier put the blame for the spike in cancellations on high inventory levels that make it harder for would-be buyers to sell their homes, forcing them to back out of closings.The company's backlog at the end of the second quarter decreased 39.2 percent to 4,953 units from 8,151 units in 2006.
Ryland is also shifting its product mix from traditionally one-third each of entry-level and first and second move-up products to roughly 20 percent entry-level and 40 percent each for first and second move-up.
"We're doing less true entry-level, it's just harder, and the numbers don't work," Dreier said.
Learn more about markets featured in this article: Las Vegas, NV.