Home orders that continue to fall have caused Standard Pacific CEO Ken Campbell to re-consider when he thinks the home building market will get back to some semblance of normal.
"2015 is when we get there," Campbell said, answering questions from analysts during the company's third quarter conference call Wednesday. "It's probably a year later today than I thought six or nine months ago."
Standard Pacific's orders were down year-over-year by 38% to 555 homes in the third quarter which ended Sept. 30. Closings at 599 were down 33%. The company's back log was down 39% to 605 homes compared with 995 last year.
Despite those dismal numbers, Standard Pacific managed to turn a slight profit for the second quarter, 4.5 million, $0.02 a share compared to a loss of $0.10 in the same quarter of last year.
Standard Pacific has managed to reconstruct itself so that it is able to sustain itself with little. It needs to sell but 1.5 homes a month on average in each community to make a profit.. That compares with more than 3 two years ago. Its third quarter SG&A expenses were down $7.4 million, a rate of 17.6%.
"Given our breakeven rate is as low as it is. ... I think we are fairly confident that we can continue to eke out income at these sales rates," said Scott Stowell, the company's chief operating officer.
Stowell credited the sales slow down to a lack of urgency to buy from consumers as well as difficulty selling existing homes, not being able to bring as much equity as they had hoped to a new home purchase, and/or having to struggle to qualify for financing.
Campbell said there could be some downward pressure on home prices because he suspects some large builders were left holding extra spec. homes after overbuilding for the buyer income tax credit.. Standard Pacific, has 918 spec homes on the books, with 391 complete, most likely too many, Campbell suggested.
Still, the company has been able to hold the line on prices, the company's average sales price actually moved up 14% to $302,000 in the third quarter.
"The shift was about mix and where we sold them," said Campbell, adding that it was selling out of some Florida communities earlier in the year at lower prices while the company sold more California homes in its third quarter that net higher prices and better margins. Gross margin from home sales in the quarter was 23.6% versus 18.6 in Q3 of 2009.
Standard Pacific plans to continue its plan to buy land during the downturn though slower sales are likely to slow that pace because it affects how much the company is willing to pay for land. In its third quarter Standard Pacific approved, but didn't spend yet, $93 million in land purchases. It bought about 1,800 lots valued at $127 million. About 73% of that land is in California, a main focus for land buying for the company.
"That's where we think land will be most scarce when the market picks up and also some of the most difficult to get (development) approved," Campbell said.
Standard Pacific is not the only builder who has slowed land buying, Campbell said. "Land market demand has shifted a little bit, softened," he said. "The levels of transactions have slowed down."
The company expects to increase its net community count by seven by the end of the year and boost its total count to an average of 150 compared to 130 this year. New communities, with gross margins in the 23% range still make up a minority of Standard Pacific's holdings. Campbell blames himself for that.
"The delay is my fault because as we were rolling new communities out we decided that this would be a great time to redesign our new homes," he said, adding he thought it prudent to offer homes that match new buyer desires. Plus, he is reluctant to add new staff to staff the new communities.
"I am not going to add staff," he said.
Standard Pacific also offered more clarity in exposure it might have to mortgage put-backs. The company made 23,000 mortgage loans since it started a mortgage company in 2004. So far, only 62 loans from that pool have been sent back to the company because of default. Most of that group was from 2005 to 2007 when consumers were able to get loans without proving income with documentation.
"Obviously, with 23,000 loans, that is a big nut out there," Campbell said. "I'm not saying that it (a large number of put-backs) is not going to happen, but there certainly is no evidence that it is going to happen."
Standard Pacific's home-building company makes no corporate guarantees for the mortgage arm.