The chief executive of Pulte Homes says his company is aggressively lobbying federal lawmakers to craft a second stimulus package that would directly benefit the housing industry by offering tax credits to home buyers.
Speaking this afternoon at Citi Investment Research's 21st Annual Global Industrial and Manufacturing Conference, Richard Dugas told investors and analysts that there have been "serious discussions" among legislators and housing industry officials about allowing home buyers to forego paying a portion of the taxes they would owe on the purchase of a home. He said the tax credits being discussed range from $3,000 to $15,000, although there is still debate about whether these credits should be extended to all home purchases, or limited to the purchase of new homes, or to entry-level homes. (Dugas favors a more inclusive package, but was quick to note "any tax credit would be helpful.)
During his presentation, Dugas said Pulte is in general agreement with recommendations the NAHB has made to Congress to assist the housing industry, including one that would extend the years a company could take advantage of net operating loss carrybacks from a tax standpoint.
But what builders really need, said Dugas, is greater price stability at a time when incentives and constant price discounting aren't stimulating demand (home sales are down 50 percent from their peak in 2005) or boosting buyer confidence in home values. "The supply side isn't helping us, either," he lamented, noting that the monthly supply of unsold homes keeps rising. Regardless of what happens in Washington, Dugas expects the impact of low buyer demand to persist through 2008 and said pricing is one of three factors-the others being customer traffic and orders, and inventory levels-that his company is watching to determine when business might turn around.
He assured his audience, however, that Pulte "is in one of the best positions [among public builders] to weather the downturn," on the strength of its balance sheet, its product diversity, and customers' satisfaction with those products and the services this builder offers.
Pulte ended 2007 with $1.1 billion in cash flow, which it expects to double this year. It has $1.6 billion in borrowing capacity and will need to retire only $339 million-10 percent of its total senior debt-by 2009. In the last six months of 2007, Pulte reduced its overhead by $150 million and expects to make further cuts this year. Its spec building now represents less than 10 percent of its overall construction (down from 33 percent historically), and Pulte now restrict is production to current projects and takedowns of finished lots.
Forty-six percent of Pulte's closings in 2007 were homes for active adults, which Dugas expects to be his company's sweet spot for decades to come. However, he does not expect Pulte will need to open more Del Webb active adult or retirement communities, as "we're where we want to be now" in terms of having a national presence with that brand. Another 17 percent of Pulte closings last year were from first-time home buyers, and Dugas is buoyed by the fact that America's growing immigrant population is poised to become home buyers. (He said immigrants are usually ready to buy a house after being in the country a decade.)
Pulte has walked away from virtually all of the land it controlled through options. But Dugas noted that, right now, "there are no natural buyers of land," so his company, which owns around 50,000 finished lots (out of a total of 158,000 lots owned and optioned), will need to manage that inventory efficiently. During the question and answer period, Dugas said that at some point Pulte wants to use its available cash to grow, but it's not ready yet to consider any merger or acquisition maneuver. "It's a little too early" to assess a targeted company's value, he said.