D.R. Horton, the No. 1 home builder on the 2006 BUILDER 100 is reporting net sales of 8,559 homes ($2 billion) for the third quarter of 2007. By comparison, the third quarter of 2006 had net sales of 14,316 homes ($3.8 billion). Housing orders for D.R. Horton in California alone dropped more than 50 percent from 1,708 in 2006 to 804 in 2007.
"Market conditions for new home sales declined in our June quarter as inventory levels of both new and existing homes remained high, and we expect the housing environment to remain challenging," says Donald R. Horton, Chairman of the Board. "We adjusted our sales prices as selling conditions deteriorated, and we continue to react quickly to market dynamics. We expect to report a profit from operations before impairments for the June 30, 2007 quarter. However, as a result of the factors mentioned above, we will realize significant asset impairments which will result in a loss for both the quarter and the nine months ended June 30, 2007."
Net sales orders for the first nine months of fiscal year 2007 (October 2006 to June 2007) total 14,237 less homes compared to the same period of fiscal year 2006. In addition, the home builder is reporting a cancellation rate (sales orders cancelled divided by gross sales orders) of 38 percent.
D.R. Horton isn't the only public builder reporting big losses in 2007; Lennar and KB Home recently reported lower sales as well. And according to Peter Schiff, president of Euro Pacific Capital, a Connecticut-based investment advisor, the future for many of the big public builders is not bright.
"They {the companies' reports} are going to get worse," Schiff told BUILDER Online in a telephone interview Tuesday. "It is a long way to the bottom. There will be losses for years to come."
Schiff says the bulk of the blame falls on the fact that most public builders overbuilt resulting in too much inventory.
"They built way too many homes that they could never sell and recover their costs," Schiff explains. In addition, he says, "while they were building them, the cost of building went up - the cost of construction and the cost of raw materials. "
"More importantly, the homes that they did sell are coming back {in the form of cancellations and foreclosures} because the people who bought them couldn't afford them," he adds.
Schiff predicts that builders will have to curtail their starts for some years to come. Why? "Because," he says, "There are just too many houses out there."
Learn more about markets featured in this article: Los Angeles, CA.
