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Global housing boom end and builders

By Heraclitusstudent following x   2018 Aug 1, 11:19am 936 views   5 comments   watch   nsfw   quote     share    


https://www.bloomberg.com/news/articles/2018-07-31/are-house-prices-falling-from-sydney-to-new-york
I think the slowdown is purely based on prices and we still need a massive amount of new housing which will be good for home builders.

Any thoughts about builders stocks?
1   anonymous   ignore (null)   2019 Feb 27, 3:38pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Toll Brothers Reports FY 2019 1st Quarter Results

Toll Brothers, Inc. TOL, -2.52% (www.tollbrothers.com), the nation's leading builder of luxury homes, today announced results for its first quarter ended January 31, 2019.

FY 2019's First Quarter Financial Highlights (Compared to FY 2018's First Quarter):

•Net income and earnings per share were $112.1 million and $0.76 per share diluted, compared to net income of $132.1 million and $0.83 per share diluted in FY 2018's first quarter. This decline in earnings per share was primarily the result of a (0.4)% effective tax rate in FY 2018's first quarter due to the revaluation of the Company's net deferred tax liability as a result of the enactment of the Tax Cuts and Jobs Act, compared to a 26.0% effective tax rate in FY 2019's first quarter.

•Pre-tax income grew 15% to $151.4 million, compared to $131.6 million in FY 2018's first quarter.

•Home sales revenues were $1.32 billion, up 12%; home building deliveries were 1,530, up 8%.

•Net signed contract value was $1.16 billion, down 31%; contract units were 1,379, down 24%.

•Backlog value at first quarter end was $5.37 billion, down 4%; units in backlog totaled 5,954, down 5%.

•Home sales gross margin was 21.0%; Adjusted Home Sales Gross Margin, which excludes interest and inventory write-downs ("Adjusted Home Sales Gross Margin"), was 24.2%.

•Land sales gross profit was $9.6 million in FY 2019's first quarter.

•SG&A, as a percentage of home sales revenues, was 12.3%.

•Income from operations was 9.1% of total revenues.

•Other income and Income from unconsolidated entities was $27.0 million.

•The Company repurchased approximately 785,000 shares of its common stock at an average price of $32.02 per share for an aggregate purchase price of approximately $25.1 million.

Second Quarter FY 2019 Financial Guidance:

•Deliveries of between 1,650 and 1,850 units with an average price of between $860,000 and $890,000.

•Adjusted Home Sales Gross Margin of approximately 23.1%.

•SG&A, as a percentage of second quarter home sales revenues, of approximately 11.3%.

•Other income, Income from unconsolidated entities, and land sales gross profit of approximately $13 million.

•Tax rate of approximately 27.5%.

Douglas C. Yearley, Jr., Toll Brothers' chairman and chief executive officer, stated: "FY 2019's first quarter results were strong, with pre-tax earnings rising 15%, home sales revenues increasing 12%, and home sales gross margin improving 50 basis points compared to one year ago.

"We attribute the decline in our first quarter contracts to a difficult year-over-year comparison, a lack of current inventory in certain locations and the industry-wide slowdown that began in the second half of 2018. On a per-community basis, contracts tracked more closely to FY 2016's and 2017's first quarter, which were still quite healthy, than to the more robust FY 2018 first quarter. Although we experienced a year-over-year decline in contracts each month of this first quarter, the decline decreased as the quarter progressed.

"While non-binding reservation deposits for the first three weeks of February were still behind last year, we are encouraged by improving demand trends during the month, and especially by last week's deposits, which exceeded last year's same week.

"Nationally, the economy remains healthy, unemployment is low, and housing supply is still tight. Many of our potential customers have benefited from a strong stock market and enjoy increased equity in their existing homes. Mortgage rates have recently decreased to their lowest levels in a year. These factors are all generally positive for the home building sector.

"Given our focus on the upscale market, our strategy has always been to acquire the best land in the most attractive locations. We evaluate each community weekly to carefully balance sales pace and home price. With our unique land position, we intend to continue this balanced approach.

"With our strong balance sheet, we continue to evaluate attractive land opportunities, new markets, and builder acquisitions as we pursue our strategy of diversifying our product lines and geographic footprint. With our well-located land, strong brand, and wide variety of communities, we believe we are well positioned.

"This quarter, we again were named by Fortune magazine as the World's Most Admired Home Building Company. This is the fifth consecutive year we have been so honored. It is a recognition not only of the quality of our homes and our brand, but of the tremendous hard work of our Toll Brothers associates."

Martin P. Connor, Toll Brothers' chief financial officer, stated: "Our first quarter results exceeded our expectations, driven by strong revenue growth and gross margins, and improved SG&A leverage.

"Our balance sheet remains solid. We ended our first quarter with total liquidity of $1.9 billion, including over $800 million of cash and cash equivalents and $1.12 billion available under our revolving bank credit facility. We finished the quarter with a book value per share of approximately $33.

"Given that we are in the early stages of the spring selling season and in light of current market conditions, there continues to be a wide range of possible results for our full fiscal year. Therefore, we have limited our forward-looking income statement guidance to the second quarter of 2019."

First Quarter Financial Highlights (compared to FY 2018's first quarter):
•FY 2019's first quarter net income and earnings per share declined 15% and 8%, respectively, to $112.1 million, or $0.76 per share diluted, compared to FY 2018's first quarter net income of $132.1 million, or $0.83 per share diluted.

•FY 2018's first quarter net income was favorably impacted by the Tax Cuts and Jobs Act enacted in December 2017 which resulted in a FY 2018 first quarter $31.2 million tax benefit associated with the revaluation of the Company's net deferred tax liability. The Company's effective tax rate in FY 2018's first quarter was (0.4)% compared to 26.0% in FY 2019's first quarter.

•FY 2019's first quarter pre-tax income was $151.4 million, compared to FY 2018's first quarter pre-tax income of $131.6 million. FY 2019's first quarter results included pre-tax inventory impairments totaling $7.6 million. FY 2018's first quarter results included pre-tax inventory impairments of $3.9 million.

•FY 2019's first quarter home sales revenues of $1.32 billion and 1,530 units rose 12% in dollars and 8% in units, compared to FY 2018's first quarter totals of $1.18 billion and 1,423 units.

•The Company's FY 2019 first quarter net signed contracts of 1,379 units and $1.16 billion, decreased by 24% in units and 31% in dollars, compared to FY 2018's first quarter net contracts of 1,822 units and $1.69 billion. In FY 2019's first quarter, the Company adjusted its guidelines for deposit levels necessary for a sale agreement to be counted as a contract in certain lower price point communities, resulting in 27 net signed contracts that would not have been counted under the previous guidelines.

•In FY 2019, first quarter-end backlog of $5.37 billion and 5,954 units decreased 4% in dollars and 5% in units, compared to FY 2018's first quarter-end backlog of $5.58 billion and 6,250 units. The average price of homes in backlog was $901,000, compared to $892,000 at FY 2018's first quarter end.

•FY 2019's first quarter home sales gross margin was 21.0%, compared to 20.5% in FY 2018's first quarter.FY 2019's first quarter Adjusted Home Sales Gross Margin was 24.2%, compared to FY 2018's first quarter Adjusted Home Sales Gross Margin of 23.7%.

•FY 2019's land sales gross profit was $9.6 million, driven primarily by a gain on sale of apartment land to a joint venture. Due to the adoption of Accounting Standards Update No. 2014-09 "Revenue from Contracts with Customers," land sales gross profit is presented separately. In prior years, land sales gross profit was included in Other income.

•Interest included in cost of sales was 2.6% of home sales revenues in FY 2019's first quarter, compared to 2.9% in FY 2018's first quarter.

•SG&A, as a percentage of home sales revenues, was 12.3% in FY 2019's first quarter, compared to 13.4% in FY 2018's first quarter.

•Income from operations of $124.4 million represented 9.1% of total revenues in FY 2019's first quarter, compared to $83.7 million and 7.1% of revenues in FY 2018's first quarter.

•Other income and Income from unconsolidated entities in FY 2019's first quarter totaled $27.0 million, compared to $47.9 million in FY 2018's first quarter.

•FY 2019's first quarter cancellation rate (current quarter cancellations divided by current quarter signed contracts) was 9.6%, compared to 5.3% in FY 2018's first quarter. As a percentage of beginning quarter backlog, FY 2019's first quarter cancellation rate was 2.4% compared to 1.7% in FY 2018's first quarter.

•The Company ended its FY 2019 first quarter with $801.7 million in cash and cash equivalents, compared to $1.18 billion at FYE 2018, and $508.3 million at FY 2018's first quarter end. At FY 2019's first quarter end, the Company also had $1.12 billion available under its $1.295 billion, 20-bank credit facility, which matures in May 2021.

•During the first quarter of FY 2019, the Company repurchased approximately 785,000 shares at an average price per share of $32.02, for an aggregate purchase price of approximately $25.1 million.

•On January 25, 2019, the Company paid its quarterly dividend of $0.11 per share to shareholders of record at the close of business on January 11, 2019.

•Stockholders' Equity at FY 2019's first quarter end was $4.82 billion, compared to $4.46 billion at FY 2018's first quarter end.

•The Company ended its FY 2019 first quarter with a debt-to-capital ratio of 42.7%, compared to 43.7% at FYE 2018 and 44.2% at FY 2018's first quarter end. The Company ended FY 2019's first quarter with a net debt-to-capital ratio of 36.0%, compared to 33.2% at FYE 2018, and 40.1% at FY 2018's first quarter end. [(1)]

•The Company ended FY 2019's first quarter with approximately 54,000 lots owned and optioned, compared to 53,400 one quarter earlier, and 49,500 one year earlier. Approximately 33,500 of these lots were owned, of which approximately 17,140 lots, including those in backlog, were substantially improved.

•In the first quarter of FY 2019, the Company spent approximately $262.3 million on land to purchase approximately 2,686 lots.

•The Company ended FY 2019's first quarter with 317 selling communities, compared to 315 at FYE 2018 and 295 at FY 2018's first quarter end.

•The Company expects FY 2019 second quarter deliveries of between 1,650 and 1,850 units with an average price of between $860,000 and $890,000.

•The Company expects its second quarter FY 2019 Adjusted Home Sales Gross Margin to be approximately 23.1% of home sales revenues.

•FY 2019 second quarter SG&A is expected to be approximately 11.3% of second quarter home sales revenues.

•The Company's second quarter FY 2019 Other income, Income from unconsolidated entities, and land sales gross profit is expected to total approximately $13 million.

•The FY 2019 second quarter effective tax rate is expected to be approximately 27.5%.

(1) See "Reconciliation of Non-GAAP Measures" below for more information on the calculation of the Company's net debt-to-capital ratio.

https://www.marketwatch.com/press-release/toll-brothers-reports-fy-2019-1st-quarter-results-2019-02-26/
2   anonymous   ignore (null)   2019 Feb 27, 3:39pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Toll Brothers Orders Plunge as California Buyers Vanish

Toll Brothers Inc.’s new home orders dropped 24 percent in the fiscal first quarter, the steepest annual decline for the biggest U.S. luxury homebuilder since the depths of the housing crash in 2010. The company struggled to find move-up buyers in California, which is gripped by an affordability crisis.

Analysts expected a decline of less than 15 percent in new home contracts in the quarter, which ended Jan. 31. Instead, it was the largest drop since the 27 percent year-over-year fall in the third quarter of 2010.

An improvement in margins provided comfort for some investors, but they were based on contracts signed six or nine months ago, before the market began cooling, said Bloomberg Intelligence analyst Drew Reading. Orders fell 62 percent in California, where Toll has a heavy focus.

Toll shares fell as much as 3.3 percent and traded at $36.74 at 1:10 p.m. in New York, down 1.4 percent.

“It was worse than anybody was looking for,” Reading said in a phone interview. "It has become very clear that the higher end of the market has been weaker than the lower end. Also in December there was stock market volatility and a lot of Toll’s buyers are purchasing their home with their investments, rather than monthly paychecks.”

Toll Brothers is especially vulnerable to the housing slowdown, which has hit the higher end of the market where inventory is greatest. While mortgage rates have come back down, they jumped last year, exposing an affordability problem that built up over years as prices outpaced incomes. It is especially bad in California, where sales are falling, making it more difficult for Toll buyers to sell existing homes to buy new ones.

Alex Barron, analyst with the Housing Research Center in El Paso, Texas, said that California orders likely took a hit, in part, because Chinese buyers are getting scarce as China tightens controls on capital outflows.

"This is not just an issue for Toll but for anybody selling homes to the Chinese," Barron said.

The company said that non-binding reservation deposits, which it stopped reporting in previous years, saying it was an unreliable indicator of demand, were down from a year earlier. But it said the last week’s deposits were better.

“We attribute the decline in our first quarter contracts to a difficult year-over-year comparison, a lack of current inventory in certain locations and the industry-wide slowdown that began in the second half of 2018,” Douglas Yearley, the company’s chief executive officer, said in a statement.

https://finance.yahoo.com/news/toll-brothers-orders-plunge-california-144209405.html
3   anonymous   ignore (null)   2019 Feb 27, 3:43pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

NAHB: The 2019 Outlook for Home Building

LAS VEGAS — (Realty News Report) Houston’s single-family housing market appears to be cooling slightly, as developers appear to have gotten ahead of themselves with new product.

That was one of the takeaways from the National Association of Home Builders (NAHB) International Builders’ Show in Las Vegas Tuesday.

NAHB Chief Economist Robert Dietz, who made the comments to Realty News Report on the sidelines of the NAHB show, added that the shortage of skilled labor is one of the main problems facing Houston builders.

Overall, NAHB is projecting 1.26 million total housing starts in 2018 and expects overall production to inch up 0.8 percent this year to 1.27 million units.

New-home sales are rising fastest in the South with Houston leading the way followed by Dallas, Atlanta, Phoenix and Austin, which all averaged more than 1,000 new-home sales per month between Nov. 2017 and Oct. 2018.

Single-family starts are expected to hit 876,000 units in 2018 and rise an additional 2 percent to 894,000 this year. That figure well below the 1.1 to 1.2 million units that demographics would support.

Ongoing job creation and solid household formations will keep demand firm in most parts of the country, Dietz continued, but builders will continue to grapple with a number of challenges including a chronic lack of construction workers; a shortage of buildable lots; and tariffs on lumber and other key building materials.

In addition, home price appreciation over the past year that has outpaced wage gains, contributing to rising concerns about affordability.

Frank Nothaft, chief economist at CoreLogic, said the South and West are the regions that will lead new-home growth in the year ahead. “Metros with good affordability, good job growth and good weather have had the highest growth in new-home sales over the last year,” he noted.

One bright spot is townhome construction, which, is expanding at a robust 24 percent annualized growth rate.

Looking ahead, Dietz said interest rates are anticipated to gradually rise, with the 30-year fixed-rate mortgages expected to average 4.81 percent this year and 5.08 percent next.

Builders worried about a recession around the corner shouldn’t be. The risk of a near term recession is low, David Berson, senior vice president and chief economist at Nationwide Insurance, told attendees. Berson added that economic growth is expected to slow modestly this year in response to trade/tariff issues, higher interest rates and diminishing fiscal stimulus from the 2017 tax cuts.

The Federal Reserve will probably tighten interest rates two or three times this year, he added with fewer moves in future years. This anticipated action, along with inflation edging higher, should result in a modest rise in 30-year mortgage rates in 2019.

Berson said the start of the next recession is uncertain, adding “the odds rise as we look out two to three years.”

Feb. 20, 2019 Realty News Report Copyright 2019

http://realtynewsreport.com/2019/02/20/nahb-the-2019-outlook-for-home-building/
4   anonymous   ignore (null)   2019 Feb 27, 3:49pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

This Homebuilder's Sobering 2019 Outlook Should Give Investors Pause

Typically, when a company needs to give investors some bad news, management tries to slide it in among some good news. This past quarter, though, homebuilder PulteGroup (NYSE: PHM) didn't bother to sugarcoat things. While earnings were more or less in line with the rest of the industry, management served up a more somber view of the 2019 market.

Here's a look at PulteGroup's most recent earnings results and why management doesn't like what it sees for 2019.

Metric Q4 2018 Q3 2108 Q4 2017

Revenue $2.99 billion $2.65 billion $2.79 billion
Net income $237.6 million $289.5 million $77.4 million
EPS (diluted) $0.84 $1.01 $0.26

This quarter's result had some funky numbers that made net income look less impressive. Management said the company took about $85 million in pre-tax land charges and some reserve adjustments for its financial-services business. Absent these charges, net income would have been $1.11 per share.

The sales side was a mixed bag. On one hand, sales in Florida were exceptional and helped to offset declines in other segments. Overall, PulteGroup's unit sales were up 1%, but it was able to notch a 6% revenue increase over last year thanks to higher average selling prices. At the same time, costs were on the rise, as selling, general, and administrative costs ticked up to 10.1% of revenue.

The most alarming part of the company's press release, however, was that net new orders declined about 11% from this time last year and that its backlog value decreased by 5%. PulteGroup entered 2019 with a total order backlog of $3.8 billion.

What management had to say

For the most part, homebuilder executives have been rather optimistic when discussing the outlook for 2019 and beyond. While some acknowledged that affordability has been a recent headwind, they all pointed to pent-up demand from a multi-year deficit in housing starts and the millennial generation's entrance into prime homeownership age.

CEO Ryan Marshall's comments, however, were sobering. His statements on affordability raised more questions about 2019 than any other executive has thus far:

As strong as our 2018 operating and financial performance was, the reality is that the numbers reflect an outstanding spring selling season followed by an industrywide softening of demand, beginning late in the second quarter. To widely varying degrees, this change has been felt across all buyer groups and most if not all markets across the country. This is setting up 2019 to be more of a challenging year.

Many point to the rise in interest rates that accelerated in Q2 of 2018 [as] the trigger for the change in consumer behavior. I think the rise in interest rates may be better viewed as the proverbial final straw rather than a trigger as it came on top of several years of home price appreciation and growing affordability challenges.

Bracing for a slowdown?



PulteGroup's comments this past quarter were the first real sign that homebuilders are legitimately concerned about the slowdown and the issue of affordability. PulteGroup is also going to be more sensitive to these issues because its average selling price of $430,000 puts most of its offerings out of the reach of first-time buyers and is a bit higher than that of other large homebuilders.

In addition to management's statements, the company is keeping much more cash on the books than in previous years. With more than $1 billion on hand, it would appear the company is padding its balance sheet with cash. That could mean a lot of things. Maybe it's getting ready to make an acquisition, or maybe it wants to pay down some upcoming debts. Either of these situations suggests management thinks the housing market is getting weaker and that it's time for investors to be thinking the same way.

https://finance.yahoo.com/news/homebuilder-apos-sobering-2019-outlook-004800080.html

Read a full transcript of PulteGroup's conference call. - https://www.fool.com/earnings/call-transcripts/2019/01/29/pultegroup-inc-phm-q4-2018-earnings-conference-cal.aspx?utm_campaign=article&utm_medium=feed&referring_guid=6b2078c8-2bc4-4f76-8016-3d335beb7900&utm_source=yahoo-host
5   anonymous   ignore (null)   2019 Feb 27, 3:55pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

2019 Construction Outlook: Cautious Positivity

Construction spending on projects under way in the first three quarters of 2018 topped the same period in 2018 by 5.5%. Spending growth was well balanced among residential, private nonresidential and public projects.

Construction employment climbed by 4.9% from October 2017 to October 2018. That growth rate was nearly triple the 1.7% increase in total nonfarm payroll employment, a sign that contractors are busy now and expect to remain busy in the near future.

In fact, contractors probably would have taken on even more workers if they could have found them. There were 278,000 job openings in construction at the end of September, the highest September total since the Bureau of Labor Statistics began estimating this number 18 years ago, and a 55% jump from the September 2017 figure of 179,000.

In a survey the Associated General Contractors of America released in late August, more than three-fourths of the 2,552 firms expect to add workers over the coming year. However, an even higher percentage of respondents said that hourly craft positions are hard to fill, and most said they expect it will be as hard or harder to fill both craft and salaried positions next year.

Domestic suppliers matched many of the tariff increases or even raised prices in anticipation of them, putting a squeeze on contractors that had signed fixed-price contracts for projects before buying materials.

That expectation appears well founded. There are few experienced workers available: the unemployment rate for jobseekers with recent construction experience dropped to 3.6% in October, the lowest October rate in a series dating to 2000.

Even the pool of workers without experience is growing more slowly, as the number of retirements rises and the number of new workforce entrants—either domestic or foreign-born—flattens or shrinks. And the competition from other sectors for workers has stiffened, as the unemployment rate for all adults has fallen to a 49-year low.

Materials costs have become an even bigger concern than labor availability or quality for some contractors. In 2018, tariffs were imposed with little notice on steel, aluminum, lumber and a wide variety of Chinese imports.

Domestic suppliers matched many of these increases or even raised prices in anticipation of them, putting a squeeze on contractors that had signed fixed-price contracts for projects before buying materials.

Most contractors do not have to arrange financing, but homebuyers, developers and municipal-bond issuers are all sensitive to interest rates. If rates rise more than is currently anticipated, more and more projects may fall by the wayside.

Some contractors may have been insulated from the tariffs in 2018 if they had already ordered materials or were buying from suppliers that held the line on items they had in inventory. But if the tariffs stay in place, as currently appears likely, more of those price increases will be passed through to contractors.

Meanwhile, some projects may be canceled as owners find their costs have risen or they have been shut out of export markets in retaliation for tariffs imposed by the U.S.

Rising interest rates are a third source of uncertainty for 2019. Most contractors do not have to arrange financing, but homebuyers, developers and municipal-bond issuers are all sensitive to interest rates. If rates rise more than is currently anticipated, more and more projects may fall by the wayside.

Single-family homebuilders are especially vulnerable to these threefold threats. More than nonresidential contractors, homebuilders rely on foreign-born workers and thus are affected by immigration policies that reduce their ranks. Single-family housing, especially in the West, uses most of the imported lumber in the nation. And homebuilders, along with their customers, are exposed to rising interest rates.

However, to the extent that households are priced out of buying homes, they are likely to rent more or pricier housing. That will add to demand for multifamily construction in 2019.

Despite the threats from labor market tightness, tariffs and rising interest rates, most contractors should find opportunities abound in 2019. The best prospects among building types appear to be in airport terminals, warehouses, data centers, and a return to growth in multifamily construction.

https://www.contractingbusiness.com/commercial-hvac/2019-construction-outlook-cautious-positivity

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