Homebuilders see demand for homes stabilizing now, but recovery hinges on lift in economy

LOS ANGELES, Calif. – The CEOs of the nation’s two largest homebuilders say demand for new homes appears to be stabilizing, if still at very low levels.

PulteGroup Inc.’s Richard Dugas and Donald Tomnitz of D.R. Horton Inc. weighed in on the market trends Thursday after each company reported financial results for the April-to-June quarter.

The builders reported lower home closings for the quarter and contracts for new homes that landed just about even with their prior-year results.

They also reported increases in their backlog of homes under contracts – a positive indicator of future activity.

Tomnitz said demand is back to a normal seasonal pattern following last year’s homebuyer tax credit, which expired last spring and led to a drop off in sales later in the year. He also said D.R. Horton is now solidly in position to be profitable for its full fiscal year.

Dugas said demand for new homes remains stable, if at a low level. The executive also said his company is on track to return to profitability in the second half of the year.

The sales trends and executives’ remarks are positive in light of this year’s spring home-selling season, which ended up being a disappointment despite increases in traffic by prospective buyers.

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But neither builder was bullish on a more robust pickup in sales just yet.

“To be frank, most all of our markets are soft, softer and softest,” Tomnitz said. “Nothing’s really strong out there.”

He added he doesn’t anticipate much of a turnaround this year, or next.

“I would anticipate that 2012 will be better than 2011, but I don’t expect it to be significantly better,” Tomnitz said.

Dugas said he doesn’t see the market getting worse, but he also doesn’t see it getting much better unless the economy picks up.

“We view the lack of demand as the bigger issue hurting the industry today,” Dugas said. “Simply put, we need more jobs and better consumer confidence before a meaningful recovery can occur.”

Last year was the worst for new-home sales on records dating back a half century, and through the first six months of this year, sales are lagging behind last year’s totals.

Overall U.S. sales of new homes fell 1 per cent in June to a seasonally adjusted annual rate of 312,000 homes, well below the 700,000 a month economists consider healthy.

High unemployment, larger down-payment requirements and tougher lending standards are preventing many people from buying homes. And some potential buyers who can clear those hurdles are holding off, worried that home prices have yet to bottom out.

PulteGroup and D.R. Horton were up against a tough sales benchmark set a year ago, when the homebuyer tax credits helped spur sales and drove a surge in home closings through the end of June 2010.

The builders should have a far easier time surpassing their prior-year sales results the rest of this year, because home sales tanked last summer and for much of the rest of 2011.

D.R. Horton, which is based in Fort Worth, Texas, operates in 26 states and was ranked the nation’s largest builder last year on the basis of home closings by Builder magazine.

The company said net income fell 43 per cent to $28.7 million, or 9 cents a share, in the three months ended June 30. That compares with a profit of $50.5 million, or 16 cents a share, a year earlier.

The latest results included $16.4 million in pretax charges and losses from paying debt off early.

Revenue dropped 30 per cent to $975.4 million from $1.4 billion.

Analysts polled by FactSet were expecting a profit of 5 cents a share on $985.4 million in revenue.

Home closings fell to 4,555 homes during the quarter. New home orders slipped to 4,874 homes.

The company ended the quarter with a backlog of 5,600 homes under contract with a value of $1.2 billion, up from 4,430 homes at quarter’s end last year.

Bloomfield Hills, Mich.-based PulteGroup reported a loss of $55.4 million, or 15 cents per share, for the three months ended June 30. That compares with a profit of $76.3 million, or 20 cents per share, a year earlier.

The loss included $41 million worth of restructuring and debt repurchasing charges amounting to 11 cents per share. Without the charges, the company would have lost 4 cents per share, matching the average estimate of analysts polled by FactSet.

Revenue dropped 29 per cent to $927.2 million, short of Wall Street’s $990.7 million estimate.

The company reported 4,222 orders for new homes during the quarter, essentially flat versus a year earlier. Home closings fell 28 per cent to 3,633.

Pulte’s quarter-end order backlog was up 2 per cent to 5,777 homes.

Shares of PulteGroup shares ended the regular session down 20 cents, or 2.9 per cent, to $6.80.

D.R. Horton shares added 30 cents, or 2.6 per cent, to $11.90.