D.R. Horton , the largest U.S. homebuilder, expects homebuilders' pricing power to return by January 2008, after the hard-hit industry works its way through its inventory of unsold homes, the company's chief executive said on Wednesday.
"I believe we are having an orderly and reasonably profitable liquidation of excess inventory in the marketplace," chief executive Don Tomnitz told the Citigroup Industrial Manufacturing Conference. "I don't think '08 is going to be a great year, but it's going to be much better than '07." He also said, "'07 is going to suck, all 12 months of it."
D.R. Horton said it may have to make further write-offs to reflect unsold homes or lower land values.
"We may have more impairments coming," Tomnitz said. "We'll know that on a quarter-by-quarter basis."
First-time homebuyers account for about 40% of the company's sales. Its treasurer, Stacey Dwyer, said subprime borrowers -- those with weaker credit histories -- account for fewer than 5% of its customers.
The Fort Worth, Texas-based company, which builds homes in 27 states and had a backlog of 16,694 homes as of Feb 13, has demanded price cuts from its vendors and has reduced selling and general expenses in recent months, Tomnitz said.
Tomnitz said in the current environment it was hard to determine the value of land, so increased merger and acquisition activity was not likely in the sector.
"It's a little early to be talking about M&A," he said. D.R. Horton, like its rivals, has cut the number of new homes it starts to build, but a large supply of existing homes is also forcing homebuilders to reduce prices or offer incentives.
For example, in Las Vegas, formerly a "hot" market, there are 2,500 unsold new homes, Tomnitz said. But Las Vegas has 25,000 unsold existing homes, many of them unoccupied.