I’m working on a story for TV today about which builders are in the deepest doo-doo after the Commerce Dept. reports single family permits down 6.2 percent in January. Permits are down 30 percent since the August credit freeze and down 57 percent from their peak in September of 2005.
In making my calls I got pretty much the same line: it’s all about cash, more to the point, cash flow. You’ve got to look at the balance sheets, and when you do you see NVR at the top; they’ve got about three times as much cash as debt. MDC is in good shape as are KB Home and Toll Brothers. On the negative side you’ve got WCI , Standard Pacific and Hovnanian .
But then I have to ask, what are these guys going to do with all this cash in this nasty housing market, and the answer one analyst offered was, “absolutely nothing until the land market breaks.” Now we’ve talked a lot about builders dumping land like it’s trash after a big party or walking away from land options, so you’d think that prices on land were coming down. Apparently not.
With the exception of a few odd deals, like between Morgan Stanley and Lennar last November when Lennar sold off 11 thousand home sites valued at $1.3 billion for $525 million, there’s not a lot of land changing hands these days. Analysts say the prices are still high because landowners are well capitalized for the most part and don’t have a real need right now to unload land. They’d rather wait it out instead of dropping the dirt to the bargain basement.
So the builders sit with the cash, and everybody waits. I know there’s been a lot of talk today about a “bottom” in housing starts, but I’m not sure I buy that, given the permits numbers and the split between single and multi-family. I’m still waiting too.