Currently Reading

Paying the Piper

Advertisement

Paying the Piper

After a decade of unprecedented growth, the party could be over for America's public home builders. As share prices drop under the weight of slumping sales, burgeoning inventories and builders' own deep pricing discounts, look for changes in the way companies operate that will profoundly affect housing markets — and private builders — across the country.


By Bill Lurz, Senior Editor August 31, 2006
This article first appeared in the PB September 2006 issue of Pro Builder.

After a decade of unprecedented growth, the party could be over for America's public home builders. As share prices drop under the weight of slumping sales, burgeoning inventories and builders' own deep pricing discounts, look for changes in the way companies operate that will profoundly affect housing markets — and private builders — across the country.

 

Builders' stocks have dipped. Take a look at the chart to the right showing how the stocks of 14 public builders, tracked by Credit Suisse Research & Analytics, have performed recently as an index against the S&P 500. It's easy to see the damage done by the sales downturns that began last fall. "Private builders are hurting," says consultant and Professional Builder columnist Chuck Shinn, "but not as bad as publics."

Some changes have taken place:

  • Public builders are selling land and walking away from commitments on big land deals to save cash and keep assets off the balance sheet.
  • Downsizing to reduce costs, publics are turning loose boatloads of employees who will be prized again when the market rebounds.

Other changes are more subtle and not yet visible:

  • Declining share prices devalue the currency public builders use for acquisitions, so don't expect many M&A deals. "The currency value is reduced," says one Wall Street insider, "and so is the ability to do a secondary offering to raise equity capital."
  • Larry Webb's WL Homes, which goes by John Laing Homes, suddenly has a huge advantage in the M&A marketplace. Armed with Emaar Properties' Middle Eastern oil money, Webb has a mandate to grow by acquisition, and he can pay cash to private builders now motivated to sell.
  • Senior executives of many public builders may already be planning to launch home building businesses of their own to take advantage of a recovery.

Related Stories

Leadership

31 Flavors of Leadership

Over 20 senior-level executives in the home building and real-estate development industries answer the question: What does leadership look like and how do you recognize it in people? 

Companies with More Female Bosses See Better Stock Market Performance

Morgan Stanley looked at 1,875 companies by the percentages of women who are board members, executives, managers, and employees and found that…

Hamlet Homes' Mike Brodsky on Finding Successors and Letting Go

A transition that involved a national executive search, an employee buyout, and Builder 20 group mentorship to save the deal

Advertisement
Advertisement

More in Category




Advertisement
Advertisement

Create an account

By creating an account, you agree to Pro Builder's terms of service and privacy policy.


Daily Feed Newsletter

Get Pro Builder in your inbox

Each day, Pro Builder's editors assemble the latest breaking industry news, hottest trends, and most relevant research, delivered to your inbox.

Save the stories you care about

Lorem ipsum dolor sit amet lorem ipsum dolor sit amet lorem ipsum dolor sit amet.

The bookmark icon allows you to save any story to your account to read it later
Tap it once to save, and tap it again to unsave

It looks like you’re using an ad-blocker!

Pro Builder is an advertisting supported site and we noticed you have ad-blocking enabled in your browser. There are two ways you can keep reading:

Disable your ad-blocker
Disable now
Subscribe to Pro Builder
Subscribe
Already a member? Sign in
Become a Member

Subscribe to Pro Builder for unlimited access

Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.