DR Horton's Sales Setback
Tuesday, April 10, 2007SUSIE GHARIB: Well, more dismal news on the housing front. DR Horton, one of the nation's largest homebuilders said today its order cancellation rate remains unusually high. Even worse, Horton said it has not seen the uptick in sales which is normal for this time of year. As Scott Gurvey reports, analysts say Horton's not alone in facing continuing problems.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Investors hoping to see some indication the bottom is at hand for the besieged real estate market were disappointed today as the nation's number two builder in terms of revenue reported a sharp drop in sales. DR Horton said home sales in its fiscal second quarter ending March 31 fell 37 percent while the value of those homes fell 41 percent compared to the same quarter last year. In a statement today, company chairman Donald R. Horton said it has yet to see the normal start of the spring home buying season. That is the most important season for the industry. Last month Horton CEO Donald Tomnitz told analysts the new home market, quote is going to suck, all 12 months of the calendar year, closed quote. Standard & Poor's analyst Tom Smith is sympathetic.
TOM SMITH, EQUITY ANALYST, STANDARD AND POOR'S: The man from Horton made a name for himself by going ahead with ugly language to describe ugly market conditions for 2007. I think most of the CEOs in the business would agree with him that it will be kind of a terrible year and one to be waded through with much travail of writing off inventory and reporting sorry loses.
GURVEY: Analysts stress the problems are not specific to Horton. They are industry wide, a consequence of overbuilding and a tightening of credit following rising defaults particularly in the sub-prime mortgage market. Real estate analyst Eric Landry of Morningstar sees a bad year in 2007 but improvement in 2008.
ERIC LANDRY, REAL ESTATE ANALYST, MORNINGSTAR: At some point this is going to end. And most of these quality builders are trading just a little bit and some even a bit below. So, one could argue for a contrarian play. It's probably not a bad idea at this point. It' just going to be a while before anyone gets paid.
GURVEY: Horton actually reports quarterly earnings on April 19. That is when investors will find out just how much in the way of write-downs the company decides to take. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
