Homebuilder valuations

The other problem KB has are the repurchase agreements they may have with Countrywide on their Mortgage Joint venture.

Also read the notes and see that some bonds they have now carry a 9.5% interest rate.

Those bonds were taken out when the company was going gang busters.

John
 
Quote from jficquette:

The other problem KB has are the repurchase agreements they may have with Countrywide on their Mortgage Joint venture.

Also read the notes and see that some bonds they have now carry a 9.5% interest rate.

Those bonds were taken out when the company was going gang busters.

John
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Yea I saw that on KBH's report. I forget how many hundreds of millions of loans they might be still carrying jointly with CFC on their books. Does anyone know if these have all been offloaded yet? KBH isn't trading at too much of a discount to book anyway.

But I'm not sure about the avg debt though - the SEC EDGAR report I'm reading looks like an avg of 7% coupon they pay on these loans.
 
Quote from scriabinop23:

Yea I saw that on KBH's report. I forget how many hundreds of millions of loans they might be still carrying jointly with CFC on their books. Does anyone know if these have all been offloaded yet? KBH isn't trading at too much of a discount to book anyway.

But I'm not sure about the avg debt though - the SEC EDGAR report I'm reading looks like an avg of 7% coupon they pay on these loans.
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I just briefly read where they were going to retire the 9.5% ones. I didn't read all the details.

I looked also at their inventory by region and of the $5B in inventory that they have about $2.5b of it is in California.

John
 
Quote from jficquette:

I just briefly read where they were going to retire the 9.5% ones. I didn't read all the details.

I looked also at their inventory by region and of the $5B in inventory that they have about $2.5b of it is in California.

John
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So lets be conservative mark that down 35%. I think they are marking that to under resale home price values, as new home prices here in socal are below what 'used home' owners are selling their properties for.

Thats 4.2B assets against 2.8B debt. Not too bad, even though I think better opportunity may lie with the other builders (HOV, BZH).

Also note I'm in the very bearish camp for the housing market, assuming it'll take another 3-4 yrs for this downcycle to really bottom. Thats why I think this 'valuation' post is interesting considering that point of view. I don't understand these analysts who come out and have the gall to think this cycle will bottom 6 months to a yr.

As illiquid housing is, it makes the cycles move that much slower.
 
value is one thing, but there is absolutely no catalyst for these stocks to go up in the intermediate future.. for warren buffett they probably are starting to represent screaming buys right now, but for majority of us here thats not the case.
 
sc23 , many of those fundamental's key stats won't tell much...pay more attention to "do what I do and not what I say" info like short interest and money flow . SI for this group went from app 16 to > 60 in the last three month. This was done by real smart money ; now watch their next move(s) for recovery/bottom. Usually the decrease in SI will lead to price increase in those cases. If SI stays the same/going even higher after 75% collapse in price , then there is a real possibility of bankruptcy ( hence , no need to cover yet/at all)
 
Quote from scriabinop23:

So lets be conservative mark that down 35%. I think they are marking that to under resale home price values, as new home prices here in socal are below what 'used home' owners are selling their properties for.

Thats 4.2B assets against 2.8B debt. Not too bad, even though I think better opportunity may lie with the other builders (HOV, BZH).

Also note I'm in the very bearish camp for the housing market, assuming it'll take another 3-4 yrs for this downcycle to really bottom. Thats why I think this 'valuation' post is interesting considering that point of view. I don't understand these analysts who come out and have the gall to think this cycle will bottom 6 months to a yr.

As illiquid housing is, it makes the cycles move that much slower.
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I use to work for a big builder and I built houses on my own in Atlanta in the late 80's. I made money doing it but I got out because you can't really make enough as an indepedent small guy to make it worth the risk.

Building is one cluster fuck of an industry. Most everything is completely out of your control. If people are buying then its great but when they stop there is nothing you can do about it. You can not cut prices in existing developments without pissing off the existing homeowners so you have to go build another subdivision and lower prices and margins to generate activity so you can keep your workforce employed and work off your lot inventory.

Management is always almost completely in the dark about projections. Budgets are useless because it depends on interest rates, mortgage approvals, bank financing, local economies etc.

The other tendency that hurts builders is that when its blowing and going you are constantly raising rates. Sometimes every month. Finally you get the prices so high no one will buy and then you are stuck. The problem is no one ever knows where that level is before you hit it.

I don't really know anything and am just giving my opinion.

John
 
Quote from IV_Trader:

sc23 , many of those fundamental's key stats won't tell much...pay more attention to "do what I do and not what I say" info like short interest and money flow . SI for this group went from app 16 to > 60 in the last three month. This was done by real smart money ; now watch their next move(s) for recovery/bottom. Usually the decrease in SI will lead to price increase in those cases. If SI stays the same/going even higher after 75% collapse in price , then there is a real possibility of bankruptcy ( hence , no need to cover yet/at all)
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AMZN, CROX, etc... failed to tell that story. But what you say makes sense.
 

> HOV at 1/3rd of book value.
> KBH at 20% under book value.
> BZH at 1/4th book value.

There is a reason that builders are at a fraction of book value..... the key word is "impairments". Their book value reflects the value of land carried on the books. The land has been dropping in value; this will require the companies to take additional impairment charges. It is likely that when the impairments are properly reflected that the majority of builders are not really selling at a significant discount to book value.

One good article that outlines the problems of builders can be found at:
Builders Have Further to Fall
http://www.thestreet.com/_yahoo/new...5737.html?cm_ven=YAHOO&;cm_cat=FREE&cm_ite=NA

See page 3 of the article for comments on HOV.

Recent press also has Beazer denying bankruptcy rumors.
Beazer Homes refutes bankruptcy rumors
http://www.marketwatch.com/news/sto...63A-D8DB-4BB1-9AA9-DC13A5B05256}&siteid=yhoof

The majority of the market believes that BZH will file bankruptcy despite their denials. Many builders are likely to face credit liquidity problems shortly. Over the past few weeks the overall credit marketplace has become more risky.

Some good thoughts about builders are also provided here:
Is It Time To Look At HomeBuilder Stocks Again?
Who wants to catch the falling knife?
http://hingefire.blogspot.com/2007/07/is-it-time-to-look-at-homebuilder.html
 
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