This week’s focus in TWST is on Residential Construction. This is obviously one of the more hard hit areas of the current financial crisis, and we spoke to several analysts of the state of this space- where we are and where we’re headed.
According to Robert Stevenson of Fox-Pitt Kelton Cocrach Caronia Waller, there will be more of a drop in this space, the only question is how much. This question is dependent on the job situation:
Mr. Stevenson: I think that everything at this point revolves around the jobs. If you think that the economy is just going to muddle along at this rate for a while, I think that home prices probably have another 10% to 15% on average to drop in order to reach the sort of bottom. But if you believe that the economy is about to nosedive, that the job losses are going to start accelerating from here, expect a bigger price drop (more like 20% to 25%). Whether it’s the house that you live in or the homebuilder stock that you own, there is a lot of cause for concern.
As for the homebuilding companies themselves, Stevenson claims that while this current crises has weakened them, it hasn’t crippled them:
“If you take a look at the debt maturity schedule from most of these companies, it’s not all that onerous for them in a lot of cases. So with no near-term debt maturities, as they stop buying land they start throwing off cash, which has allowed them to pay down some of the debt as it comes due. While many of these public builders are weakened from a balance sheet perspective, it hasn’t killed them.”
At the same time, he’s concerned about further fundamental shifts in this space:
“I’m not sure that there are that many of them that have the balance sheets that would be able to really withstand another severe drop in fundamentals from here.”
For the complete Residential Construction report, including further insight into this space and stock picks in this turbulent time, click here.
Broadwind (BWEN) Eyes Better Margins with PTC Extension as Competition Drops Out of Wind Sector
February 19, 2013
“Great Companies” According to Great Companies
September 25, 2007
Bobby Edgerton of the Capital Investment Companies is Buying World Class Companies at a Discount
November 30, 2017
RMB Capital Portfolio Managers See Small Companies Growing to Large Companies as Their Sweet Spot
January 30, 2019
What are Royalty Trust Companies Doing?
November 15, 2007
