We really need to push the Fed for an extension in the the tax credit for first-time owners. Pushing through the standing inventory of new homes is one of the best ways to free up credit and start the construction machine again. TKS……..
NEW YORK (Dow Jones)–Shares of home builders dropped Thursday as an increase in pending sales reflected a shift in market share to existing homes and as new-home buyers ran out of time to use the tax credit for first-time owners.
Earlier Thursday, the National Association of Realtors reported that housing-market activity rose more than four times as much as was expected in August, with the index of pending sales of previously owned homes spiking 6.4% to 103.8 in August from 97.6 in July. Analysts surveyed by Dow Jones Newswires had expected pending sales would rise 1.5%.
“Importantly, we believe this is a result of a shift in market share to existing homes from new homes as buyers for to-be-built new homes can no longer close by Nov. 30 to take advantage of the $8,000 tax credit,” Credit Suisse analyst Daniel Oppenheim said in a note to investors.
He added he believes demand exists, but is being pulled away from new homes.
“As a result, we think we are likely to see strength in existing sales continue until October, but that it will come at the expense of weaker new home sales,” Oppenheim noted.
In recent trading, the Dow Jones U.S. Home Construction Index dropped 3.7%. Standard Pacific Corp. (SPF) led the decline, down 11% to $3.28. M/I Homes Inc. (MHO) fell 9.3% to $12.33, and Hovnanian Enterprises Inc. (HOV) dropped 8.6% to $3.51. Beazer Homes USA Inc. (BZH) lost 6.8% to $5.21, and Lennar Corp. (LEN) slid 5.8% to $13.42.
KB Home (KBH) – which declined 6.1% to $15.60 – was downgraded by Credit Suisse’s Oppenheim to neutral from outperform. Oppenheim said the end of the first-time buyer tax credit is driving weakness in sales, and leverage is becoming a concern.
Fox-Pitt analyst Robert Stevenson noted KB Home said in its third-quarter conference call late last week that the company has seen “a noticeable impact on demand in markets/assets where KBH could no longer advertise the $8,000 federal housing tax credit due to construction timetables.”
The first-time buyer tax credit, which is set to expire at the end of November unless extended by the U.S. government, has triggered a flurry of sales activity as home buyers scramble to close deals in time to claim the credit. And home builders and realtors have mounted a lobbying campaign in Washington to push Congress to extend and expand the tax credit.
Pali Research analyst Stephen East said letting the tax credit expire could hurt the housing market.
“I don’t think we’re at a point in the housing market yet that it can really function well on its own,” East told Dow Jones Newswires. He added that the tax credit stimulated sales and interest in the housing market and helped stabilize it to some degree.
“I think if [the tax credit were] pulled away right now, we would really risk stepping back down again,” East said. “To me, it’s pretty cheap insurance for the government to stay in and keep on funding the program versus bailing out a lot more banks down the road when housing starts to fail again.”
-By Shara Tibken, Dow Jones Newswires; 212-416-2189; shara.tibken@dowjones.com;