The article below is not surprising at all. They ALWAYS overbuild in my opinion...always have and always will. Especially in Parker Colorado. It is truly disgusting when the CEO of MDC Holdings is pulling in 20 million ++ per year in the good times, so maybe its time that this CEO suffers a little and maybe only makes 10 million this year...what a pity.
I'm sure its not easy to forcast needs and trends, and supply and demand, so I can understand the difficulty. If they wouldn't be so aggressive in their building then maybe the rest of the resale market in Parker wouldn't suffer so much like it has.
Slowdown nailing homebuilders
By Al Lewis DenverPost Staff Columnist
Article Last Updated: 05/13/2007 03:44:07 PM MDT
The nation's top homebuilders are missing earnings forecasts, reporting losses and warning that the worst may still be ahead.
The housing market has been slowing for more than a year, but many big homebuilders have been completing work on contracts signed during the now-fading housing boom. They haven't shown significant signs of strain until recently.
Last week, Denver-based MDC Holdings, builder of Richmond American Homes, reported a $94.4 million loss for the first quarter versus a $95.4 million gain last year. MDC said it closed 2,001 home sales during the first quarter compared with 3,198 last year.
The company blamed the decline on reduced consumer confidence, unstable home prices and concerns over higher-risk mortgages - such as sub-prime loans - which are leading to tighter underwriting criteria. Additionally, MDC said prospective homebuyers are having a more difficult time selling their homes so they can buy new homes.
MDC is hardly alone. Other large, national developers that build homes in Colorado made similar reports.
Toll Brothers Inc. - one of the nation's biggest builders of luxury homes - warned last week that it won't meet its earnings projections. "Twenty months into this housing downturn, we continue to face difficult conditions in most of our markets," Robert Toll, chief executive of the Horsham, Pa.-based builder, said in a statement.
Bloomfield Hills, Mich.-based Pulte Homes said it lost $85.7 million during the first quarter compared with a gain of $262.6 million last year.
Los Angeles-based KB Home reported a first-quarter profit of $27.5 million, but that was down 84 percent from $173.3 million last year. The company warned of higher foreclosures and tighter lending standards. "We believe these conditions will likely continue for at least the remainder of 2007," said chief executive Jeffrey Mezger in a statement.
Fort Worth, Texas-based D.R. Horton said its first-quarter profit of $51.7 million was down 85 percent from $352.8 million last year. The company predicted weakness into 2008. "Market conditions in the homebuilding industry continue to be challenging in most of our markets," chairman Donald R. Horton said.
Builders kept building
Wells Fargo economist Michael Swanson said potential homebuyers are feeling pinched by higher mortgage rates, higher home prices, and higher consumer prices - including gasoline and food.
Homebuilders kept building as these trends emerged and now have a backlog.
"They got ahead of themselves," Swanson said. "And when you get ahead of yourself, you have to sit back and wait."
Jeff Willis, president of the Home Builders Association of Metro Denver and a vice president at Berkeley Homes, said local homebuilders are doing a good job of clearing inventories, offering incentives, slowing work on projects, and walking away from land-purchase options.
"It's still going to take time to whittle down that inventory," he said. "There's still some pain to be had for builders."
Jay Peterson of real estate market research firm Hanley Wood Market Intelligence said this winter's snowstorms kept potential homebuyers off the lots of metro-area developers, compounding the problem of growing inventories.
"There were incentives everywhere from $30,000 to $50,000 off," Peterson said. "I heard of some builders who were even selling their homes at a loss during that time."
Rusty Crandall, president of KB Home's Colorado division, said the cooling market has discouraged speculators who were driving up the market, but not people who need a place to live.
"People are still graduating from college, getting married and starting families, so the demographics are still good," he said. "In Colorado, we're seeing job growth and in-migration, and historically interest rates are still terrific. ... The supply side just got out of balance. We've got too much inventory ... both locally and on a nationwide basis."
Swanson, the Wells Fargo economist, sees what's happening as a typical part of the business cycle.
"Once you have gone to the top of the mountain, you have to go to the valley," he said. "There will be another summit, but we're not going to get there soon."
Al Lewis' column appears Sundays, Tuesdays and Fridays. Respond to Lewis at denverpostbloghouse.com/lewis, 303-954-1967 or alewis@denverpost.com.
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