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Beazer's Profits Cracked By Expired Credit

Beazer Homes posts a wider-than-expected loss as the expiration of federal tax credits for homebuyers led to a drop-off in demand.



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Beazer Homes USA

(BZH) - Get Beazer Homes USA Inc. Report

posted a wider-than-expected loss Thursday morning as the expiration of federal tax credits for homebuyers led to a drop-off in homebuilding demand late in the quarter.

Beazer CEO Ian J. McCarthy said traffic and new home orders were well above year-earlier results through the end of April, but after the tax credits expired April 30 traffic in May and June was substantially lower.

"While new home affordability and mortgage rates are at historically attractive levels, homebuyers continue to be concerned about employment, the impact of additional foreclosures and general conditions in the economy," he said, adding that "We believe employment growth and improved consumer confidence remain the keys to a sustainable recovery in the homebuilding industry."

Home sale closing volumes for most homebuilders were fueled earlier this year by consumers rushing to take advantage of the tax credits that offered as much as $8,000 for first-time home buyers. The still-struggling housing market saw sales ramp up in March and April since buyers had to have signed a contract by the end of April and initially had until the end of June to complete the deal. Lawmakers later extended the deadline to close on a home purchase and still qualify for the tax credit to Sept. 30.

McCarthy's sentiments echoed those of rival homebuilders that reported recently.


(PHM) - Get PulteGroup Inc. Report

said Wednesday its

closing volume doubled last quarter

, year-over-year, to 5,030 homes thanks in part to the tax credit.

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D.R. Horton

(DHI) - Get D.R. Horton Inc. Report

said Tuesday it grew closed sales volume by 60% to 6,805 homes in the second quarter.

Beazer said home closings surged 73.3% year-over-year to 1,643 homes though new orders decreased by 32.5% due to the expired tax credits. The firm's backlog fell by 37% with a 33.1% drop in the sales value of that backlog.

McCarthy said he does not think aggressive promotions or purchase incentives should be offered to potential homebuyers as a means to ramping up demand now that the federal tax credits expired.

On a conference call with analysts and shareholders he said the post-credit waning demand was expected, and that holding the line on prices would be better for Beazer's profit margins in the long run, especially when demand eventually picks up organically.

Beazer said housing demand has likely hit bottom, the number of home communities it has open likely stopped shrinking, and that demand should pick up in 2011.

"Almost everyone now is concurring that we've hit the bottom, we are bumping along the bottom, and that subject to some improvements in the economy and certainly improvement in unemployment, we are going to see an upside," said McCarthy. "So that's what gives us confidence in saying that we need to get out there."

"We have to believe that unemployment will improve as we get through the next six, 12, 18 months," he said. "And that will release the pent-up demand for housing."

The Atlanta-based homebuilder's cancellation rate increased 28.9%, and the average selling price fell 12.3% to $206,200, attributed to the highest concentration of first-time homebuyers lured by the tax credits.

Sales of newly-built homes rose 23.6% in June

to a seasonally adjusted rate of 330,000, the Commerce Department said last month. The figure came in ahead of expectations after a revised record-low rate of 267,000 units sold in May.

>> Home Prices Weaken, Sales Rise

While any increase in the rate of home sales is seen as a good sign for the economy, homebuilders and the housing market in general, the uptick in June home sales still represented the second-weakest month on record after May's depressed figures. It was also 76.3% lower than the 1.4 million-peak in July 2005, at the height of the housing bubble.

Beazer booked a net loss of $27.8 million, or 41 cents per share, compared with a year-earlier loss of $28 million, or 72 cents per share. Revenue grew 51.7% to $339.9 million.

Beazer shares fell 3.1% to close at $4.12 Thursday following its weaker-than-expected report, though top-line figures topped Wall Street analysts' predictions. The

iShares Dow Jones US Home Construction

(ITB) - Get iShares U.S. Home Construction ETF Report

, an exchange-traded fund that tracks the homebuilding sector and counts PulteGroup and D.R. Horton shares among its top three holdings, was lower by 1.1%. The ITB's top holding,


(NVR) - Get NVR Inc. Report

, edged down 0.2%.

-- Reported by Miriam Marcus Reimer from New York.


>>PulteGroup Returns To Profitability

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>>Home Prices Weaken, Sales Rise

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