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NVR Beats as Profits Tumble

NVR beats top- and bottom-line quarterly expectations even as earnings fall nearly 40%.



) -- Shares of


(NVR) - Get NVR, Inc. Report

edged up 0.4% after the builder and mortgage banker beat top- and bottom-line quarterly earnings expectations.

NVR posted earnings of $43.9 million, or $7.31 per share, on sales of $676.2 million, easily beating expectations for a profit of $43.1 million, or $6.56 per share, on sale of $660.5 million.

Despite the beat, NVR's profits tumbled nearly 40%, and earnings nearly 17%, from year-earlier results, as new orders, settlements and homes sold but not yet settled all declined in the quarter. NVR's cancellation rate rose to 18%, from 14% a year ago.

Even as orders declined, prices for NVR's homes rose. The average new-home order price ticked up to $306,300, from $297,100, and the average settlement price pushed up to $311,100, from $293,300, in the year-earlier quarter.

Following the report, S&P homebuilder analyst Ken Leon maintained a buy rating on NVR shares but lowered his price target on the stock to $720, from $760. He noted that NVR's revenues slid in part because of the

springtime expiration of federal tax credits for homebuyers


"With contract backlog at $1.2B, we see revenues rising in the mid single-digits in 2010 and 2011," he noted. Modeling on weaker sales, the analyst lowered his 2010 earnings-per-share expectations to $32, from $38, and 2011's eps estimate to $40 from $43 per share. "However, NVR's competitive strengths include its strong balance sheet and communities in non-Sunbelt markets."

Record-low and near-record-low mortgage rates failed to spark robust demand for housing in recent months.

Mortgage applications fell 10.5% last week as

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mortgage rates

increased for the first time in six weeks.

A total of 82.4% of all loan applications last week were for refinancing existing mortgages, down from 83.1% in the prior week. The prior week's refi percentage was the highest refinance share since January 2009.

One big reason for the decline in mortgage applications was that the average rate on a 30-year fixed mortgage rose for the first time in six weeks, to 4.34%. Last week's 30-year contract rate of 4.21% was the lowest recorded in the survey.

The drop in mortgage demand is not a good sign for the still-struggling housing market. Waning demand has been due in part to the tight credit market and inability of many potential buyers to access the credit they need to finance a mortgage.

"The lower interest rates on mortgages have spurred refinancing and purchase activity, though not currently as much as hoped for," he said, adding that "the government states that they want to keep rates low so that homeowners will buy and refinance to spur the economy, but they continue to keep underwriting guidelines too strict for most Americans to qualify for a mortgage."

Still, all is not lost for the housing market.

On Tuesday the Commerce Department reported that

homebuilders began construction on 0.3% more homes in September , a better-than-expected expansion and a five-month high. It also represents a 4.1% increase over year-earlier results. The figure compares with a

revised pace of 608,000 reported for August.

>> Housing Starts Rise in September

While the housing starts numbers were certainly encouraging, the same government report showed that applications for building permits fell 5.6% last month,, compared with a month-earlier report of 571,000, pointing to a decrease in future homebuilding activity. September's rate of building permits was the lowest since April 2009, and 11% lower than year-earlier results

Building permits are viewed as an indication of future home construction.

-- Written by Miriam Marcus Reimer in New York.

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