NEW YORK (
) -- Can any public homebuilder other than
turn a profit in 2010?
At first glance, that might seem an unfair question. The recent data has been pretty positive in the U.S. home market, hasn't it been? Housing starts up, home price recovery in some of the hardest-hit residential markets, building permits on the rise, and foreclosure declines in foreclosure-apocalypse areas like California.
Still, NVR is the only homebuilder that has been able to return a profit to shareholders in recent quarters, and headed into 2010, NVR remains the only homebuilder that can virtually guarantee that its 2010 story will feature shareholder profits.
The picture for the rest of the public homebuilders is not bleak, but uncertainty reigns supreme.
said at a recent
conference that it is striving to return to profitability in 2010, but stopped short of making a firm call on profits.
D.R. Horton's position seems reasonable, really. The frightening foreclosure pipeline, fears of unusually high vacancies that will continue to plague the home market, and the prospect of a reversal in the recent trend of home-price appreciation, all stand in the way of a recovery in the homebuilder sector.
If there is to be a recovery, though, conventional wisdom dictates that it will be the low-end of the market home builders like D.R. Horton,
. KB Home and
have a potential advantage if the recovery in home price appreciation proves to be lasting, as both have portfolios concentrated in California.
, for its part, pulled off the biggest M&A transaction of 2009, acquiring Centex. Will that deal lead it to outperformance of the group in 2010?
Or perhaps the conventional wisdom won't even hold this time around, and a luxury builder like
could ride its advantages to a quicker road to recovery. Toll has a concentration in the northeast region that many analysts expect to show longer-lasting home-price appreciation more quickly. Toll also operates at the less crowded luxury end of the market -- many of the private players have disappeared in the past few years -- while the first-time-homebuyer-friendly homebuilders like D.R. Horton and KB Home and Meritage have to slug it out in a highly competitive atmosphere.
One 2010 outcome seems clear: most of the public homebuilders won't make it to profitability in 2010 -- or even if they do, it will be such marginal profitability that investors will barely notice.
That said, in this season of making bold predictions about the coming year in the capital markets, there are bound to be surprises, some negative, and some positive.
Thus, we ask the question: Which public homebuilder will make the biggest strides toward profitability in 2010?
-- Reported by Eric Rosenbaum in New York.
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