Builders have provided little recent cause for optimism about an impending recovery in the housing market. The nation's largest homebuilder by volume, D.R. Horton (NYSE: DHI), did nothing to break that streak when it released its fiscal second-quarter results late last week.
True, the company's net income -- after charges for write-offs of deposits and pre-acquisition costs related to land option contracts -- came in at $51.7 million, or $0.16 per share, an 85% decline year over year. And true, Horton still has 16,885 sold-but-undelivered homes in its backlog, down 30% from the year-ago period.
But the management's commentary accompanying the earnings report was even less sanguine. Donald R. Horton, chairman of the company that bears his name, said, "Market conditions in the homebuilding industry continue to be challenging in most of our markets, as inventory levels of both new and existing homes remain high, and further increases in the use of sales incentives continue to put pressure on profit margins."
Horton's earnings disclosure followed hard on the heels of a warning from Pulte Homes (NYSE: PHM). Horton's rival cautioned that its losses for the first quarter will be more severe than anticipated, probably coming in between $0.34 and $0.38 a share, partly because of the $130 million to $140 million in land impairment charges that management now expects to take in the quarter. Pulte will formally release its quarterly results following the market's close on Wednesday.
The virtually nationwide housing recession has hit all builders with just about equal ferocity. It'd be small-f foolish to anticipate anything approaching strong quarters from the major homebuilders, including Centex (NYSE: CTX), Toll Brothers (NYSE: TOL), KB Home (NYSE: KBH), or Hovnanian (NYSE: HOV). But it's becoming clearer by the day that the market's softness is more than a simple correction in overinflated home prices. Growth in mortgage foreclosures could make the housing market even worse before it starts returning to health.
Nevertheless, I have not cast aside my conviction that, for those who desire to buy stocks low and sell them higher -- and especially for those able to exercise patience beyond the normal one-year investment horizon -- many of the major builders will ultimately offer profits from their current prices. My favorites continue to be Toll and Centex, but I urge Fools not to touch those companies if you need or intend to realize gains on the short side of about 18 months.
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Fool contributor David Lee Smith owns shares in Centex, but not in the other companies mentioned. He welcomes your questions or comments. The Fool has a disclosure policy.
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