They trade in near lockstep, they withhold guidance in near lockstep, and they chop away at their land positions nearly simultaneously. So should we expect other homebuilders to follow Pulte's (NYSE:PHM) lead and announce cost-reducing layoffs, office consolidations, and other sorts of restructurings?
The answer would seem to be a resounding "probably." If you think about it, the nation's housing crisis thus far has been defined by two relatively distinct phases. The first was characterized by a reduction in sales, an increase in inventories, an uptick in cancellations, and a first lowering of builders' land positions. The second phase has involved mortgage lending concerns and a significant decline in the builders' financial results.
At the same time, weather conditions on housing's horizon have become progressively cloudier, to the extent that Pulte, along with Hovnanian (NYSE:HOV), Centex (NYSE:CTX), Beazer (NYSE:BZH), and Toll Brothers (NYSE:TOL) all have been unable to see through the haze with sufficient clarity to justify forward guidance for the remainder of this year. Heading into the summer, there's no clear end in sight for housing's woes.
On that basis, I expect Pulte's Wednesday announcement that it will cut 16% of its workforce, consolidate offices, and incur a $40 million-$50 million pre-tax charge for severance and facility-related expenses to be just one of many shots out of the gun for the builders' group. With land positions having been cut -- in some cases severely -- and with many markets still in the doldrums, the multimarket homebuilders clearly are preparing to oversee their sensibly leaner operations.
It also seems that we are entering the third phase of housing's 2006-2007 (and maybe 2008) crisis. I expect that this phase will see additional asset rationalizations by the builders, along with a period of waiting for market improvements to appear. The eventual length of that wait currently is anyone's guess. And while builders prepare for the eventual arrival of better days, I'd urge Fools to do the same.
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Fool contributor David Lee Smith does own shares in Centex but not in the other companies mentioned. He welcomes your questions or comments. The Motley Fool has a disclosure policy.
