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Real Estate Round-Up


Hey Hoofy wadda you think of the CPI?


Here are the lowlights, and a few highlights from quarterly numbers from MDC Holdings (MDC), DR Horton (DHI) and NVR Homes (NVR):


  • The "beat" was part due to better gross margins and part due to a tax benefit of $.03.

  • APS's have fallen for 2 quarters in a row and are expected to fall again next quarter. Yet, MDC is carrying its current backlog at about $308,000, which is higher than the ASP's received two quarters ago. Their explanation is that a number of the higher priced homes won't deliver until after Q3, hence the lower ASP's in Q2 and Q3, but still strong backlog. Major nose-scrunch on that one if you ask me.

  • A mind-blowing 45% of loans originated by MDC were ARM's. But wait, there's more! 75% of those ARM's were interest only.

  • They are cranking up the number of communities in an undiscovered desert town called "Las Vegas" because - as the old E*trade commercial dude used to say - "it's back baby!".

  • Never mind that the high priced home market in Vegas is difibrillating, MDC sells sub $300,000 home. Hence it's all good.

  • MDC does not have no-flip clauses in its contracts to avoid speculation. That means that if Joe Smoe buys a house from MDC today, he can turn around and put it on the market tomorrow, turning into a competitor overnight. Can't think what the rationale for that is other than (a) no speculator wants to deal with their properties; and/or (b) they view the speculators as the greater fool.

  • In MDC's defense, they are fighting off speculators by requiring deposits from investors twice as large than the deposit from occupant buyers: the punch line is that the investors' deposit is 5%.

  • Given MDC's concentration in the hottest markets and its "press 'em" attitude in those markets, add MDC to the Standard Pacific (SPF), and Beazer Homes (BZH) list of accidents in the making.


  • I have only started looking into DHI recently. They reported yesterday and - hold on to your chair this is still me speaking - their numbers and story were actually good and believable.

  • DHI has some pretty stringent anti-speculative clauses in its contract, and their size seems to give them pretty powerful pricing power on the purchasing side.

  • Also, they are expanding but in out-of-the-way, relatively under-served markets. What a concept eh!?

  • They are also relatively cheap on a book value and P/E basis.

  • There were a few flies as well though: closings for the fiscal year do appear somewhat back-end loaded.

  • They are an entry level builder, which gives them greater exposure to rising rates and falling credit quality.

  • Also, super Minyan Jeff Matthews tells me that they are somewhat speculative in their land purchases.

  • Lastly, being the largest builder in the U.S., they carry more than 4 years of land inventory, about half owned outright, the other half under cheap options. If the market tanks, that's a lot of inventory on the books.

  • No, I am not getting anywhere close to DHI stock, but relatively speaking, their story is less insane than some of the others.


  • All we have to go on is the press-release. Notable that in the D.C. area, the consensus hottest market in the country and where NVR has most of its operations, NVR's performance was iffy at best, with flat y/y orders, lower closings, and anemic backlog growth. They blamed "development delays" for the lower closings. At least they did not blame the weather.
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Positions in SPF, BZH
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