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Homies Randoms

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Across the board I suspect that within 6-9 months, homies will be hoping for '07 EPS of about 50% of '05 numbers.

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  • Revisiting yesterday's New Home Sales, the almost 100k unit upside came at the cost of m/m price declines of 4-5%, and still did little to absorb the ever rising available inventory which fell only 4k units. I am writing this on Monday night, so let's see what existing home sales figures bring. Just to quickly recap, I believe the first leg down in housing is about done. The next phase will start when the marginal buyers of the last 2-3 years will be forced / panicked out of their homes, just as the caving by trapped speculators begins to accelerate. The race to liquidate will result in a vicious price spiral. My guess is that this scenario will probably unfold late this year to early 2007.

  • Last week Morgan Stanley (MS) took a swipe at the homebuilders slashing estimates and price targets, and forecasting a "hard landing." As a point of reference, MS reduced Lennar's (LEN) '06 EPS to $8.36 from $9.03. Monday, LEN gave new guidance of $8.00 – 8.25. For '07 MS is guessing EPS of $7.18. My guess is that if LEN makes $5.00 in '07 (after buying back every share they can afford) they will be lucky. Across the board I suspect that within 6-9 months, homies will be hoping for '07 EPS of about 50% of '05 numbers.

  • MS' note also addressed the issue of Book Value, suggesting that many homies currently trade at about 1.2 BV, but that the BV is understated by land inventory worth well above book. I could not disagree more. Today LEN announced a write-off of $22M of land options that it no longer intends to exercise (not an insignificant amount), and that process is not even at the end of the first inning. Let's see how understated those valuations will be twelve months out.
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Position in homebuilders
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