The Tale of One Bleeding Home Builder and What it Means for the Economy
Wednesday, July 18th, 2007
By Michael Lombardi, MBA for Profit Confidential
Business was looking good for D. R. Horton, the second-largest U.S. home builder. After all, 2003, 2004, and 2005 were all banner years for this big builder. But while the company was expecting a slowdown following the U.S. property boom, which ended in 2005, D. R. Horton didn’t expect the market and its business to literally tank.
The company, which builds about 10,000 new homes a quarter, reported yesterday it will post a fiscal third-quarter loss as sales for new homes fell 40% from the same period last year.
With the supply of new homes for sale continuing at a record high, D. R. Horton is just one casualty. All the major U.S. home builders are suffering.
In the case of D. R. Horton, the company’s stock price peaked at the height of the property boom of 2005 at $40.00. Today, the stock can be bought for less than $20.00.
I’m a big believer in the stock market as a leading indicator. So what it is telling us about the property market is that it will get much worse before it gets better. The widely followed Dow Jones U.S. Home Builder Index, made up of the largest U.S. home builders, is now trading at the same level it did in 2003!
Does this mean U.S. housing prices are headed back to the same level of 2003? My opinion is, yes.
I write frequently about the events unfolding in the U.S. housing market, because I sincerely believe the U.S. economy as a whole will soon start to fall apart due to problems with the housing market. Wall Street continues in its oblivious ways… higher and higher. But we all know Wall Street makes money as investors buy stock. Would it really be in their best interest to tell us the housing market will eventually bring down the economy and the stock market?
NEWSFLASH — A key sentiment indicator gauge of U.S. home- builder confidence fell in July to the lowest level in 16 years. The National Association of Home Builders/Wells Fargo Sentiment Index is now at the lowest level since 1991. This index measures the confidence of U.S. home builders in sales.
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Tags: stock market, U.S. economy, U.S. home prices, U.S. housing market
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
