The Tale of One Bleeding Home Builder and What it Means for the Economy

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.