Summary
Homebuilder NVR reports that its profit for the 2nd quarter fell 19% compared to a year ago and the average price of a new home order is down 7%. Profits and prices are down but net sales eked out a slight increase of 2% year over year in housing orders to built new homes. The news is mixed which actually may be signaling that the new homes market is transitioning from decline to flat.
Analysis
The article is even handed but of course emphasizes the net income loss. Yet there are enough positive indicators in this article and in other published data to give pause that we might have the beginning of a new market cycle. In its own news release, NRV reports an increased gross profit margin of 19.3% in the 2009 second quarter compared to 17.9 % for the same period of 2008. As an option lot purchaser, NVR is continuing to correct its lot prices and inventory to match market demand, both in pricing and product type. Average prices are slowing their decline as evidenced by the 7% versus 12% price decline recorded in the 1st quarter of 2009. Cancellations are moving downward to 14% versus 19% a year ago. Although average prices for the second quarter are also down from the 2008 average of $316,400 to $294,800, the 2nd quarter average is slightly above the year to date average of $288,700.
Reviewing more specific data for the Mid-Atlantic region, which is NVR’s strongest market, NVR’s homebuilding arms, Ryan Homes and NV Homes account for over 28% of new homes sold in this market in 2009. Watching the Mid-Atlantic region is important in understanding NVR because this region comprises over 52% of their total volume.
Ryan Homes, the lower priced point builder within NVR, is surging ahead in market share and capturing 18% of the total single family market (attached and detached) as compared to 11% market share in 2007, far ahead of other builders. In addition, Ryan has captured over 21% of the townhouse market. In fact, Ryan’s strong showing in townhouse product is a strong component of the explanation of overall decline in the average unit prices for not only NVR but the new homes market in general. Coupled with higher gross margins and strengthening sales, Ryan Homes is leading the way out of the decline.
The glimmer of hope is small yet nonetheless points to signs that better days may be ahead.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
