Summary
1) Nation's largest homebuilders are very different entities from two decades ago. 2) The real question is what they will look like in the years after this recession.
Analysis
You mean they're still in business?
It may come as a surprise to Wall Street that so many of the nation's largest homebuilders are still in business. Prior to the S&L Crisis of 20 years ago, even the largest homebuilders tended to be undercapitalized, over-levered, and had high break-even points due to the structural nature of the business.
All this quietly changed in the 1990's and 2000's. The largest homebuilders in the country are several times bigger than their counterparts of 20 years ago. They learned both the advantages and disadvantages of financial leverage, and they learned how to enter into flexible contracts.
As a result, the Toll Brothers of the world are still in business and will probably remain in business even as GM, Chrysler, and Ford become questionable.
What does the future hold?
Despite significant changes in the industry, homebuilders have had serious problems getting any respect on Wall Street. Will that change? Probably, for two very important reasons. First, Wall Street will have a lot of fresh faces a few years from now, and many of the old industry prejudices will be gone. Remember just a few years ago when "tech" was relegated to NASDAQ because the NYSE didn't want to have anything to do with it? Yeah, it'll be that kind of change.
Second, homebuilders need to continue the push toward integration, and this means firms like Toll Brothers creating builder-finance entities which resemble GMAC. To do this, the builders have to have access to the sorts of financing tools that other industries take for granted.
Toll Brothers and others are very different entities than they were just 20 years ago, and the impetus for these changes was the S&L Crisis. This current recession will have the same impact on the industry. We'll still be building and selling houses 5 years from now, but in a very different way than we were 5 years ago.
