Mr. Smith: We cover mostly the homebuilders. We also do a little housing supply, and we do some multifamily REITs, which are apartment complexes, and then also a little real estate technology, like ZipRealty and CoStar Group. But the meat of our coverage is the homebuilders.
TWST: What is going on in the sector right now?
Mr. Smith: It's definitely doing better than it was in 2008 and early 2009. It really depends on the geography you're talking about, but some areas - generally the areas that were hit the hardest and hit the earliest, like California and Phoenix - started to turn some time in early to mid-2009, as we started to see prices stabilize after maybe 30% to 50% price drops. You started to see sales pick up because of the affordability issue and once you cleared some of the overhang from the pricing fears in late 2008 and early 2009. So the broad market has been stabilizing. "Turning" implies raising prices significantly, which we haven't seen for the most part. But we have seen stabilization in both price and sales since then.
Certainly some of the government stimulus efforts helped, but our thesis is that most of what's been driving it has been a slightly improving to stabilizing economy and consumer confidence. People are starting to feel, if not better, at least a little less bad about the economy as a whole, and the massive price declines have brought buyers back into the market. People who either wanted to buy a couple of years ago but didn't want to buy in a falling market, or even people who wanted to buy five or six years ago but just were priced out, now are starting to come back in.
Specifically with the builders, what you're starting to see is we've passed the big write-down stage. At least for the strongest five or six public builders, we've passed the stage where they are massively impairing inventory and losing 3 or 4 a share per year because of those massive write-downs. You're starting to see stabilizing order trends for them, and you're starting to see big market share gains, which is what you've seen out of past recessions, and you see that in just about any industry coming out of a recession. The strong players buy out the little guys or are able to pick up assets on the cheap, and they are the ones left standing; they are the ones that are able to get financing, and that's exactly what you're seeing now. The public builders are actually starting to improve, based more upon market share gains than on an improving overall housing market.
Tickers included in this excerpt: CSGP, DHI, KBH, LEN, MTH, SPF, ZIPR
For more information call (212) 952 7433. The Wall Street Transcript does not endorse any of the comments made by interviewees, and does not make stock recommendations.