Mr. Kim: The sectors I cover include homebuilding, building materials and the commercial property real estate investment trusts. At CRT Capital Group, we have taken a unique approach to research in that each industry analyst covers the broad spectrum of credit, from distressed situations all the way up to investment-grade companies. We have also embraced a full capital structure perspective in that we cover bank debt, straight bonds, convertible bonds, preferreds and equity securities.
TWST: What are the major themes right now? What's happening with the sector?
Mr. Kim: What is happening is consistent with what we laid out in our initiating report dated April 27, 2010, and I think it has been priced into builder equities over the past few months. We suspect that the expiration of the federal housing tax credit likely pulled forward demand from future periods. The spring selling season typically starts the weekend after the Super Bowl in February and runs through June. This year you had a much different dynamic in that we had the federal homebuyer tax credit, which was originally intended for first-time homebuyers but then expanded to include the move-up homebuyer as well. A number of builders within our coverage universe had anticipated greater demand ahead of the expiration of this tax credit. Some builders, like D.R. Horton, for example, ramped up their speculative unit count into the spring selling season to address tax credit-driven demand. Now that you have the expiration of the tax credit, the commentary so far from a handful of builders is that buyer traffic has slowed following the expiration of the tax credit, and suggests that May and June may be turning out to be weaker months relative to historical periods.
Tickers included in this excerpt: BZH, DHI, GGP, HOV, KBH, LEN, MDC, PHM, SPF
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