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Tickers in this Article: RYL, NVR, CTX
Several home builders reported results last week that confirmed the continuing deterioration in the housing market. While some investors were looking for evidence of a bottoming, and the beginning of a recovery, there was very little indication of either.

More Write Offs
The Ryland Group
(NYSE:RYL) reported a net loss of $241.6 million, or $5.70 per share, on revenue of $487.9 million for the second quarter of 2008. Analysts were expecting a loss of about 79 cents on revenue of $493 million, according to First Call. Ryland Group also took several charges in the quarter as the value of land and housing inventory continues to plummet. These were:
  • Inventory and other valuation adjustments of $134.6 million.
  • Joint venture impairments of $35.9 million.
  • Option deposits and feasibility write-offs of $9.9 million.
  • A tax charge of $124.0 million for a valuation allowance related to deferred taxes.
If investors were looking for some optimism from Ryland, they didn't get it, as Chad Dreier, Ryland's chairman, president, and chief executive officer said, "I am sure you could tell for the second quarter of 2008 proved to be another very difficult quarter for the homebuilding industry in general and Ryland in specific." (To learn more about the housing downturn, read Why Housing Market Bubbles Pop.)

A Rare Profit
(NYSE:NVR) also reported earnings and unlike most of its competitors, managed to show a net profit for the quarter of $8.64 per diluted share, and revenue of $955.7 million. New orders, however, decreased 29% year over year to 2,670 units, and gross profit margins decreased to 17.9% from 18.1% in the second quarter of 2007. Even more ominous for the outlook was that in its mortgage-banking unit, NVR reported that closed loan volume of $593.8 million was 30% lower than the same period last year.

Management said new order units and gross profit margins have been hurt by high levels of new and existing home inventories, affordability issues, a more restrictive mortgage lending environment and declining home buyer confidence. Lending is critical to any recovery in housing, and further restrictions in lending will acerbate the downturn.

The dire outlook for housing was confirmed on Friday, July 25, when the U.S. Department of Housing and Urban Development and the U.S. Census Bureau News reported that new single-family home sales in June were at a seasonally adjusted annual rate of 530,000, down 0.6 % from May 2008, and 33.2% below June 2007. The only good news was that the inventory of new homes for sale declined to a 10-month supply down from a peak of 11.2 months in March 2008.

Bottom Line
The latest release of the S&P/Case-Shiller Home Price Indexes will only fuel the debate further, as it showed continued declines in housing prices through May 2008. The 10-City Composite index was -16.9%, and the 20-City Composite was down 15.8%. Both composites measure the year over year decline in single-family home prices. (Lean how to use these indexes to invest, check out Economic Indicators To Know.)

Centex Corp. (NYSE:CTX) also reports after the close of trading on July 29, and this will probably confirm trends similar to those at Ryland and NVR.

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