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$4.70 -0.10 (-2.08%)
7/18/2008 4:00 PM

Beazer Homes USA, Inc. (BZH)

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Designs, sells and builds single family homes in various locations within the United States. Designs homes at various price points to appeal to homebuyers across various demographic segments.

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Avatar jstegma (99.85) Submitted: 3/31/08 12:19 PM : Underperform Start Price: $8.73 BZH Score: 9.15

When will the housing prices quit falling? When the inventory backlog gets worked out.

When will the inventory backlog get worked out? When homebuilders quit building faster than people are buying.

What will happen when homebuilders drastically cut down on building? Many of them will have to go out of business.

Drive around the outskirts of the Dallas-Fort Worth area, and you'll see hundreds of signs for new houses - every homebuilder under the sun. Today, here in 2008, they are still building houses faster than banks can foreclose on the ones they built a few years ago. This cannot continue indefinitely.

You always hear people on TV talking about how the housing market is supposed to turn around in 2009 or 2011 or whatever. That may be the case, but it won't mean that homebuilders will be raking in the bucks again like they did in 2004 and 2005. The reason the housing market will "turn around" is that most of these homebuilders will have quit building (and we'll have had enough time to work through the leftover inventory).

Another factor to think about is the booming commodity (materials) prices versus the falling home prices. These builders could make a nice profit when the house prices were higher and the commodity prices were lower, but by the time the housing market "turns around" (in other words the prices stop dropping), the ratio of home prices to commodity prices will be a lot different than it was in the housing boom years. This is going to squeeze homebuilder profits in a big way for a long time to come.

Yet another factor to consider is exactly what does a home builder have as far as a competitive advantage? Maybe a few house design plans, some land, and a bunch of Mexicans. It hardly seems like it would be that hard to compete against. It's not like you have to build huge factories or develop massive amounts of intellectual property. Whatever current homebuilders survive, they will face new competitions from companies that won't have the same baggage that was left over from the current bust.

I just can't imagine why anyone would want to invest in homebuilders right now.

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Avatar bhessel (97.26) Submitted: 4/30/08 10:02 AM

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Good general argument against the industry, but BZH also has some company-specific issues (ongoing investigations by the SEC and US Dpt of Justice into the sleazy mortgage selling tactics, financials restatements, the fact that the bloated inventory issues are worse at the lower end of the market where Beazer plays) that deserve mention, too.

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Avatar jstegma (99.85) Submitted: 4/30/08 12:56 PM

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Yeah, Beazer seems like they might be one of the first homebuilders to go.

There are some Beazer homes being built in my neighborhood, along with Standard Pacific. I live in a Centex home. I would put the Beazer homes ahead of Centex by a good bit and behind Standard Pacific. I don't know if Centex has a reputation for being low end or not, but they should. There is a house down the street that is for sale (and has been for a year or so) with a "talking house" sign in front of it where you can tune in on your radio and listen to a sales pitch. My wife hit it on the head when she described what the talking house ought to say. "This a Centex home - boring and bland. Just keep on driving." I'd put Centex right up there with Beazer as far as most likely to disappear first. Neither will be missed. There will still be plenty of foreclosures built by both to satisfy any demand that still exists.

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