D.R. Horton, Inc. (DHI)

doogiehousermd (< 20) Submitted: 10/29/07 5:24 PM : Start Price: $12.54 DHI Score: -1.28

The housing market is still in trouble. Some have claimed that this stock can only go so low. People have been saying this for months, yet it has continued to decline. Remember, people said the same thing about Enron at many points during its decline into oblivion.

I would argue that interest rates can only go so low (i.e., they literally can't fall below 0%). Oil has hit record highs recently, making inflation a risk. What happens when interest rates begin to rise to curb inflation? Loans become more expensive, making it more difficult for buyers to purchase a house. Given the recent record low interest rates, most people who could afford to buy a home have already done so, leaving few buyers in the market. Home sales and prices have been declining as a result of this low demand. Lower interest rates would have little impact on real estate demand due to the lack of eligible buyers (those who don't already own a home now are likely to have poor credit, and risky, sub-prime lending is not likely to continue due to record foreclosure rates). With the risk of inflation looming, and interest rates near historic lows, higher interest rates are possible. This could decimate what little demand exists in the housing market. It's a lose-lose situation for the residential construction industry.

D R Horton as a company has an "unsatisfactory" rating and 129 complaints have been filed with the Better Business Bureau over the last 36 months in Ft Worth, TX alone. It has unsatisfactory BBB ratings in many other locations as well, including the lowest possible rating of "F" in Deerfield Beach, FL. One unhappy customer in California has created a website (www.drhortonsucks.info) claiming fraud and other crimes against the company and its lending arm DHI Mortgage, and includes hundreds of testimonials from angry customers around the country. New consumer protection laws are being proposed in congress that could hurt the company's profit potential as well. Additionally, S&P has recently downgraded DR Horton giving it a credit score that teeters precariously close to junk-bond status.

Saying that this stock can't go any lower is pure speculation, based entirely on its past price performance. Given the reality of the economy, the industry, and this company's reputation, I would say DHI's best days are behind it. I expect smaller, more reputable builders to outperform DHI over the long-term. Over the short-term, I don't see any good news for the industry.

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