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The Wizard
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Joined: 22 Feb 2008
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Homebuilder stock fall out NYSE/S&P into small cap categ
PostPosted: Sun May 18, 2008 4:37 am Reply with quoteBack to top

The worst housing slump in 70 years erased 67 percent from the market value of homebuilders in the Standard & Poor's 500 Index, turning the companies into small-cap stocks.

Centex Corp., the nation's biggest builder by sales, is valued at $2.62 billion, a quarter the size of the largest company in the Russell 2000 Index. Home developers in the S&P 500 have a total market value of $16 billion, down from $49.2 billion at their peak in January 2006 and less than Kroger Co., the biggest U.S. grocery chain.

In essence builders went through the laundry and got shrunk. The value is gone beyond an inoperable business situation and turned into an economic crisis that will NOT be reveresed.

Record foreclosures and $312 billion of bank losses related to subprime mortgages slowed the U.S. economy last year. Property values in 20 U.S. metropolitan areas fell the most ever in February.

D.R. Horton Inc., the second-biggest homebuilder, and Lennar Corp., the third largest, reported record losses in the past year as unsold homes forced companies to slash prices. The 15 biggest publicly traded builders have written off $22.6 billion in land, joint ventures and other expenses since the beginning of 2006.

Centex reached a market value of $10 billion in July 2005 when new home sales peaked at an annual rate of 1.39 million units. Centex has since lost 74 percent of its market capitalization and sales of new homes have slowed to an annual pace of 526,000, the fewest since October 1991.

What all this point too, is that the shrinking size of the builders will make their stocks drop out of the indexes of the biggest U.S. companies, such as the S&P 500 or Russell 1000, and into the small-cap category. The Russell 2000 has a median market value of $535 million, or about 95 percent less than the S&P 500's.

Spokesmen for Centex, Lennar and Pulte Homes Inc. declined to comment. D.R. Horton and KB Home didn't return messages. The pick director of stock for S&P declined to comment also.

Twenty-seven companies in the Russell 2000, including Interactive Brokers Group Inc. and SAIC Inc., have market values exceeding $3.1 billion, the median of the five biggest U.S. homebuilders. Thirteen equities in the S&P SmallCap 600 are worth more than the average S&P 500 homebuilder stock.

The S&P/Case-Shiller home-price index dropped 12.7 percent from a year earlier, more than forecast and the most since record keeping began in 2001. The gauge has fallen every month since January 2007.

Lennar and Pulte, the fourth-largest homebuilder by sales, are still a fraction of their former size. Lennar, headquartered in Miami, topped $10 billion in July 2005. The company is now worth $3.1 billion after lower sales forced the business to cut home prices and fire workers.

Pulte, based in Bloomfield Hills, Michigan, has a value of $3.7 billion after six consecutive quarters of losses. The seller of Del Webb-brand homes for retirees was as much as $12.1 billion three years ago.

D.R. Horton peaked at $13.1 billion in July 2005. Shares of the Fort Worth, Texas-based company tumbled 26 percent and 50 percent in the following two years.

KB Home is the smallest, with a market value of $1.8 billion. At its height three years ago, shares of the Los Angeles-based company were worth $8 billion.

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