Digging holes in the ground

26 March 2007 By Antony Currie Follow @AntonyMCurrie

They re not just facing falling sales and land values. They also have pricey commitments to local governments. Walking away would be costly. But so would the alternative continuing to build. Whichever option they choose, the homebuilders look overvalued.

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New home sales declined 3.9% in February to 848,000, according to the Commerce Department, the lowest level in almost seven years. Economists had been predicting an increase.

KB Home, the fifth largest US homebuilder, reported an 84% drop in firstquarter profit compared to the same period last year due to fewer sales and lower sales prices.

Quarterly earnings also plummeted at other homebuilders like Centex and DR Horton as sales dropped and as they wrote down the value of assets including land.

Recently Donald Tomnitz, Chief Executive of DR Horton, told investors at a conference: I don't want to be too sophisticated here, but 2007 is going to suck, all 12 months of the calendar year.

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