Homebuilders: Bleak outlook until 2010

“I believe the industry will continue to face rising pressures for certainly the next 12 to 18 months,” said Don Tomnitz, D.R. Horton's president and chief executive, adding that “2010 will be the earliest we get a more solid homebuilding environment.”

Homebuilders are struggling to sell at a time when many buyers remain reluctant to enter the market because they expect home prices will continue to slide. A glut of unsold homes has also hurt builders, forcing many to step up incentives and discounts, shrinking their profits.

Tomnitz said home prices may still have more to drop in many of the hardest-hit markets.

Builders' balance sheets are also taking a beating as the companies write down the value of thousands of acres of land purchased during the housing boom that is now worth less than they paid.

The top 11 homebuilders wrote down a combined $22.9 billion in assets between the third quarter of 2006 and the first quarter of this year, according to JPMorgan, which hosted its 3rd Annual Basics and Industrials Conference in New York Tuesday where many building executives spoke.

Write downs were the biggest problem for Toll Brothers Inc., the Horsham, Pa.-based luxury homebuilder.

Toll reported a loss of $93.7 million, or 59 cents a share, for the period ended April 30.

Toll's stock rose 64 cents, or 3 percent, to $21.60.

The most recent quarter included a pretax write-down of $288.1 million, and a hefty part of that came from slashing the value of joint-venture land deals by $85 million.

The company's results benefited from a $40.2 million gain in compensation for land.

Without these charges and gain, Toll earned $81.3 million, or 49 cents a share, compared with $109.6 million, or 66 cents, a year ago.

Revenue fell 30 percent to $818.8 million.

Chief Executive Robert Toll said demand continues to be weak in most markets as buyers stay skittish in the face of home price declines.

In a conference call with analysts, Toll called on Congress to give would-be homebuyers a tax incentive to buy a new home, saying that should be a priority over addressing problem mortgages that are leading to foreclosures.