Pulte Homes, the largest US housebuilder by revenues, said on Thursday that it was too early to call a bottom to the slowdown in the US housing market, but pledged to reduce new building to trim the excess supply which has cut selling prices and damaged consumer sentiment.
Fears that consumer spending will fall in the wake of the year-long slowdown are being closely watched by US policymakers, and played a key role in the Federal Reserve’s decision on Wednesday to leave interest rates unchanged for a third consecutive month.
“It’s too early to say that these individual parts will turn into trends,” said Richard Dugas, Pulte president and chief executive. He noted recent positive signals such as a drop in absolute inventories and improvements in markets such as Sacremento and Washington DC, which were among the first to suffer a slowdown.
However, Mr Dugas admitted that the market had cooled further than had been expected, and Pulte – like rivals such as DR Horton – trimmed its earnings’ guidance again to reflect slowing sales and higher discounts.
Pulte has already cut back speculative building from its historical level of 25-30 per cent, and said average prices will have to drop to clear an industry-wide inventory that remains at seven months of sales for single-family homes and more than eight months for condos.
“Pulte has put its foot on the production brake,” Mr Dugas told analysts. “We are opting to forego sales rather than just giving away the homes.”
Analysts believe too many homes are still being built in the southern states of the US, which accounted for 41 per cent of new home building last year. The company said builders are still being “incredibly aggressive” in discounting in the overheated Florida market.
Pulte’s own gross margins fell 6.7 percentage points to 17.1 per cent in the three months to September 30 as it boosted discounts and absorbed higher raw material costs. The cancellation rate averaged 36 per cent during the quarter, and trended flat over he three months.
While average selling prices rose 6 per cent during the quarter, Pulte said this was due to product mix, and revenues fell 6 per cent to $3.5bn as closings dipped 11 per cent to 10,440.
Net profits fell from $613.7m to $190.2m, including an $87.7m charge to write off land acquisitions. The company gave no guidance for 2007, but said it expected fourth-quarter earnings to fall from $1.25-$1.55 a share to 30-70 cents.
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