Housing CEO says the sky is falling

Housing CEO says the sky is falling
Builder breaks mold with a negative view.

Published Monday, March 12, 2007

NEW YORK (AP) - D.R. Horton Inc.’s CEO Donald Tomnitz said what most others in the housing business wouldn’t when he proclaimed last week that 2007 "is going to suck, all 12 months of the calendar year."

His blunt assessment contrasted much of the spin that has been coming from lenders, Realtors, trade groups, home builders and others in recent months. There haven’t been many straight shooters discussing the housing and mortgage market collapse.

That’s why Tomnitz’s quote resonated throughout the financial world. Plain and simple, he told it like it is, at least from his point of view.

In his presentation at an investor conference, Tomnitz said new home prices will continue to decline this year as builders try to sell the glut of houses currently available. His firm is unlikely to get more pricing power until 2008, he said.

Horton, the nation’s largest home builder by the number of homes sold, is currently building 26,000 houses, down 35 percent from its peak of 40,000. Tomnitz said that further cuts are coming. The Fort Worth, Texas-based company’s fourth-quarter earnings plunged by almost two-thirds from a year earlier to $109.7 million, and a profit retreat of similar size is expected in the first quarter as well.

His sugarless comments stood out because others haven’t been so forthcoming. That doesn’t mean there hasn’t been talk of the housing or mortgage business going south, but little has been so direct and to the point.

Bloggers have been quick to pounce on the National Association of Realtors for spinning its assessment of housing conditions. For instance, last summer NAR chief economist David Lereah said that new home sales were "stabilizing." But that turned out to be untrue, a result of the trade group relying too heavily on economic data and underestimating how psychological factors were affecting home purchasing, NAR spokesman Walter Molony said.

It still hasn’t perfected its game. This week, blogger Debi Averett of Phoenix-based HousingDoom.com, noted that the NAR’s pending home sales report says that the data should be compared on a year-over-year basis, not month to month. But the first number that the NAR plays up is the Pending Home Sales Index’s 4.1 percent decline in January from the month before. It then says the index was down 8.9 percent from a year ago. The NAR also highlighted that the January reading was the highest since last August, and "more importantly" there has been a narrowing trend from year-ago levels since last July.

"When the year-over-year and month-over-month don’t suit the spin, apparently showing that things are not looking as bad as they did six months ago is the expedient alternative," Averett said on her blog.

The imploding mortgage market has seen its fair share of spin, too. With subprime lending collapsing fast, anyone linked to that business is running for cover.

"Garbage is garbage, whatever you name it," said economist Nouriel Roubini, a professor of economics at New York University’s School of Business and chairman of consulting firm Roubini Global Economics.

Maybe Horton’s Tomnitz gave a bleak assessment to set expectations as low as they can go. That sounds better than saying things are going fine when they might not be.