From Nightly Business Report in the US:-One on One With William...

From Nightly Business Report in the US:-

One on One With William Mack, Homebuilding Analyst at Standard & Poor's
Tuesday, August 15, 2006

SUSIE GHARIB: Discouraging news today for the housing industry. A new survey by the National Association of Realtors shows home sales were down 7 percent in the second quarter, as compared to a year ago, and prices for those homes are stalling. Also, the National Association of Home Builders says its index for sentiment among homebuilders plunged in August to its lowest point since February of 1991. Back then, the economy was in recession. Our guest tonight has been negative on the housing sector for more than six months now. When I talked with William Mack, homebuilding analyst at Standard & Poor`s, he says rising interest rates are only part of the problem.

WILLIAM MACK, HOMEBUILDING ANALYST, STANDARD & POOR`S: Well, I think there`s a combination of factors. Interest rates are always an important determinant of demand. But it`s really an infinite number of factors. An important one also is the fact that the last couple of years, home sales have been at what I think are far above normative levels. And so I think we`re getting back to more normalized levels.

GHARIB: William, do you think that this could just be a temporary slowdown?

MACK: Nah, I don`t think it`s a temporary slowdown. We`ve had now two and you can call it three quarters if you want to include the fourth quarter last year of weakness and indications from management that things aren`t going to improve soon. Everything we`re seeing and hearing out there indicates that supply continues to rise and demand continues to fall.

GHARIB: We`ve had no what, five or more years of a very red hot housing market. How long do you think this slowdown cycle could be? What`s the rule of thumb?

MACK: Well, in the past it`s been between two and four years, the downside of the home building cycles. I would hedge and say it`s toward the shorter end of that. But it`s really anybody`s guess. We can`t see much beyond the next three, six months in terms of demand and as I said, it doesn`t look good.

GHARIB: So with this drop-off in demand, are you also seeing that the prices of homes are also falling?

MACK: We haven`t seen prices starting to fall. That could be the next leg. We`ve seen unit volumes decline significantly for the builders. Anywhere on the order of 10 percent, all the way up to 50 percent in their net orders on just unit volumes. The builders themselves are for a number of reasons loath to lower prices and in fact we haven`t yet seen prices fall on either deliveries or the orders but on the orders, they`re starting to flatten out.

GHARIB: All right. But we have seen orders holding up. So what are the builders doing? Are they offering some special deals or incentives to keep prices up as well?

MACK: I would dispute that. The orders are not holding up. What we`ve seen is order volumes for the 15 builders that I cover have all fallen as I said, up to 50 percent. Prices themselves have been flat up about 5 percent on the orders. So work those numbers together and you`re looking at dollar orders down 30 percent or so.

GHARIB: All right. So now you cover home building and housing stock and you said that you have a "sell" or "strong sell" on seven major housing stocks and a buy only on one. What is the one, and why is it attractive?

MACK: It`s Centex Corp, ticker CTX. It`s basically I think less tied to traditional home building revenues. Only about 85 percent of their revenues come from home building operations. That`s versus 95 to 100 percent from most of the other builders. It`s one of the best balance sheets in the industry and they`ve also got a very good management team that`s had a proven track record.

GHARIB: So your advice to investors who own some of these stocks right now, some of the seven that you have, it`s time to unload housing stock?

MACK: Now is a good time to sell.

GHARIB: All right. And do you own any of these stocks?

MACK: No, I do not.

GHARIB: All right. William, thank you very much for coming on the program. Appreciate it.

MACK: Thanks for having me, Susie.