Trade Trends | Market Outlook

December 14, 2005

HousingZone Indices Show Strength

Wall Street was buoyed that, despite hurricanes and record oil prices, the US economy appears to be robust enough to shake off negative influences and post strong gains for the month. Although existing home sales dropped 2.7 percent, sales of new homes in the US grew 13 percent, to a record 1.424 million annual rate, the Commerce Department said. “The demand for new housing surged, likely because rising mortgage rates motivated some potential homebuyers to accelerate their buying decisions,” said Steven Wood, economist at Insight Economics in Danville, California. “Moreover, despite the huge increase in sales, home price momentum has slowed as home builders are beginning to use discounts to motivate buyers,” he said.

Not all the news was about housing. The Commerce Department also released a report showing that the gross domestic product, grew at a 4.3 percent rate in the third quarter, the highest climb in over a year. New orders for durable goods grew at a higher rate than expected, and the strength in the sector was led by the transportation, up on defense aircraft.

The HousingZone indices were each up over five percent. The Product Manufacturers’ Index increased 49.11 points, or 5.17 percent, and ended November at 998.64. The Builders’ Index grew by 68.27 points, or 5.67 percent, and closed at 1272.38. In the Builders’ Index, advancing issues outpaced declining issues at a 22-to-14 clip, and over on the Product Manufacturers’ side, advancing issues whacked declining issues by a 6-to-1 margin.

On the Product Manufacturers’ side, shares of Georgia-Pacific zoomed ahead after privately-held Koch Forest Products, a subsidiary of Koch Industries, tendered a $48-per-share cash offer for the company, and will assume $7.8 billion in G-P debt. If the offer is accepted, Georgia-Pacific will become a subsidiary of Koch. Canadians gave their antitrust okay to the deal, but G-P bondholders are seeking talks with the company to determine how the deal will affect them. Georgia-Pacific rose 14.76 points, or 17.27 percent, and closed at 47.29. G-P was our top dollar and percentage gainer on the Product Manufacturers’ Index this month.

Wall Street hammered American Woodmark after the company’s second-quarter profit for the quarter ended October 31 tumbled to $6.2 million, or $0.37 per share, off the $11.4 million, or $0.67 per share earned in last year’s second quarter. The company also warned analysts about their third-quarter results and forecast estimates below analysts’ expectations. American Woodmark cited soft consumer sentiment and manufacturing inefficiencies. Third-quarter net income should reach between 20 and 30 cents per share; analysts were expecting $0.42 per share. American Woodmark slipped 5.35 points, or 17.27 percent, and ended at 25.62. The company was the top dollar and percentage loser on the Manufacturers’ side.

Beazer Homes earned the Builders’ top dollar and percentage gainer spot this month after Beazer upped its stock buyback program to 10 million shares, up from the previously authorized 2 million shares, based on the company’s strong fourth-quarter results. Beazer has allocated between $200 million and $250 million for the buyback, and expects to complete the repurchases within 36 months. Beazer also reiterated its $10.50-per-share outlook for 2006. Beazer’s fourth-quarter net income increased to $164.4 million, or $3.61 per share, up from $80.1 million, or $1.82 per share on last year’s fourth quarter. Beazer gained 12.02 points, or 20.74 percent, and closed this month at 69.97.

Shares of William Lyon faltered after the company announced third-quarter net income of $38.1 million, or $4.39 per share, down from $449 million, or $4.51 per share in the same quarter last year. The company cited smaller gross margins and reducing closings. William Lyon lost 7.35 points, or 6.18 percent and ended at 111.50. WLS was our top dollar loser on the Builders’ side.

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