SOURCE: Rothman Research

Rothman Research

March 18, 2010 10:08 ET

Home Buyers Sector Recovering From Economic Brunt

JOHANNESBURG, SOUTH AFRICA--(Marketwire - March 18, 2010) - - The market environment in the homebuilding industry is still plagued by increasing inventory levels, stubborn unemployment levels and higher foreclosures. Foreclosure filings for November 2009 surged by 18% as compared to 2008 with Nevada, Florida and California posting top state foreclosure rates for the month. "Recovery in this industry would be possible once credit accessibility finds the right equilibrium between the contrasts of recent years and when unemployment levels retreat to an economic tolerance level. We need to remind ourselves that this industry was the worst hit by the sub-prime ordeal and the credit crunch, but positive news still visit this industry as indicated by a small rise in sales orders in recent quarters, assisted by federal stimulus package, falling home prices and minimal interest rate," commented Jack Benassi from

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Other factors, attracting buyers into the market and helping to restore a certain level of trust into the industry, are the federal tax credit of up to $8,000 for first-time home owners and the California state tax credit of $10,000. Additionally, we see encouraging initiatives that brings hope to the industry. Recently a group of business leaders headed by the President of WellHome supported the President Obama as he called on Congress to pass the "HOME STAR" program. The HOME STAR program is expected to create job opportunities by encouraging American families to invest in energy saving home improvements. Creation of this bill will provide the American people a rare triple score. The people will reap benefits in terms of job opportunities, savings for consumers, and an environment-friendly impact to the world. Jack Benassi of looks at two companies that are hand-in-hand with the goals of the President; Louisiana-Pacific Corporation (NYSE: LPX) and Masco Corporation (NYSE: MAS).

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LPX reported sound results during the fourth quarter. While the housing market continues to be very depressed, there were seasonal improvements in demand and a few encouraging signs that the housing market is beginning to recover. However, much of the credit is due to the focus on cost containment, managing their operations more efficiently and lower raw materials costs.

2009 continues to be challenging for all of their businesses. But LP made significant improvements during the year compared to the prior year. All of their operating segments improved in 2009 despite housing starts falling by 39 percent. Company achieved almost 60 percent improvement in OSB; 20 percent better results in EWP; and a tenfold increase in operating results in Siding. The consensus view is that the housing market in 2010 will be better than last year although there is much debate about the pace and magnitude of the recovery. With current stimulus programs scheduled to end and new programs being considered to improve the job situation and access to funds, the economy is likely to remain volatile.

Downsizing efforts, a gain in market share and a smaller accounting charge to its balance sheet allowed Masco Corp. to improve its bottom line in 2009, despite a $1.7 billion drop in revenue. The company's cabinets and installation segments remain under duress due to their heavy leverage to new home construction, and both businesses posted operating losses during the quarter. That said, we found a number of positive trends that indicate 2010 should be a year of modest recovery for the firm. Despite lower sales volumes, the company generated segment operating margins (excluding goodwill impairment charges) of 5.7%, up 480 basis points from year-ago levels. In addition, key retailer sales increased 8%, ending a string of nine consecutive declining quarters.

It's likely that Masco will continue to deal with a challenging demand environment during the first half of the year, since we don't expect a strong resurgence in new home construction or big-ticket remodeling activity. That said, we remain optimistic about the company's long-term prospects. The firm's decorative architectural products segment has held up well throughout the downturn due to steady demand from smaller repair and remodel projects, and its cabinets and installation businesses stand to benefit from an eventual rebound in the new housing market.

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