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Public Home Builders Council of America Sees a Net Positive Impact on
Homebuilder Growth Prospects in a Moderately Rising Mortgage Interest Rate
Environment
NEW YORK, Apr 21, 2004 (BUSINESS WIRE) -- The Public Home Builders Council
of America (PHBCA), which comprises 13 of the leading public homebuilding
companies, issued the following statement regarding the impact of mortgage
rates on the growth prospects for the nation's large public builders. PHBCA
is a non-profit organization devoted to raising awareness and recognition
for the expanding role that the public builders play as stable and growing
providers of housing for millions of Americans.
"The April 2nd jobs report and recent Consumer Price Index (CPI) data have
raised the possibility, among some economists, that the Federal Reserve may
begin raising interest rates sooner than previously anticipated. This has
led to discussion in the media about the growth prospects for public home
building companies in an environment where a growing economy is accompanied
by rising mortgage rates. While the PHBCA acknowledges the historical link
between national new home sales and mortgage rate levels, the Council
believes that this traditional macro-economic view of the national
homebuilding industry fails to take into account the competitive advantages
the large public builders have gained as a result of market consolidation,
unmet housing demand, economies of scale and access to low cost capital.
"In the last 10 years, the growth of the public builders has outpaced the
national new home market growth by 250% during a mortgage interest
environment that reached 8.1% just three-years ago and, 8.4%, or 260 basis
points higher than today's interest rates, in 1994. As the attached charts
illustrate, market share of the top 20 builders has steadily increased over
the last 10 years despite fluctuations in mortgage rates, while the level of
homeownership has continued to climb even in periods of rising rates.
"The PHBCA believes that if interest rates were to rise to the highest
levels experienced in the last decade, 8.4%, the economic environment that
led to such an increase would have a net positive impact on the large public
homebuilders for the following reasons:
-- The large public builders have demonstrated their ability to
grow through a rising interest rate environment by increasing
market share. The large builders have the geographic, segment,
and product diversity to enhance revenues along with
substantial purchasing power to contain costs, advantages not
available to the smaller builders. As a result, consolidation
by the large homebuilders of the smaller builders could
accelerate during this period of rising rates. A move up in
mortgage rates is usually the result of a more robust economy.
An improving economy and rising consumer confidence is good
for housing and would offset some of the negative impact that
rate increases might have on prospective homebuyer groups.
-- While the homebuilding industry has historically been
dominated by smaller builders subject to local, regional and
national economic factors such as interest rates, the large
homebuilders today are better prepared to withstand interest
rate rises. Over the past decade, the large public
homebuilders have become sophisticated, multi-billion dollar
businesses with broad national scope. Their diversity in
product, pricing and geographic markets has positioned them
well to meet future housing needs while reducing risks
associated with any single product or geographic market. Due
to government fiscal policy and land constraints, public
homebuilders have adopted a more prudent approach to balancing
housing supply and demand, while eliminating the speculative
building of the past.
-- The experience of the large, public homebuilders is that
people buy a home and not an interest rate. If interest rates
rise, homebuyers may switch from a slightly larger house to a
slightly smaller house or they'll choose a different mortgage
product. For instance, when interest rates rise, the
percentage of consumers that select an adjustable rate
mortgage rises, and today, there are many adjustable rate
mortgage options for homebuyers to choose from that offer
interest rates significantly below fixed mortgage rates.
"While no industry is completely insulated from macro-economic forces, large
public homebuilders have demonstrated their ability to grow despite the
impact short term variances, such as mortgage rates, have on their business.
On average, PHBCA members have achieved a five year, compounded annual
earnings per share (EPS) growth rate of more than 30 percent. This
considerable record of growth occurred during a period of economic and
financial market volatility, a national recession, a declining employment
environment and geo-political turmoil.
"The PHBCA member companies are optimistic that 2004 will be another strong
growth year for the public builders even in this uncertain interest rate
climate."
The Public Home Building Council of America (PHBCA) consists of 13 of the
leading public homebuilding companies within the broad $250 billion housing
industry. PHBCA member companies are Beazer Homes USA, Centex Corporation,
D.R. Horton, Hovnanian Enterprises, KB Home, Lennar Corporation, MDC
Holdings, Meritage Corporation, Pulte Homes, Ryland Group, Standard Pacific
Homes, Toll Brothers and WCI Communities. These companies build a wide array
of single family and multi-family units that range from affordable homes for
first-time homebuyers, to first and second time move-up homes, to luxury
condominium towers to vacation homes for the active adult community.
Operating in 37 states, the 13 PHBCA companies delivered over 225,000 new
homes in 2003 and produced homebuilding revenues of over $60 billion in the
same period. Today, PHBCA members build one out of every five homes in the
country.
The views expressed in the foregoing are those of the Public Home Builders
Council of America (the "PHBCA") and are not attributable to the individual
company members of the PHBCA. The statements in this release that are not
historical facts are forward-looking statements that represent the PHBCA's
current expectations and assumptions based upon data currently available to
and reviewed by the PHBCA. Should the data available to the PHBCA change or
the PHBCA's underlying assumptions prove incorrect, actual results or
developments may vary materially from those expected by the PHBCA. The PHBCA
disclaims any obligation to update or revise the statements made in this
release.
MULTIMEDIA AVAILABLE:
<http://www.businesswire.com/cgi-bin/mmg.cgi?eid=4621201>
SOURCE: Public Home Building Council of America (PHBCA)
Public Home Builders Council of America,
c/o Fleishman-Hillard
Michele Vana, 212-453-2214
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