Money and Investing Thoughts

Home Front: Harsh April for Sacramento-area homebuilders.

In the current housing environment I like low new home construction numbers. With the country forming 1.5 million new households each year and only building 500k homes it will take a shorter amount of time for the inventory of foreclosure properties to be reabsorbed into the market. This does bring up a side question: Where do people who lose their homes live? Back to new housing.

New home sales are very slow, but it appears homebuilders are constructing inventory even slower. It is interesting to see the home sales figures for Sacramento as reported in the article linked above.

From 2001 until 2005 Sacramento area homebuilders sold an average of 15,500 new homes per year. They were selling these types of numbers even in 2001 and 2002, before the pricing bubble started to expand. By 2008 the number dropped to only 4,847. The final 2009 numbers may be close to half of 2008.

The economic conditions in Sacramento are very difficult right now but this is a growing region with the population expected to double by 2050. The early this century new home absorbtion of 10,000 per year seems like a minimum number going forward and 2009 will be the 4th year in a row of sub 10k new home sales.

New home construction and sales is a jobs and economic prosperity creator in itself. When the sales numbers turn positive it will be a good thing, but right now the lack of new home inventory is just what the housing market needs to stabilize.

Home sales up, prices down – Business – ReviewJournal.com.

Housing sales in Las Vegas continue to accelerate with almost 4,000 single family homes and condos sold in May. This was 60% more sales than in May of 2008. Inventory has decreased by 9% since a year earlier and stands at a 7 month supply. In 2008 the supply figure was stubbornly near 20 months for the entire year.

The majority of purchases continue to be bank owned properties. The median price was 40% lower than a year earlier, but down only 1.2% from April. I am still looking for that first median price increase to call a bottom in the LV housing market.

An interesting fact from the article linked above: Over 10,000 listings entered into a contract in what I assume was the month of May. With 21,000 homes in the for-sale inventory, the city could see a rapid reduction in available homes in the next couple of months.

The danger to a housing recovery is the still large number of homes being foreclosed and how the banks will handle putting them on the market. It seems that many buyers see the market as a good time to buy.

The article linked below by Tom Brown of Bankstocks.com gives and excellent recap of what went wrong with the financial sector and his not so good results as a money manager. Tom puts the purpose of the article best:

So this is as good a time as any for me to step back and reflect on how I screwed up so royally in the runup to greatest economic hurricane of our lifetimes, and what I’ve learned as a result of it all.

The article is a great read so go read it here: Bankstocks.com.

The recent conference call from Atlas Pipeline Partners (APL: 37.54 +0.14 +0.37%) gave estimates of distributable cash flow of between $1.90 and $3.65 for the next 4 quarters. Further remarks indicated that pending board approval, distributions could restart in early 2010.

These numbers are based on historic NGL prices in relation to $65 oil. APL has been working to deleverage their balance sheet and it is anticipated that much of the cash flow for the next several quarters will go to pay down debt.

APL stock is up 13% today in a down market (ATN is down 10%). As I wrote months ago, APL will continue to be a good leveraged option on rising oil prices.