The minute the market looked at the bailout plan, two local homebuilders were declared big winners.
Shares in Ryland Group Inc. and KB Home, surged as investors voted with their dollars on the notion the housing downturn had finally hit bottom. But that enthusiasm quickly abated, and shares fell back last week.
Both companies are still down by about 60 percent from their highs of February 2007. But they could benefit from the $700 billion bailout plan, which centers on financial institutions that were sucked under by the wave of defaults on home mortgages.
The verdict is not definitive, of course.
“I’m cautiously optimistic,” said Rashid Dahod, an Argus Research analyst, who has a “hold” rating on both companies. “We’ll just have to wait and see how the bailout plan helps the housing market.”
The bailout plan does not directly address the biggest problems for homebuilders. Those are increased difficulty in financing for buyers and a glut of homes on the market. But the bailout will likely restore some optimism to investors and the markets.
The housing sector needs all the help it can get.
Last week the National Association of Realtors reported that August housing starts dropped to a seasonally adjusted annual rate of 895,000 the lowest level since early 1991.
The bailout could conceivably ease the wave of foreclosures. That would reduce the number of homes on the market and allow homebuilders to begin building again.
“You’ve got the entire United States government focused on fixing housing,” Paul Puryear, an analyst with Raymond James & Associates, told the Wall Street Journal last week. “It’s not a good time to bet against that effort.”
A KB spokeswoman declined to comment due to the mandatory quiet period ahead of its earnings, which the company was scheduled to report Friday. Ryland did not return calls from the Business Journal.
Both of the struggling homebuilders were hit hard by the meltdown, with Calabasas-based Ryland claiming more than $333 million in losses for 2007 and KB claiming nearly a billion-dollar loss last year.
