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Thursday, Mar 28, 2024

Rising Confidence in Market a Bright Sign For Ryland

Following a two-year reorganization and some positive news in the housing market, Westlake Village-based homebuilder Ryland Group Inc. is gunning to earn its first annual profit since 2006. CEO Larry Nicholson credits Ryland’s rebound largely to restructuring efforts: employee layoffs, consolidation of the company’s regional homebuilding divisions into one operating group and beefing up its presence in profitable markets while cutting back in less profitable regions. “While these were difficult decisions to make, they were the right ones for the long term success of the company,” Nicholson said in a recent fourth-quarter conference call. Company officials declined to comment for this article. Nicholson noted an increase in the company’s backlog as one positive signal for the company’s future. The company reported a backlog of 1,481 units at the end of 2011, a 31.4 percent jump from a year earlier. While the restructuring efforts have helped, the decimated national housing market — which has dragged the company down for years — will have to recover for the company to truly regain its luster. And on that front, things have brightened somewhat. Homebuilders are increasingly confident, according to the National Association of Home Builders. The group’s Housing Market Index, which it compiles with Wells Fargo, rose for the fifth consecutive month in February, rising to the highest level in more than four years. “This is the longest period of sustained improvement we have seen in the HMI since 2007, which is encouraging,” NAHB Chief Economist David Crowe said in a statement. Single family home starts declined 1 percent in January from December, according to the Commerce Department, although January’s starts were a 16.2 percent increase from the same period a year earlier. In the fourth quarter last year, Ryland reported an $812,000 profit — a marked improvement from a $19 million loss a year earlier. New orders for houses jumped 23.8 percent to 910 units compared with the same period in 2010. Closings increased 16.4 percent, and the average sales price rose from $246,000 to $255,000. The fourth quarter of 2011 was the first time Ryland recorded its first pretax profit since 2006. Nicholson said the results showed “our ability to turn a profit after an improvement in the broader housing market” and that the firm expects to do so for all of 2012. While the fourth-quarter profit figures failed to meet Wall Street’s expectations, the quarterly filing was still good news for the team at Townsgate Road. The company’s stock hit a 52-week high of $21.15 a share on Feb. 15. Observers say the market is showing optimism in anticipation of the spring home-buying season. The recent rise of homebuilder stocks has followed a familiar trend in which investors, grasping for good news, overestimate the spring buying season only to be disappointed when the eventual numbers are released, said analyst Buck Horne of Florida-based brokerage firm Raymond James in a February research note. “Unfortunately, we believe the housing data over the next few months … will disappoint as we anticipate builders will face an uphill battle converting traffic to actual sales contracts and closings,” Horne wrote. In his research note downgrading Ryland and other homebuilders, Horne praised the company for its efforts to “right-size its organization and position the company for marginal profitability in the current environment.” Still, Horne wrote, “We are growing increasingly concerned that unusually stringent mortgage underwriting will constrain buyer demand this spring more than implied by current homebuilder valuations.” And Crowe of the National Association of Home Builders tempered his optimism, saying the housing market is still troubled and homebuilders’ confidence levels, while up, are still very low. “Foreclosures are still competing with new home sales, and many builders are seeing appraisals come in at less than the cost of construction,” he said.

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