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A Builder to Buy?

Posted by: Chris Palmeri on December 20, 2007

Homebuilder shares took another beating yesterday after Hovnanian Enterprises announced a wider than expected loss and saw its stock price fall 17%. “Fiscal ‘08 will clearly be a difficult year,” company ceo Ara Hovnanian told analysts.

For a brief while a few weeks ago I was researching a story on home builder stocks to buy. Fortunately we decided not to proceed with the story, but one name kept coming up as a good investment: NVR Inc., a homebuilder headquartered in Reston, Virginia.

NVR is not a household name for a number of reasons. It operates locally under names which may be more familiar—Ryan Homes, which dates back to 1948, and Fox Ridge Homes, the largest home builder in Nashville. Its stock also trades at an almost Berkshire Hathaway-like price of $500 a share. That likely discourages some investors, although—thanks to discount brokers—you can buy one share for the same commission as you would 100.

That $500 a share price is down from the high of $850 last spring. But NVR seems to have held up better than most homebuilders this year. In the third quarter it was still reporting profits—$91 million on sales of $1.3 billion. “They are rock stars!!” writes Ivy Zelman, a long time housing industry analyst who now runs her own research firm. “Negative net debt!”

NVR is taking some steps to raise its profile. The company recently announced it was moving from the American Stock Exchange to the New York Stock Exchange.



BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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