Homebuilders See Bottom in Early 2007

New York, NY, December 7, 2006--Executives of several of the largest homebuilders predicted that inventories would decline, and prices and home starts would rise, in the latter half of 2007, as they spoke at the 10th Annual Homebuilding Conference sponsored by the New York Society of Security Analysts. Analysts and an economist in attendance generally agreed with that prediction. Freddie Mac Chief Economist Frank Nothaft said the correction is about two-thirds finished and that the market would hit a trough in the first half of the coming year. "We're most of the way there," he said. "We've still got a bit of decline going forward. I do think by the second half of 2007 we will see home sales and activity picking up, not back to 2004 and 2005 levels, but above the trough." Nothaft predicted average home prices across the U.S. would appreciate by 3 percent in 2007. "I don't think the market has found a bottom yet, but there are reasons to feel a little more comfortable at the moment," said Ara Hovnanian, the chief executive of Red Bank, N.J.-based home builder Hovnanian Enterprises Inc. He said he thinks the market will bottom in the first half of 2007, then "bounce along for a while" before recovering. Meritage Homes Corp. Chief Executive Steve Hilton agreed with Hovnanian, while Toll Brothers Inc. Chief Financial Officer Joel Rassman declined to predict when the market would hit bottom. "Nobody can know when the bottom is," Rassman said. Lennar Corp. Chief Financial Officer Bruce Gross said the slowdown offered developers a change to make operations leaner. "In good times, we were all busy growing," Gross said. "As things slow down, we can focus on efficiencies." Toll Brothers' Rassman said industry conditions were good for consolidation, either from acquisitions among the large public companies or from private equity firms buying them out. "I think there's a reason to believe that when the big builders control 50 percent to 60 percent of a market, they'll probably have to eat each other," he said. "I think there will be public-to-public consolidation. And we've had private capital sniffing around this industry for four or five years." Shares of home builders closed higher Wednesday on the New York Stock Exchange.