Housing slump prompts profit warnings

Ashley Milne-Tyte Jul 10, 2007

Housing slump prompts profit warnings

Ashley Milne-Tyte Jul 10, 2007


Kai Ryssdal: And with apologies to Mr. Dickens, the best of times won’t be happening in the housing market any time soon. Sears and Home Depot, as I mentioned, announced profit warnings today.

Sears said second-quarter earnings would be about half of what some analysts had been expecting. That’s thanks in part to slow sales of home appliances. Home Depot loses because people aren’t buying things to fix up homes they’re not buying.

Along those lines, home-builder DR Horton, one of the biggest in the country, announced falling home values will lead to its first quarterly loss since it listed on the NYSE 12 years ago. From New York, Ashley Milne-Tyte reports.

Ashley Milne-Tyte: In a hot housing market, customers flock to Sears and Home Depot. They spend on items to make their home a more comfortable space, or to fix it up for sale.

Christopher Thornberg is principal of Beacon Economics:

Christopher Thornberg: With the market going the other way, the desire and really in many ways the financial value of making those kinds of adjustments to your house, are just not there anymore.

He says this year, far fewer people than last year are borrowing money against their homes. He says retailers were benefiting from that extra spending, so they’re bound to suffer now.

Analyst Richard Hastings with Bernard Sands says retailers may look shaky, but home-builders like TR Horton are really in trouble.

Richard Hastings: This is really a massive multi-year housing crisis, we have not even gotten to second base yet. Mid-2008 we’ll find out where we’re at.

Christopher Thornberg says home-builders got too excited during the housing boom and massively overbuilt. Those homes now sit empty.

Thornberg: You’ve had a circumstance in which, really, we have at least probably a year and a half of excess supply of new homes right now.

He says it’ll be at least two and a half years before the home construction market recovers.

In New York, I’m Ashley Milne-Tyte for Marketplace.

Ryssdal: If you happen to be one of the diminishing few who hope the end of the housing slide might still be in sight, consider the latest from Standard and Poors.

The credit rating company said this morning it’s considering cutting its ratings on a mountain of mortgage-related debt. Subprime debt, specifically. Those are the bonds issued by some of the big banks that’ve been pumping cash into the housing market for years.

Moody’s wasn’t about to be left behind. This afternoon, it went ahead and cut its ratings.

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