Big US Home Builders Could See Big Refund Checks
November 06 2009 - 2:28PM
Dow Jones News
Some of nation's large home builders could be due millions of
dollars - thanks to a tax break signed into law by U.S. President
Barack Obama - boosting the cash hoards builders are tapping as
they limp toward recovery.
Businesses would be able to apply current losses against profits
made five years ago - instead of two years - resulting in refunds
that could come sometime next year. The measure isn't expected to
be a game-changer for home builders, given that the major pubic
players have been conserving cash for several quarters. The 10
companies JP Morgan covers have an average $1.2 billion, compared
to $616 million as the market soured in late 2007.
Credit Suisse predicts Lennar Corp. (LEN) could see a boost
between $200 million and $300 million. Meritage Homes Corp. (MTH)
expects about $60 million. "That's obviously a substantial number,
but I'm not certain it would change our growth prospects that
much," CFO Larry Seay said during a quarterly conference call last
week.
Smaller private builders, who have been battered in the housing
downturn without access to construction financing, would receive
less money, but a bigger benefit. "They can take a breath,
survive," said Bill Killmer, vice president of advocacy with the
National Association of Home Builders. "Many of these guys would
have to shutter and close their doors. They'll be able to
survive."
The Washington-based trade group estimates about 30,000
construction-related jobs will be saved. That's good news, given
construction unemployment was 18.7% in October, according to the
Laborers' International Union of North America, well above the
national rate.
The building industry's bigger names were disappointed to see
the break pulled from the government's $787-billion economic
stimulus plan signed earlier this year. But it is not without
controversy: The NAHB previously fretted that large builders might
use the tax break to unload land at a discount to generate a tax
loss and then buy the land back, potentially putting smaller
players at a disadvantage. Killmer said the builder group is now
glad a "broad swath" of the industry will benefit.
Such concerns are less of an issue now because builders have
purged some of their less desirable land. Plus, the land-related
charges they'd take to use the NOLs – primarily through selling
bulk land at distressed prices – would be more of a negative, given
they aren't as desperate for cash, said JP Morgan analyst Michael
Rehaut.
The tax break is part of a hard-lobbied package that would also
extend the first-time home-buyer tax credit for several months and
expand it to some existing homeowners. Builders, who say the credit
delivered much-needed sales, warn the market will resume its slide
without continued incentives for buyers.
-By Dawn Wotapka, Dow Jones Newswires; 212-416-2193;
dawn.wotapka@dowjones.com
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