Goldman Housing Report 9-09 Watermarked
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Transcript of Goldman Housing Report 9-09 Watermarked
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8/14/2019 Goldman Housing Report 9-09 Watermarked
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September 24, 2009 Americas: Building - Homebuilders
Goldman Sachs Global Investment Research 2
Upgrading Homebuilders to Attractive
We have been constructive on the long-term fundamentals of the homebuilders since February 2009. We now upgrade to Attractive
as we believe the mismatch between our and Street expectations for a federal tax credit extension will provide near-term upside of
10%-15%, while longer-term fundamentals could drive further upside in excess of 50%. Ultimately the group has a very closecorrelation with new home sales. As new home sales continue to rise toward our 2010 forecast of 525,000-550,000, we expect share
appreciation for homebuilders. Our proprietary distressed book value analysis and normalized earnings driven targets imply 10%-
15% upside over six months. As we look further out, normalized earnings and tax adjusted book support in excess of 50% upside.
Homebuilder stocks follow new home sales
We believe the key to having the right view on the homebuilder stocks is having the right view on new home sales. A regression
analysis of the level of new home sales to the level of our homebuilder index shows an R2
of 67% and we see no reason for thisstrong relationship to break down going forward. We estimate that new home sales will grow 50% over the next two years as the
US economy continues to recover and home prices remain stable. We note that the expected growth is off of very depressed levels
and remains 25% below our normalized levels of 800,000-850,000 new home sales.
Exhibit 1: We expect new home sales to rise 30% in 2010 off of their half-century low levels in 2009New home sales 1999-2011E
Exhibit 2: New home sales are a unique predictor of movement inhomebuilder stocksNew home sales vs. our homebuilder stocks
879 880907
976
1,091
1,201
1,279
1,049
769
481
412
538
645
0
200
400
600
800
1,000
1,200
1,400
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E
Normalized = 800-850
We see 30% growthin new home sales
next year
-125%
-75%
-25%
25%
75%
125%
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
New
HomeSales
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
Indexofo
urhomebuilderstocks
HB Index NHS
There is a strongrelationship (R2 = 67%)
between new home salesand our stocks
Source: US Census Bureau, Goldman Sachs Research estimates. Source: Facstet, US Census Bureau.MultifamilyInvesto
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Goldman Sachs Global Investment Research 3
Economic recovery works in the favor of homebuilders
There has never been an economic recovery in the US without a recovery in new home sales and we expect this cycle to be no
different. Historically, new home sales have begun to rise either coincident with or as a leading indicator to the US economy. Some
believe that as long as unemployment is rising, investors should stay on the sidelines with homebuilder stocks but we disagree.
Below we highlight that the troughs in non farm payroll losses are a better gauge for a return to growth in new home sales thanwaiting for the peak in unemployment. Historically, you are 7-8 months and 60% too late by the time unemployment peaks.
Exhibit 3: There is a closer relationship between the trough in new homesales and the troughs in non farm payrollsNew home sales vs. economic data
Exhibit 4: than the troughs in new home sales and the unemploymentrateNew home sales vs. unemployment rate (inverted scale)
'60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08-600
-500
-400
-300
-200
-100
0
100
200
300
400
500
600
200
400
600
800
1,0
1,2
1,4
1,6
(DIFF 1M) Employmen t Overall Nonfarm payroll, total, Persons , SA - United States (Left)New Home Sales Total , Number of, Annual Rate, SA - United States (Right)
Recession Periods - United States
The bottom in newhome sales has been
consistent with abottom in payroll
losses
' 63 '64 '65 '66 '67 '68 '69 '70 '71 '72 '73 '74 '75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05'06 '07 '08 '09200
400
600
800
1,000
1,200
1,400
1,600 3%
4%
5%
6%
7%
8%
9%
10%
11%
Unemployment Rate Total, Percent, SA - United States (Right)New Residential Sales, New Houses Sold, Total, SA - United States (Left)
Recession Periods - United States
Investors are generally7-8 months and 60% too
late when waiting forunemployment to peak
Source: US Bureau of Labor Statistics; US Census Bureau. Source: US Bureau of Labor Statistics; US Census Bureau.
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Goldman Sachs Global Investment Research 4
Recent CA trip supports our Attractive view
In mid-September we hosted two days of meetings with homebuilders, community banks, and distressed real estate fund
managers in California and we came away more encouraged with the residential landscape in the state. Phrases like the worst is
well behind us and things remain encouraging capture the mood of the many constituents we met with on residential real estate
(the mood was much more negative on commercial real estate).
The continued recovery in California housing, in the face of expired state stimulus, is encouraging for the entire US. Californias
$10,000 tax credits for new homes exhausted in early July but there has not been a significant fall off in housing activity in the state.
The cause for continued strong sales is affordability as prices remain at multi-year lows and interest rates hover near 5.25%. While
we now expect an extension of the federal tax credit, it has been encouraging to the see the California sales resilience without it in
the unlikely chance that an extension does not occur or the credit is allowed to lapse before being reinstated.
The positive tone on the residential side of this trip bodes well for KB Home given its 25% exposure to the state of California. That
said, we still maintain our Sell rating given: (1) KB Homes exposure to Las Vegas, which remains a very soft market, and (2) the
stretched relative valuation.
Exhibit 5: The continued strength in California activity post the expiration of the state tax credit is encouraging for the entireUS; While we expect a federal tax credit extension the lack of a hangover effect in California where the stimulus was moredirect and stimulative bodes well for the nationComparison of CA stimulus vs. the federal stimulus
California tax credit Federal Tax credit
Type of buyer Only owner-occupants First-time buyers andowner-ocuupant
Value of credit $10,000 $8,000
Use of other credits Could use both CA credit Noneand federal credit
Income Limits No income limits Less than $95,000
Expiration Only 10,000 available 12/1/2009Exhausted in early-July
Source: Goldman Sachs Research estimates.MultifamilyInvesto
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Goldman Sachs Global Investment Research 5
Valuation
While homebuilder stocks have more than doubled from the November 2008 lows (S&P 500 up 80% from its lows), the stocks
remain 73% below their 2005 peaks (S&P is 33% below its peak). We do not expect to see 2005 levels at any point in the near future
but we do believe that there is an excess of 50% long-term value in this group as shares are trading at about 1.1X tax adjusted book
value versus the long-term average of 1.6-1.7X. We primarily look at three criteria to judge valuation for the group:
Price to book. We look at our proprietary distressed book value analysis and current book value (after adjusting
for deferred tax assets). The group is trading near 1.5X on distressed book, suggesting 10%-15% near-term upside,
and under 1.1X on tax adjusted book, suggesting in excess of 50% upside longer-term.
Normalized earnings. In our normalized earnings estimates we assume 800,000-850,000 new home sales, pre-
bubble, pre-tax profit margins, and 35% tax rates. The group is trading near 9X our normalized earnings estimates.
When we put a 0% tax rate into our normalized models the group is trading near 6X, providing plenty of upside for
the group as profitability return in aggregate.
Default scenarios. We think default scenarios are quite low given that credit markets are open to builders.
Price to Book
Exhibit 6: Our distressed book value suggests near term upside of 10%-15%Price to distressed book value vs. long-term price to book multiples
Exhibit 7: Tax adjusted book values suggest further excess of 50% upsidefor the group longer-termPrice to book value (adjusted for deferred tax assets since 2007)
2.83
1.421.36
1.28
1.51
1.24
1.49 1.45 1.42
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
NVR MDC KBH TOL DHI RYL HOV MTH LEN
1.1X
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
P
ricetoBookValue
Average: 1.6X
Source: FactSet; Goldman Sachs Research. Source: FactSet, Goldman Sachs Research.MultifamilyInvesto
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Goldman Sachs Global Investment Research 6
Normalized Earnings
In our view, homebuilders that will exist on the other side of the current downturn should be valued on normalized earnings, at
least in part. Today the group trades at 9X our normalized earnings forecasts, but at only 6X our normalized earnings forecast if we
input 0% tax rates instead of the 35% tax rates we currently use. Employing 0% tax rate makes some sense because homebuilders
will not pay cash or GAAP taxes over the next cycle. As a result of the $25 bn in losses from 2007-09 the group has built up nearly$10 bn in deferred tax assets that will offset profits for an average of 10 years.
From a multiple standpoint we think the 12-15X range will likely prevail as builders return to strong profitability.
We view Housing turnover as one of the best ways to detect the relative health of the US housing market. By our calculation,
homes should transfer hands once every 21 years (4.7% turnover) vs. todays transaction pace of 24 years and the unsustainable
2005 pace of 15 years. To determine our normalized level of new homes sales we expect a 21-year turnover pace with new home
sales capturing 15%-16% share of total homes sales; this is 800,000-850,000 new home sales per year.
Our gross margin estimates are consistent with 1997-2003 profitability, as we believe that 2004-2006 profitability was inflated. For
operating expenses we take an arithmetic ten-year average which generally includes one overly cost efficient year during the
bubble (2005) and one overly harsh year as cost cutting did not keep up with sales declines (2007).
Exhibit 8: Homebuilders trade at 9X normalized earning which isfavorablePrice to normalized earnings (35% tax rates)
Exhibit 9: however, the group is trading at 6X earnings if the we bake in0% tax ratesPrice to normalized earnings (0% tax rates)
3.6 X
6.4 X
7.8 X
9.1 X9.4 X 9.3 X 9.4 X
9.8 X
12.2 X
14.1 X
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
HOV MTH KBH PHM TOL LEN NVR DHI RYL MDC
Group is trading at 9Xnormalized earnings we
utilize 35% tax rates
2.4 X
4.1 X
5.1 X
5.9 X 6.0 X6.0 X 6.1 X
6.4 X
8.2 X
9.1 X
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
HOV MTH KBH PHM TOL LEN NVR DHI RYL MDC
Group is trading at 6Xnormalized earnings if weincorporate 0% tax rates
Source: FactSet; Goldman Sachs Research. Source: Goldman Sachs Research.
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Goldman Sachs Global Investment Research 7
Exhibit 10: Homebuilders have traded between 5X and 20X earnings depending on the cyclePrice to FY1 earnings (1988-2005)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
The stocks traded in the range 5-10Xfrom 1999 to 2005 as investors
assumed that earnings were peakingeach year given the high growth in the
industry
The stocks traded in the range 8- 20X
from 1992 - 1998 on the back of theearly 1990s housing crisis
Source: Goldman Sachs Research estimates.ltifamilyInvestor
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Goldman Sachs Global Investment Research 8
Credit markets are open to homebuilders, limiting default risk for now
Ultimately we take a probabilistic view of homebuilder valuations and put little weight on default scenarios across our group. So
long as the credit markets remain open to homebuilders, we think the risk of zeros across the group is limited. Since April we have
seen 9 successful debt placements. Additionally, credit spreads continue to grind tighter, reflecting both signs of housing
stabilization and a broader credit market rally.
Exhibit 11:Credit spreads continue to shrink, suggesting the credit marketsare favorable for homebuildersCredit spreads, bp
Exhibit 12:Nine new debt deals have successfully been placed, helping toalleviate balance sheet stress for homebuildersNew debt issuances for homebuilders
0
200
400
600
800
1,000
1,200
1,400
Sep-08 Dec-08 Mar-09 Jun-09 Sep-09
Spreads,
bp
CTX LEN PHM DHI RYL MDC TOL KBH MTH
Issuer
Announcement
Date Maturity Rating
Amount
issued ($, mn)
TOL 4/13/2009 10/15/2017 Ba1/BBB- 400LEN 4/23/2009 6/1/2017 B3/BB- 400RYL 4/30/2009 5/15/2017 Ba3/BB- 230DHI 5/7/2009 5/15/2014 Ba3/BB- 500HOV 5/27/2009 5/1/2017 CC/B+ 29KBH 7/23/2009 9/15/2017 B1/BB- 265BZH 9/3/2009 10/15/2017 B1/CCC+ 250TOL 9/15/2009 11/1/2019 Ba1/BBB- 250
SPF 9/10/2009 9/15/2016 Caa1/CCC 280
Source: Goldman Sachs. Source: Bloomberg.ltifamilyInvestor
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Goldman Sachs Global Investment Research 10
Raising homebuilder target prices as we revise our Distressed Book Value analysis
We are raising the median six-month target by about 25% and see 10%-15% upside to the group from current levels. Our
new target prices reflect higher distressed book value estimates as sales have picked up, prices remain stable, lower
writedowns are ahead, and now we see a discrepancy between our and consensus expectations for housing tax creditextension. Previously we had assumed that trough book for homebuilders could reflect a 15% reduction in home prices and
a 30% cut to land prices these estimates reflected a 2008-2010 home pricing environment similar to what had happened
predominately in 2008. We have now decreased our distressed assumptions for inventory to an incremental 5% reduction in
home prices and a 10% cut to land prices.
Exhibit 14: Our new target prices suggest 10%-15% upside to the group over the next six monthsOverview of six-month target price. Closing price as of September 22, 2009.
New Target Old Target Current Price
New Up/down
side Old vs. New RatingTax-adjusted
Book Distressed Book LT Average
New TargetPremium to LT
Average Target Current Price
DHI $17.00 $16.00 $12.45 37% 6% Conviction Buy 1.51 1.87 1.93 -22% 12.82 9.39
MTH $28.00 $22.00 $20.15 39% 27% Conviction Buy 1.40 1.65 1.19 18% 8.25 5.94
TOL $28.00 $25.00 $20.68 35% 12% Buy 1.54 1.89 2.27 -32% 12.03 8.89
MDC $41.00 $38.00 $36.58 12% 8% Buy 1.47 1.65 1.42 4% 15.38 13.73NVR $760.00 $555.00 $648.58 17% 37% Neutral 2.92 3.24 3.15 -7% 10.70 9.13RYL $26.00 $21.00 $22.59 15% 24% Neutral 1.28 1.56 2.01 -36% 13.38 11.62HOV $4.00 $2.15 $4.47 -11% 86% Neutral 0.41 1.17 1.69 -76% 3.55 3.97LEN $14.00 $7.00 $15.51 -10% 100% Sell 0.70 1.10 1.29 -46% 8.16 9.04
KBH $18.00 $12.00 $18.83 -4% 50% Sell 0.86 1.35 1.67 -48% 7.08 7.41
Average 15% 39% 1.15 1.53 1.63 -25% 10.2 8.8
Median 15% 27% 1.34 1.60 1.56 -32%
Six Month Target Price Implied Price to Book for New Targets Implied Normalized P/E
At our targets stocks remain at~30% below historic multiples
We see another 10-15% upside tothe group over the next six months
We expect the group to trade to ~1.2X tax-adjusted book
We expect the group to tradeat 10X normailzed earnings
Methodology: Our targets are based on distressed book value and normalized earnings
Risks: Downside is lower home prices or higher mortgage rates while upside is continued boost to confidence
Source: Goldman Sachs Research.ultifamilyInvesto
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Goldman Sachs Global Investment Research 12
We are raising our target prices as we believe that our new distressed book value analysis better reflects the economic reality of the
homebuilders. Previously we had assumed that trough book for homebuilders would reflect a 15% reduction in home prices and a
30% cut to land prices. We have now decreased our assumptions to assume a 5% reduction in home prices and a 10% cut to land
prices. As home prices have stabilized nationally, writedowns are currently less than 2% of inventory their lowest level since
impairments began in late 2006.
Summary of distressed book value adjustments:
Trim value of homes by 5% and land by 10% (was 15% and 30% previously).
Add back fair value of FAS 109 deferred tax valuation allowances assuming 10 year recovery period.
Value intangible assets at zero.
Value unconsolidated investments at zero.
Value un-owned inventory at zero.
Exhibit 16: Under our new assumptions the group has 10%-15% upsidePrice to distressed book value vs. long-term average price to book value
2.83
1.421.36
1.28
1.51
1.24
1.49 1.45 1.42
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
NVR MDC KBH TOL DHI RYL HOV MTH LEN
Source: Goldman Sachs Research estimates.
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Goldman Sachs Global Investment Research 13
We are Attractive on the group as valuation is still well below historical levels. The group currently trades at about 1.1X of book,
versus its long-term average of 1.6-1.7X. The current discount reflects the tenuousness of book values in a declining home price
environment which many investors fear will return. Today, however, we raise our target prices as we have gained more confidence
in book values following the more muted inventory writedowns homebuilders are taking today and the stability we see in home
prices. That said, we still employ our distressed book value analysis because builders will not turn profitable for 2-6 quarters,
suggesting modest downside to current book value.
Exhibit 17:Homebuilders have traded at 1.6-1.7X book over the last 35years but trade at 1.1X of tax adjusted book todayPrice to book value (adjusted for FAS 109 deferred tax assets from 2006-present)
Exhibit 18:We are gaining more confidence in book value as inventorywritedowns are tracking at their lowest levels since they began in late 2006Inventory writedowns as a % of beginning inventory
1.1X
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
PricetoBookValue
Average: 1.6X
2.7%
2.2% 2.3%
7.6%
11.6%
6.1%
7.4%
3.8%
8.5%
6.2%
5.6%
3.7%
0.6%
0%
2%
4%
6%
8%
10%
12%
14%
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Source: FactSet, Goldman Sachs Research. Source: Company reports, Goldman Sachs Research estimates.ultifamilyInvesto
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Goldman Sachs Global Investment Research 14
Framework: Biased toward homebuilders that have a higher chance of profitability
The homebuilders trade very closely together over a long period of time. Over the last 3 years, though, the correlation has slipped
as some public builders have gone bankrupt and others still face balance sheet pressures. As we look forward we are looking to
homebuilders that have a greater chance of returning to profitability as the better investment vehicle as housing recovers. Wemeasure four criteria to determine the ability of a homebuilder to turn a profit soon:
Strong balance sheet We prefer homebuilders with low net debt to capital ratios, less short-term debt maturities
and/or strong cash flow potential such that they can finance growth.
Strong cost control Homebuilders with low SG&A as a percent of revenue have a stronger potential for profit
Low potential for further writedowns Higher gross margins (in the double digits) or low inventories are favorable.
Low risk of negative surprise Off-balance sheet joint ventures are likely to weigh on profits even as sales recover.
Exhibit 19: There are 4 keys to a return to profitability that we measure Our 4 Buy ratings are in the top fundamental group
(1) Strong Balance
Sheet
(2) Strong Cost
Control
(3) Low potential for
further writedowns
(4) Low risk of
surprise
Criteria Assessed Higher scoring homebuilders
DR Horton (DHI) X X X(1) Strong Balance Sheet MDC Holdings (MDC)Low net debt/capital, extended maturities, strong cash Meritage (MTH)flow potential - all providing ability to f inance growth Toll Brothers (TOL) X X X
(2) Strong Cost Control Middle of the packGross margins that are already high or SG&A that is Ryland Group (RYL)reasonable given current sales pace Pulte Home (PHM)
KB Home (KBH)
(3) Low potential for further writedowns
Limited inventory or current margins that are well intoou e g s Low scoring homebuilders
Hovnanian (HOV) X(4) Low risk of surprise Lennar (LEN)Limited joint ventures and other off-balance sheet financing
Profile Scoring
Note: We broadly group the homebuilders into 3 groups. These are not meant to replicate our ratings as valuation is not considered here. Within each group we are not
differentiating here company names are merely in alphabetical orders
Source: Goldman Sachs Research.ultifamilyInvesto
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S b 2 2009 A i B ildi H b ild
The Goldman Sachs Gro p Inc Global In estment Research
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Exhibit 22:Meritage has strong cash flow potential relative to its balancesheet sizePercent of total debt that could be paid down with spec homes
Exhibit 23:Meritage has no debt maturing until 2014 and $400 mn of cashMeritage is in a solid balance sheet positionDebt maturity schedule ($ mn)
13.0%
10.5%
6.9%
5.6%
4.3%4.0%
2.9%
2.0%1.6%
1.1%
0%
2%
4%
6%
8%
10%
12%
14%
DHI MTH TOL RYL LEN CTX PHM MDC KBH HOV
Percentofdebtthatcouldbepa
ydownwithsellingfinishedspecunits
2009201
0201
1201
2201
3201
4201
5201
6201
7201
8201
9202
0202
1202
2202
3202
4202
5202
6202
7202
8202
9+Perp
0
50
100
150
200
250
300
350
Very favorablematurity schedule
Source: Company filings, Goldman Sachs Research. Source: FactSet.
The Goldman Sachs Group, Inc. Global Investment Research
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Exhibit 26: DHI is poised to generate strong cash flow from the sale of itssufficiently large inventory of finished, unsold homes (specs)Cash flow potential from finished, unsold homes ($ in millions)
Exhibit 27: DHI could pay off 13% of the face value of it debt by simplyconverting spec homes to cashCash flow potential from finished, unsold homes (as % of debt balance)
437.7
187.9
154.3141.4
127.2
69.1 63.348.4
27.6 22.1 20.6
0
50
100
150
200
250
300
350
400
450
500
DHI PHM TOL LEN CTX NVR MTH RYL KBH HOV MDC
13.0%
10.5%
6.3% 6.3%
5.6%
4.8%
4.0%
2.0%1.6%
1.0%
0%
2%
4%
6%
8%
10%
12%
14%
DHI MTH TOL PHM RYL LEN CTX MDC KBH HOV
Percentofdebtthatc
ouldbepaydownwithsellingfinishedspecun
its
Source: Company filings, Goldman Sachs Research. Source: Company filings, Goldman Sachs Research.
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Appendix
Exhibit 28: Mortgage spreads over the 10-year treasury are in-line with history; without a disruptive lift in treasury yields webelieve that mortgage rates will remain low
Mortgage Rates and Spreads
'70 '71 '72 '73 '74 '75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '094.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
0bps
100bps
200bps
300bps
400bps
500bps
600bps
Conventional mortgage ra te, NSA - United States (Left)(Conventional mortgage rate, NSA - United States - Yield on 10-year Treasury bonds, NSA (pct.)) * 100 (Right)
Spreads(RHS)
Mort. Rates(LHS)
Mortgage
Rates
10 yr
Spreads2000s 6.14 182.751990s 7.91 150.071980s 12.35 203.641970s 9.39 143.86
Current 5.35 166.00
Average 8.95 170.08
Mortgage 10 yr
Rates Spreads
2000s 6.14 182.751990s 7.91 150.071980s 12.35 203.641970s 9.39 143.86
Current 5.20 179.41Average 8.95 170.08
Source: FactSet, Goldman Sachs Research.ultifamilyInvesto
r.com
September 24, 2009 Americas: Building - Homebuilders
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Goldman Sachs Global Investment Research 20
Exhibit 29: New home sales are at levels that historically signal a great
time to invest in the homebuilders
New homes sales (1963-present)
Exhibit 30: On a population adjusted basis new home sales remain well
below previous cyclical troughs
New home sales/total households
'63 '65 '67 '69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '090
200
400
600
800
1,000
1,200
1,400
1,600
ThousandsofNew
HomesSold
(1-Peak)
11/1965
616 homes
(1-Trough)
2/1970
373 homes39% decline
over 4+yrs
(2-Peak)
10/1972
843 homes
(2-Trough)
1/1975
416 homes51% decline
over 2+yrs
(3-Peak)
10/1978
872 homes
(3-Trough)4/1982
339 homes
61% decline
over 3+ yrs
(4-Peak)
3/1986
880 homes
(4-Trough)
1/1991
401 homes
54% decline
over 4+yrs
(5-Peak)
12/1993
812 homes
(5-Trough)
2/1995
559 homes
31% decline
over 1+yr
(6-Peak)
11/1998995 homes
(6-Trough)
9/2001
853 homes
14% decline
over 2+yrs
(7-Peak)
7/2005
1367 homes
July 2009:433K
New Home Sales - United States Recessi on Periods - United States
New home sale are stillat very low levels
despite the 40% pickupYTD
Source: US Census Bureau.
0.29%
0.43%0.41%
July 09:0.36%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Population adjusted newhome sales are still below
previous troughs
Source: US Census Bureau.
Exhibit 31: More homes are being sold than started - inventory is improving
New home sales minus housing starts for sale
Exhibit 32: Valuation is very attractive for the group
Price to book (adjusted for deferred tax assets since 2007)
'7 1 '72 '73 '7 4 '7 5 '7 6 '77 '78 '79 '8 0 '8 1 '82 '8 3 '84 '8 5 '8 6 '87 '88 '89 '9 0 '9 1 '9 2 '93 '94 '9 5 '9 6 '97 '98 '9 9 '0 0 '0 1 '02 '03 '0 4 '0 5 '0 6 '07 '0 8-30
-20
-10
0
10
20
30
40
(MOV1Y) Housing Starts ByPurpose a nd Design, 1 unit, built for sale, total, Number of - United States - New Home Sales Total, Number of - United StatesRecession Periods - United States
Under-Building
Over-Building
Source: US Census Bureau.
1.1X
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
PricetoBookValue
Average: 1.6X
Valuation remainsattractive
Source: FactSet; Goldman Sachs Research.
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