NVR, Inc. (NYSE: NVR) was one of the more popular names in the residential homebuilding market back during the real estate bubble. The company builds and sells single-family detached homes, town homes and condominiums while also providing mortgage banking services to help consumers finance their homes. Unfortunately, the double whammy of lower housing prices and falling mortgage valuations have taken their toll on NVR.
Research firm First American CoreLogic found that lenders and investors in mortgages owned about 660,000 foreclosed homes in April, which is up from 493,000 homes in January. This April total works out to about one in seven previously occupied homes available for sale nationwide. This surge in inventory has led to a sharp decline in housing prices, which has in turn led to even more foreclosures.
Most of the damage has been contained to key markets like Florida and Southern California; however, problems are beginning to spread into the previously-safe midwestern states as well. NVR's areas of business - the MidAtlantic and MidWest regions - are starting to feel the heat and so is the company. During its first quarter alone, profits fell to $43.5 million while new orders fell 30%. While this is less than most, it is a disturbing trend.
NVR executives have also been selling shares in recent months. Chairman Dwight Schar sold some 41,000 shares in May at around $610 a piece while Chief Executive Paul Saville sold 14,000 shares in late April. This lack of confidence by those close to the company is a clear sign to some investors that NVR may have a ways to fall before it rebounds. This is especially true since it just went public on January 2nd of this year.
NVR currently trades with a price-to-earnings multiple of just 11x earnings. However, even if we assume that the company sees no further downside (ie. earnings $7/share for the next three quarters), the forward P/E ratio immediately jumps to something closer to 20x earnings. Given the fact that other homebuilders have had problems remaining profitable, this may be a bullish assumption.
In the end, NVR remains one of the few profitable homebuilders as it operates in some markets that are least affected by the mortgage meltdown. However, whether or not they will be able to weather the storm entirely remains to be seen. In the meantime, many signs indicate that there may be better opportunities for investors elsewhere in the marketplace.
Shares of NVR Inc. dropped $13, or 2.24%, to $567.00 in early trading.
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