NEW YORK (Reuters) - More home builder bankruptcies could be on the horizon if the housing market does not significantly improve, said Pulte Homes Inc (PHM.N: Quote, Profile, Research, Stock Buzz) Chief Executive Richard Dugas at the Reuters Real Estate Summit on Monday.
"If home building stays at a very low level for a very long period of time, companies that have increased their debt load still have to service that," said Dugas.
While the housing market has shown signs of stabilizing, growth is still far off.
The Mortgage Bankers Association, a U.S. mortgage industry group, said on Monday it expected 2009 new home sales to tumble 27 percent from the previous year, to 352,000 units.
If home sales remain soft, companies will struggle to pay or refinance their debt, potentially pushing more into bankruptcy court, said Dugas.
"All the builders like WCI that have had difficulty. It's because of the debt imbalance relative to their overall business prospects," said Dugas.
Luxury home builder WCI Communities Inc (WCIMQ.PK: Quote, Profile, Research, Stock Buzz) filed for bankruptcy in August after failing to obtain financing that would allow it to continue operating.
"You have seen some builders struggle, you have seen them come close to bankruptcy," said Dugas. "You could see some difficulties depending on how long the market stays tough."
Still, he said, the collapses won't be as widespread as during the previous economic downturn.
The average home builder in the last major downturn of 1990 and 1991 had a 70 percent debt-to-capital ratio, while most home builders now are in the 40-to-50 percent range, he said.
"I think we learned some good lessons," said Dugas.
"Toll Brothers Inc (TOL.N: Quote, Profile, Research, Stock Buzz) is in fabulous shape," he said. "They've got a lot of cash. Pulte is in similarly strong shape."
(Reporting by Chelsea Emery; Additional reporting by Phil Wahba; Editing by Richard Chang)
© Thomson Reuters 2009. All rights reserved.
| Global Finance | Nov 16 - 19, 2009 | Financial Services / Exchanges |
| Health | Nov 09 - 12, 2009 | Health |
| Autos | Nov 02 - 4, 2009 | Autos |
| Middle East Investment | Oct 26 - 28, 2009 | Country Summits |
| Washington | Oct 19 - 21, 2009 | Country Summits |
