* Building product suppliers struggle to meet order backlog
* Lending to sector dries up, labor in short supply
* StarMine data shows shares could be overpriced
By Sagarika Jaisinghani and Siddharth Cavale
July 15 When marketing executive Vanessa Sobers
moved to Houston to take up a new job, she decided to buy her
That was four months ago. The former New York resident now
believes she will be waiting at least a year to move into a new
house as builders, short on materials, grapple with an expanding
backlog of orders.
"The inventory of houses here is so low, it's insane," she
U.S. homebuilders have booked higher orders for seven
consecutive quarters, but a shortage of building supplies means
construction is lagging demand.
A wider housing market recovery has yet to filter down to
regional building products makers - the companies that supply
the roofing, walls and interior fittings needed to build these
They are operating in a much tighter credit market, and with
workforces pruned during the recession triggered by the housing
market crash in 2007.
Analysts say the long road to recovery has already been
priced into the shares of these companies, some of which could
be overpriced having ridden the coat-tails of the wider housing
Shares of Masco Corp, which makes faucets, cabinets
and insulation products, are trading at around $20 - above the
intrinsic value of $14.98 measured by Thomson Reuters StarMine.
The StarMine model is a measure of how much a stock should
be worth currently when considering expected growth rates over
the next 15 years and adjusting for analysts' systematic biases.
"It's a really attractive industry from an economic
perspective but ... from a valuation perspective we find it less
attractive," said David Manger, a portfolio manager at AMI
Investments and a former Masco shareholder.
Fortune Brands Home & Security Inc, the maker of
Moen faucets and Master Lock padlocks, is trading above $40 per
share versus an intrinsic value of $26.94. Architectural stone
maker Headwaters Inc trades at about $9.45 versus $5.51.
Headwaters Chief Executive Kirk Benson says the South
Jordan, Utah-based company is "dramatically different" from the
outfit that employed 5,000 people before the recession. Today,
its workforce numbers about 2,300.
Despite high unemployment in the construction sector, many
former carpenters and masons are hesitant about returning to the
volatile industry after losing their jobs.
"Construction is not proceeding as fast as it might have had
there been an ample supply of labor," said Chad Crow, chief
financial officer at Builders FirstSource Inc. "I think
that will probably be the trend over the next year or two."
THE END OF EASY MONEY
Crow's company, a middleman between builders and suppliers,
is facing a particular shortage of oriented strand boards -
strands of wood bonded with wax, which are the most common type
of roofing material in the United States.
Twenty-two percent of homebuilders have reported a shortage
of these boards, a report published by the National Association
of Home Builders in June showed. ()
"In the past six months, we have had instances where we
wanted to buy more materials than the companies could sell us,"
Limited access to credit is also restricting the ability of
building products suppliers to raise production to meet demand.
Wary of a repeat of the reckless lending that led to the
last housing crisis, the U.S. Federal Reserve has imposed
tougher regulation that has made big banks reluctant to lend to
The recession, however, has also swallowed many of the small
regional banks that fed the building products sector pre-crisis,
said David Crowe, chief economist at the National Association of
A U.S. government report published last month said the
failure of banks with assets of $1 billion or less was driven
largely by credit losses on commercial real estate loans -
particularly those to finance land development and construction.
Between January 2008 and December 2011 - a period of
economic downturn in the United States - 414 insured U.S. banks
failed. Of these, 85 percent were small banks, the report said.
BlueTarp Financial, one of the few specialty lenders still
providing credit to housing product makers, does not expect
lending to recover any time soon.
"Until you know unequivocally that the housing market has
returned, you are going to be more reticent if you are a bank,"
BlueTarp Chief Executive Scott Simpson told Reuters. "Big banks
are not going to lead the field in lending."
For Sobers and other prospective home owners like her, the
wait will go on.