Ernst & Young: Builders cautiously optimistic about housing industry

By Rob Starr, Content Manager, Big4.com

A new  Ernst & Young LLP survey, which polled private and public homebuilders, shows that nearly 85% expect their companies to break even or realize net income in 2012. This is a sharp increase over last year, when 71% of respondents expected to break even or better, and even more markedly optimistic than 2010, when 52% of companies polled expected to make a net loss on the year.

These chief financial officers and tax directors at more than two dozen major US homebuilders reveals cautious optimism that the single family home market is poised for another period of growth. Major impediments that were cited by respondents in the last two years: interest rates and the ability of buyers to obtain mortgage financing seem to have diminished, according to this year’s survey.

Respondents indicated that the West Coast, Texas and Southeast markets are expected to be the most profitable for most homebuilders this year. And when asked which markets they expected to be least profitable, most respondents chose the Southwest, West Coast, Midwest and Southeast, demonstrating how homebuilders can view some of the same markets quite differently.

More than 84% of the companies polled have a target debt-to-total capitalization ratio under 50%, with the overwhelming majority of these (74%) aiming for the 36% to 50% debt-to-capital range. Just 5% of respondents target debt-to-capital ratios above 50%. This is a dramatic change from the last two years, when about two fifths of respondents claimed to target a 36% to 50% ratio and one fifth aimed above 50%.