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US housing executives offload stock
By Peronet Despeignes in Washington
Published: August 28 2002 22:59 | Last Updated: August 28 2002 22:59
Executives across the US home-building industry have been selling shares in their companies at a record pace this year, suggesting they believe the country's housing market has peaked.
Data compiled for the Financial Times show that corporate officers and board members in publicly traded US building companies sold a record $258m-worth of shares more than they bought in the second quarter.
It is the largest net sale of stock in the industry in quarterly records going back to 1996, and was done either by exercising options or directly cashing in stock grants. In many cases, corporate officers have sold more than 50 per cent of their holdings over the past year.
"This is an anomaly," said Lon Gerber, a research director at Thomson Financial, the information services group, adding that in many industries such selling had fallen.
The selling went on while home sales, home values and builders' stock prices were surging. In addition, most stock analysts were maintaining buy recommendations and economists were debating whether the industry was experiencing a bubble effect.
Thomson Financial and The Washington Service, a consulting firm prepared the figures from corporate filings to the Securities and Exchange Commission. The data show that of the 16 homebuilders with the largest market capitalisation, seven had reduced their executive shareholdings by the largest amount seen in individual records going back two decades.
Executives at another three companies engaged in share selling well above their average in the last 30 days, according to Bernard Fulk, a senior analyst with The Washington Service.
Debate has intensified in recent months about whether the housing market, a mainstay of growth for the US economy in the past year, is a bubble that will gradually deflate or abruptly pop.
Policymakers such as Alan Greenspan, Federal Reserve chairman, have dismissed the speculation, saying home values are supported by low mortgage rates and land shortages.
Some analysts, however, fear home values may be increasingly fuelled by excess credit, a subsequent deterioration in lending standards and unsustainable expectations among prospective home buyers for more double-digit percentage gains. In some metropolitan areas, home prices have risen by more than 20 per cent over the past year.
David Seiders, chief economist for the National Association of Home Builders, said the group expected housing numbers "to top out sort of right around now - housing isn't going to be the big engine of growth forever - but we don't expect them to recede much".
Rise in the value of the average home by metropolitan
area (per cent change from 2001-Q2 to 2002-Q2)
Source: National Association of Realtors
Nassau-Suffolk, NY
29.6
Bergen-Passaic, NJ
24.7
New York-North NJ-Long Island, NY
22.3
San Diego, CA
21.3
Monmouth-Ocean, NJ
21.0
Washington, DC/ MD / VA
20.8
Providence, RI
20.7
Los Angeles-Long Beach, CA
18.0
Miami-Hialeah, FL
17.0
Anaheim-Santa Ana, CA
16.6
Source: National Association of Realtors
There are various explanations for individual sales of stock, including routine profit-taking.
However, Mr Gerber called the industry-wide trend disconcerting, adding that "the insider signal is generally one to two quarters ahead of turns in the stock price". He speculated that executives may be worried about the risk of a slowdown, if not a reversal, and were not waiting.
Homebuilder share prices have surged over the past year, outperforming most of the stock market, as mortgage rates have slid towards 30-year lows. But they have been volatile over the past few weeks, declining sharply in June and July before recouping some of their losses in August.
The great majority of the homebuilder stock analysts monitored by First Call analyst Chuck Hill have maintained “strong buy”, “buy” or “hold” recommendations. Only one, Barbara Allen of Arnhold and S. Bleichroeder, has recommended “sell”.
She told the FT that the bubble speculation was “a little bit stretched, but it does seem to me there's a little too much optimism, and that Mr Greenspan is doing us a disservice with some of the statements he's been making about homebuying.”
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