Table of Contents
Prior Stock Rallies Have Been Stronger.................................4
Demand Likely to Recover Over Next 24 Months ..................6
Starts, New Home Sales Remain Near Record Lows, With Starts Also Below 3Q08
Levels..........................................................................................................................6
Starts to Household Ratio Also At Historical Low ......................................................7
Housing Has Historically Improved with Recovery in GDP Growth, Absent Job
Gains and Confidence..................................................................................................8
Builders Now Poised For Return To Volume Growth..........10
Return to Positive Order Growth a Positive Catalyst.................................................10
Share Gain Opportunity Appears Greater Vs. Last Cycle..........................................12
Lastly, Volume Growth Should Drive SG&A Leverage ...........................................13
Supply Still an Issue, However, More Manageable..............15
Regionally, Supply Down Solidly Across Many Key Markets..................................15
And While National Levels Remain High . . . ...........................................................18
. . . We Believe REO Risk Could Remain Contained . . . ..........................................18
. . . While 2H Seasonal Declines in Supply May Provide Some Relief .....................19
Pricing’s Precipitous Drop Now a Positive Catalyst ...........21
Affordability Near Record Highs . . ..........................................................................21
. . . While Cost to Own at Only a Modest Premium vs. Renting; Current Levels Near
Record Lows..............................................................................................................23
Moreover, Builders Better Positioned to Compete in Current Market.......................24
Lastly, We Believe Impairments Are Nearing Their End..........................................26
Risks to a Recovery ...............................................................28
Valuation: Upside on a P/B Basis .........................................30
While Valuations Appear Full, If Not Stretched, on a Normalized EPS Basis . . .....30
. . . P/B Should Remain the Primary Valuation Metric Over the Next Two Years, and
Therefore, Solid Upside Remains ..............................................................................31
Stock Selection.......................................................................33
J.P. Morgan Building Universe..............................................35