Double-Dip Alert: Foreclosure Pace Picks Up (TOL, DHI, NVR, LEN, PHM, MHO, RYL, BZH)

It appears that the slowdown in foreclosure filings has reached an end. Issues surrounding foreclosure processing, state foreclosure laws, and other court rulings are getting resolved and the pace of foreclosures picked up markedly in August.

According to online foreclosure tracker RealtyTrac, foreclosure filings topped 228,000 in August, a 7% jump over July filings.  One in every 570 US housing units is now in foreclosure. This puts even more pressure on new homebuilders like Toll Brothers Inc. (NYSE: TOL), D.R. Horton Inc. (NYSE: DHI), NVR Inc. (NYSE: NVR), Lennar Corp. (NYSE: LEN), PulteGroup, Inc. (NYSE: PHM), M/I Homes Inc. (NYSE: MHO), Ryland Group, Inc. (NYSE: RYL) and Beazer Homes USA Inc. (NYSE: BZH).

The builders have managed to stay afloat by cutting costs and shedding real estate and a myriad of other financial finagling, but they’re not making money building houses. And the more houses that are foreclosed, the weaker that housing prices get as banks are willing to take just about any reasonable offer to get rid of the foreclosed properties they own.

New default notices in August totaled nearly 79,000, up 33% since July and the largest one-month increase since August 2007. The peak month for notices of default was April 2009, when more than 142,000 notices were filed.

The well-publicized robo-signing issue and other documentation problems are finally being settled and there is plenty of reason to believe that more foreclosures will begin to work their way through the system. Freddie Mac has said that it expects the delay in filing foreclosures to last through the end of this year, but the August report could signal that the move is already on.

Just a month ago ratings on NVR, PulteGroup, M/I Homes, Ryland, D.R. Horton, and Beazer were raised at one research firm from ‘Sector Perform’ to ‘Outperform’. It’s difficult to understand why. What’s not difficult to understand is that the shares in these firms all jumped  by about 20%. Since then most of the companies have given it all back as reality takes over.

Lennar, which reports earnings on Monday, is expected to post EPS of $0.10 on sales of $810.2 million. Last year’s EPS in the same period was $0.16 and revenues totaled $825 million. The stock’s target price is $21.81 and it closed at $13.72 yesterday, an implied upside of nearly 60%. Anyone who believes that probably believes in the tooth fairy.

Paul Ausick