Analysts at Deutsche Bank believe that nearly 4 to 5 percent builder volumes in the US could be affected by reductions in loan limit. Loan limits for both Government-Sponsored Enterprise or GSE and Federal Housing Administration or FHA will decrease on October 1, 2011 in some parts of the US. Analysts believe that the effect of loan limit reductions is much higher on the FHA side than the GSE side.
DB analysts state that any change in GSE affects 9.7 percent of builders' communities in California, while the FHA changes affect 19.8 percent of communities. They state that roughly 50 percent of builder volumes are FHA funded while 35 percent are GSE funded and total yields an overall 4 to 5 percent volume impact overall for the homebuilding group. They believe that the FHA changes would require a median 10 percent higher down payment in California, while the GSE changes would require 6 percent more. They state that the 4 to 5 percent volume impact is conservative because it implies that any loan that falls outside of the new limit will simply lead to a sales loss. They add that since homebuilder mortgages disclosures are insufficiently detailed, the exact gauge differential impact of the loan limit changes by builder cannot be calculated. They state that companies including MDC Holdings Inc. (NYSE: MDC), Standard Pacific Corp. (NYSE: SPF) and Toll Brothers Inc. (NYSE: TOL) are highly exposed, while Ryland Group, Inc. (NYSE: RYL), Beazer Homes USA Inc. (NYSE: BZH) and D.R. Horton Inc. (NYSE: DHI) are relatively less exposed. They state that the risks in building and building products sector include a slower economy hurting job growth and consumer confidence.
On a year-to-date basis, MDC Holdings has a share performance of -39.15 percent, and as compared to Standard & Poor's 500, it has an YTD share performance of -35.07 percent. Standard Pacific has an YTD share performance of -50 percent, and as compared to S&P's 500, it has an YTD share performance of -46.66 percent. TOL has an YTD share performance of -15 percent, and as compared to S&P's 500, it has an YTD share performance of -9.32 percent. RYL has an YTD share performance of -37.99 percent, and as compared to S&P's 500, it has an YTD share performance of -33.85 percent. BZH has an YTD share performance of -70.69 percent, and as compared to S&P's 500, it has an YTD share performance of -68.73 percent. DHI has an YTD share performance of -20.20 percent, and as compared to S&P's 500, it has an YTD share performance of -14.86 percent.
Shares of MDC were down 6.21 percent or $1.13 to trade at $17.08. Shares of Standard Pacific fell 9.47 percent or 23 cents to trade at $2.20. Shares of Toll Brothers lost 6.78 percent or $1.13 to trade at $15.53. Shares of Ryland slipped 4.90 percent or 53 cents to trade at $10.28. Shares of Beazer Homes were down 12.98 percent or 24 cents to trade at $1.58. Shares of D.R. Horton lost 6.67 percent or 65 cents to trade at $9.09 in the closing session.