Profit at Home Builder NVR Skids 60%

The worst housing market in decades has caught up with Reston-based home builder NVR, which yesterday reported that its profit plummeted 60 percent in the third quarter as new home orders dropped and fewer mortgage loans were made.

The company said profit was $36.6 million ($6.12 per share) for the quarter ended Sept. 30, compared with $91.1 million ($15.26) in the third quarter of 2007.

NVR is one of the few publicly traded national home builders to not take a loss during the most recent housing slump. It operates in 12 states and 22 metropolitan areas under multiple brand names, including NVHomes, which offers high-end houses, and Ryan Homes, which has a broader range of prices. Fox Ridge Homes and Rymarc Homes, two other brands, target first-time buyers.

The steep decline in earnings could be a harbinger of continued rough times for the industry, Wall Street analysts said.

"They are one of the few builders that is profitable, and they have a strong balance sheet, but we think the pace of new orders and new sales will continue to decline for the next few quarters," said Kenneth Leon, an analyst with Standard & Poor's Equity Research. "Having a higher concentration in the mid-Atlantic states, it is not the worst area to be in, but certainly one exposed to further weakness or unemployment coming from the financial services industry."

NVR said third-quarter sales declined 27 percent, to $939.2 million, compared with $1.29 billion last year.

In a statement, the company attributed the declines to "high levels of new and existing home inventories, affordability issues, a tight mortgage lending environment and declining homebuyer confidence."

New home orders were down 25 percent, to 2,002 units, compared with 2,660 units in the third quarter of 2007. The company's cancellation rate remained high, at 24 percent, as potential home buyers struggling to get financing backed out of deals, though that rate decreased slightly compared with the 27 percent in the third quarter last year.

A major factor keeping NVR above water has been its ability to avoid taking the sort of write-downs faced by other home builders.

The company emerged from bankruptcy in 1993 following the last real estate downturn and committed itself to a strategy of not owning land outright until it is ready to build, taking options to buy instead.

The top 13 public builders had written down a total of about $25.5 billion worth of assets from the start of 2006 to the second quarter of 2008, fueled mostly by falling land values, according to Leon. Of those, NVR had written down assets of about $427 million, the least of the group.

The company added to that total yesterday, saying it had written down the value of its land deposits by about $43 million in the third quarter, compared with $97 million in the corresponding period a year ago.

Operating income from the company's mortgage-banking operations decreased 76 percent in the quarter, to $4 million, compared with $16.8 million in the same period of 2007.

The company has also not been immune to the tight credit markets. It canceled plans to raise $325 million in bonds in September.