Will merger of homebuilders help?
Housing company stocks soared after two home building giants announced a merger. But the housing market is still struggling in the short run. So is the money being spent worth it? Mitchell Hartman reports.
A new Pulte Homes Inc. subdivision in Novi, Mich. (Bill Pugliano/Getty Images)
More on Housing - Real Estate, Mergers/Acquisitions
TEXT OF STORY
Kai Ryssdal: There was a very big deal in the housing industry today. Pulte Homes out of Bloomfield Hills, Mich., is buying Dallas-based Centex. It's a $1.3 billion acquisition that will make Pulte one of the biggest homebuilders in this country. It's paying 38 percent more than Centex was worth at the close of trading yesterday, which would tell you that Pulte thinks the purchase can make it some money in the long run. But in the short run, there is still the reality of the American housing market circa 2009. Marketplace's Mitchell Hartman reports.
MITCHELL HARTMAN: Most of the news from the housing market has been dismal lately. Nigel Gault is chief U.S. economist for IHS Global Insight. He says cheap foreclosed homes continue to flood the market.
NIGEL GAULT: We had a one-month uptick in the new-home sales, but the basic picture for new homes has been clearly worse.
So why would Pulte Homes want to increase its exposure and pay top dollar for rival Centex? Well, first, it'll save money -- $350 million a year, according to the companies. Bernie Markstein is senior economist with the National Association of Homebuilders. He says mergers lower costs.
BERNIE MARKSTEIN: You may not need as many back-office people, and of course what we have at this point is fewer sales, and you're doing less construction.
When construction does pick up, the company will be poised to grow. It'll have $3.4 billion on hand. Gary Painter directs research at the USC Lusk Center for Real Estate. He says cash is a good thing to have right now.
GARY PAINTER: Because there's not the same sort of credit available that there obviously used to be, it'll put them in a position to acquire inventory of land for the long term.
And acquiring land in the right places -- for the right buyers -- will make all the difference, Painter says.
PAINTER: Where the growth in terms of the population is going to be: from immigrant children becoming first-time homebuyers. And then you're going to see the Baby Boomers who are starting to cross into retirement age.
Here, the merged company is sitting pretty. It'll be strong in starter homes and retirement communities. And it'll have lots of land in Texas and North Carolina, growing Sunbelt states with plenty of immigrants and retirees.
I'm Mitchell Hartman for Marketplace.
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04/08/2009
It seems that every merger is a good thing on Marketplace. We all know mergers lower costs. But they are cause layoffs and they also reduce competition. Oh, God, How I love competition.
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