Pulte Homes (PHM) (NYSE:PHM) is a homebuilder. In 2009, the company sold 15,013 homes across 27 states in all regions of the country. Pulte targets first-time and move-up buyers, with most of its properties being single-family detached homes. At an average home selling price of $258,000, the company offers homes that are more expensive than the national median home price of around $210,000.
The company operates in a highly cyclical industry. New home construction, home prices and new home sales volume are heavily dependent upon job growth, interest rates, and the business cycle at large. Low interest rates and high job growth bode well for homebuilding, but as the recent subprime lending crisis and depressed housing market has illustrated, things can sour quickly and the business can be difficult to predict. Key homebuilding numbers, such as housing starts and existing home sales have continued to come in weak of late. Homebuilding is highly competitive and marked by few barriers to entry, low profit margins, and high financial leverage.
Since early 2006, the U.S. housing market has been unfavorably impacted by a lack of consumer confidence, tightened mortgage standards, and large supplies of resale and new home inventories and related pricing pressures. These factors have contributed to weakened demand for new homes, slower sales, and increased price discounts and sales incentives to attract homebuyers. All of these contribute negatively to PHM's revenues and net income. This could not posisbly have been more helpful!
The company competes against a highly fragmented base of other homebuilders. These companies may be national or local players and given the highly competitive nature of the industry, competition is stiff and often marked by low margins and low returns on capital. The company also competes for buyers with existing homes that have hit the market, and competes more broadly with other housing alternatives such as apartments and mobile homes.