Public Home Builders Council of America Sees a Net Positive Impact on Homebuilder Growth Prospects in a Moderately Rising Mortgage Interest Rate Environment

Business Wire, April 21, 2004

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NEW YORK--(BUSINESS WIRE)--April 21, 2004

The Public Home Builders Council of America (PHBCA), which comprises 13 of the leading public homebuilding companies, issued the following statement regarding the impact of mortgage rates on the growth prospects for the nation's large public builders. PHBCA is a non-profit organization devoted to raising awareness and recognition for the expanding role that the public builders play as stable and growing providers of housing for millions of Americans.

"The April 2nd jobs report and recent Consumer Price Index (CPI) data have raised the possibility, among some economists, that the Federal Reserve may begin raising interest rates sooner than previously anticipated. This has led to discussion in the media about the growth prospects for public home building companies in an environment where a growing economy is accompanied by rising mortgage rates. While the PHBCA acknowledges the historical link between national new home sales and mortgage rate levels, the Council believes that this traditional macro-economic view of the national homebuilding industry fails to take into account the competitive advantages the large public builders have gained as a result of market consolidation, unmet housing demand, economies of scale and access to low cost capital.

"In the last 10 years, the growth of the public builders has outpaced the national new home market growth by 250% during a mortgage interest environment that reached 8.1% just three-years ago and, 8.4%, or 260 basis points higher than today's interest rates, in 1994. As the attached charts illustrate, market share of the top 20 builders has steadily increased over the last 10 years despite fluctuations in mortgage rates, while the level of homeownership has continued to climb even in periods of rising rates.

"The PHBCA believes that if interest rates were to rise to the highest levels experienced in the last decade, 8.4%, the economic environment that led to such an increase would have a net positive impact on the large public homebuilders for the following reasons:

-- The large public builders have demonstrated their ability to

grow through a rising interest rate environment by increasing

market share. The large builders have the geographic, segment,

and product diversity to enhance revenues along with

substantial purchasing power to contain costs, advantages not

available to the smaller builders. As a result, consolidation

by the large homebuilders of the smaller builders could

accelerate during this period of rising rates. A move up in

mortgage rates is usually the result of a more robust economy.

An improving economy and rising consumer confidence is good

for housing and would offset some of the negative impact that

rate increases might have on prospective homebuyer groups.

-- While the homebuilding industry has historically been

dominated by smaller builders subject to local, regional and

national economic factors such as interest rates, the large

homebuilders today are better prepared to withstand interest

rate rises. Over the past decade, the large public

homebuilders have become sophisticated, multi-billion dollar

businesses with broad national scope. Their diversity in

product, pricing and geographic markets has positioned them

well to meet future housing needs while reducing risks

associated with any single product or geographic market. Due

to government fiscal policy and land constraints, public

homebuilders have adopted a more prudent approach to balancing

housing supply and demand, while eliminating the speculative

building of the past.

-- The experience of the large, public homebuilders is that

people buy a home and not an interest rate. If interest rates

rise, homebuyers may switch from a slightly larger house to a

slightly smaller house or they'll choose a different mortgage

product. For instance, when interest rates rise, the

percentage of consumers that select an adjustable rate

mortgage rises, and today, there are many adjustable rate

mortgage options for homebuyers to choose from that offer

interest rates significantly below fixed mortgage rates.

"While no industry is completely insulated from macro-economic forces, large public homebuilders have demonstrated their ability to grow despite the impact short term variances, such as mortgage rates, have on their business. On average, PHBCA members have achieved a five year, compounded annual earnings per share (EPS) growth rate of more than 30 percent. This considerable record of growth occurred during a period of economic and financial market volatility, a national recession, a declining employment environment and geo-political turmoil.