North America Housing - Part 1
Our combination of successful land investment,
efficient build processes, tightly controlled overhead
costs and strong customer focus positions us well for
recovery in the US.
- Sheryl Palmer, President and CEO, North America Housing
North America housing market
As I highlighted in the market risk factors of my report last year, the US Federal Government's Homebuyer Tax Credit was withdrawn at the end of April 2010. As expected this led to volatility in the US housing market, with homebuyers who might otherwise have purchased later in the year accelerating their decisions in order to qualify.
As a result, after an encouraging first quarter, the US housing market softened in the second quarter and into the third quarter. We saw stability at lower levels as the autumn progressed and this stability continued through the fourth quarter of 2010.
Looking beyond the distorting impact of the Homebuyer Tax Credit, the underlying position remains encouraging. California, Texas and Florida remain three of the top four States by population in the US and Texas, Colorado and Arizona remain amongst the fastest growing States by population.
Affordability levels remain exceptionally good, and have increased in many of our markets. The affordability ratio (which represents the percentage of households that can afford to buy the median price home) is now above 60% in California, which is traditionally the least affordable of our markets. Affordability levels are above 70% in both Texas and Colorado, and above 80% in both Florida and Arizona.
Delinquency levels, which reflect the number of mortgages in arrears by more than 60 days are also showing an encouraging trend in many of our markets. The data shows sharp falls in Texas, California and Colorado, with the level remaining broadly flat in Arizona and rising in Florida. However, legal challenges in a number of States relating to foreclosure procedures employed by banks led to a number of moratoria on foreclosures and potential distortions in the trend. Due to the more conservative approach to mortgage lending in Canada, the market there does not suffer from the risk of rising foreclosure levels.
Construction starts have stabilised at low levels, with the number of new single family homes started in 2010 estimated at 470,900, slightly up on the 2009 level of 445,100, but significantly below the 622,000 starts in 2008. Despite the low level of starts, inventory levels have risen in all of our markets.
The Case-Shiller Home Price Indices show price falls for the year across many metropolitan areas, although there continues to be widespread geographical variation. Markets in California show price increases over the year, but declines are recorded for Colorado, Florida, Texas and Arizona.
Market conditions in Canada remain strong, assisted by the more robust economic environment. House prices in both Toronto and Ottawa show continued growth over the course of 2010 and housing starts have also increased.
Financial review
Our North American Housing operations generated revenue of £835.6 million (2009: £824.3 million), with the reduction in home completions being offset by increased average selling prices driven by mix changes in the US and price growth in Canada.
Operating profit* was £93.8 million (2009: £48.1 million), with strong growth being delivered in both the US and Canada. The operating margin also rose sharply to 11.2% from 5.8% in 2009.
Exceptional items were £7.5 million (2009: £79.8 million). We conducted regular reviews of the carrying value of our land portfolio during 2010 and have recorded further write-downs of £7.5 million at the year end, primarily relating to a specific long term site in California.
Net operating assets in North America were £612.7 million (2009: £558.1 million).
* Profit on ordinary activities before finance costs, exceptional items, brand amortisation and tax, after share of results of joint ventures.
Key market drivers
- Cessation of Homebuyer Tax Credit programme distorted sales patterns during 2010.
- Record levels of affordability in some markets.
- Widespread geographical variation in house price trends.
Market risk factors
- Continuing restrictions on credit availability.
- Changing economic environment leading to increasing interest rates or unemployment.
- Increased levels of foreclosures.
- Increasing levels of inventory in some markets.
- Impact of government actions on mortgage interest deduction, mortgage regulation and government sponsored enterprises such as Freddie Mac.
- Interest rate rises in Canada impacting on affordability.
Taylor Morrison operational highlights
- 44% of our land portfolio is finished lots, which do not need further development.
- Sites acquired in 2008-2010 performing strongly.
- Increased asset turn to 1.5 times (2009: 1.3 times).
