Homebuilding looking up

originally appeared in Zacks Equity Research:

KB Home, one of the leading homebuilding companies in the U.S., recently acquired lands for 100 luxury homes in the sought after community of Playa Vista in Westside, Los Angeles. The construction of homes will start in spring.

The company intends to build three story detached homes of 2,800 square feet. The homes will have four bedrooms and three and half baths. The company also intends to build single floor condominium homes of 2,000 square feet with private elevator access for each home.

For simple or more complex bathroom remolding projects, consider an outstanding bathroom remodel grand rapids company that does quick, professional work.

Owing to its operational business model KBnxt, KB Home always begins construction only after a purchase agreement is executed. As such, the consumers buying KB homes in Playa Vista will get the liberty to plan their homes according to their preference.

This process also helps the company turn over its inventory more quickly than its peers, thereby supplying capital for reinvestment. In the long run, this reduces the risk of unsold inventory leading to higher returns on invested capital.

Playa Vista is one of the most sought after luxurious communities in Westside, Los Angeles. The acquisition of land in Los Angeles’ Westside is in line with KB Home’s strategic shift in its geographic footprint. The focus is to place the communities in highly desirable land-constrained submarkets that enable it to sell larger, higher-priced homes, thus driving a strong increase in average selling price.

The rising demand for new homes has led to a favorable situation in the housing market, where inventory levels are dropping and prices are moving up. The demand has been particularly strong for luxury homes. Toll Brothers, Inc., another leading luxury homebuilder in the US, has been witnessing strong overall growth over the past few quarters.

Therefore, building adequate number of new homes is necessary in order to maintain the required level of inventory to meet the growing demand for homes. Acquiring lots and lands in the Playa Vista community will help the company to capitalize on the increasing housing demand.

With housing market recovery gaining momentum, KB Home believes its strategic initiatives including overhead reduction, margin expansion, and land investments in higher-priced, better-located communities; and increasing backlog will help it achieve profitability in the upcoming quarters. Though we have faith in KB Home’s strategic initiatives, we believe that it may take time to achieve sustainable profitability as the housing market recovery process is erratic and uneven.

We currently have a Neutral recommendation on KB Home. The stock carries a Zacks #3 Rank (a short-term Hold rating).

Sales for Robot Auto-Mowers Surge

Europe’s backyards have become the latest front in the robot wars.

With a quarter of lawn owners saying they dislike mowing the grass, sales of machines that will do the job for them are taking off, especially in Europe where landscaping services are more expensive than in the U.S.

That has spurred a legion of manufacturers to challenge market leader Husqvarna AB. (HUSQB) Robert Bosch GmbH, Deere & Co. (DE) and Global Garden Products Italy SpA this year started offering robotic mowers, which Husqvarna sells for as much as 5,000 euros ($6,487). Honda Motor Co. (7267) plans to enter the fray in 2013.

 Thomas Olsson, head of Swedish operations at privately owned Global Garden Products said they had to get on board.

The market for hands-free mowers, which expanded by more than 30 percent last year, offers a rare bright spot in Europe’s consumer climate. The European market may grow as much as 20 percent annually over the next five years, Olsson said. Most of the customers are in Sweden, Germany, France and Switzerland -- countries that have so far proven resilient to the debt crisis.

Demand for the garden robots has exploded the last couple of years, said Mats Gustafsson, owner of Moheda Jarnhandels AB, a hardware store in the southern Swedish town of Moheda. Gustafsson said he’s sold almost 60 robomowers this year, compared with fewer than 10 five years ago.

European Boom

Henric Andersson, head of product management and development at Husqvarna said robotic auto-mowers are still a niche market in Europe but growing incredibly fast in other markets, and that with time may be as big or bigger than regular mowers in some countries.

Six percent of all mowers sold in Germany are now robotic, and the country’s automatic mower market is growing in “double digits,” according to research company GfK Retail and Technology GmbH.

Husqvarna, the former Electrolux AB unit that produced the first robotic mower in 1995, has six models that can care for lawns ranging from 400 square meters (4,306 square feet) to 6,000 square meters. Outside of Europe, it mainly sells the mowers in Australia and New Zealand.

New Entrants

The Swedish company brought the product to North America in 2001, only to retreat a year later after concluding the market wasn’t ready. In addition to the greater use of landscaping services by U.S. homeowners, North American grass, especially in the southern U.S., is generally tougher than European varieties, making it difficult for the machine’s fine blades to work effectively, according to Husqvarna.

Bosch, the world’s largest supplier of car parts, entered the robotic mower market last month when it started selling its Indego machine in Scandinavia. Deere, based in Moline, Illinois, joined the rivalry earlier in the year with the John Deere Tango E5, which it sells in Austria, Belgium, Luxembourg, Norway and Switzerland.

Global Garden Products, based in Castelfranco Veneto, Italy, bought its way into the $170 million market in January when it acquired LiCo srl’s Lizard mower marque, and rebranded those machines under its Stiga brand.

Andersson declined to discuss Husqvarna’s market share.

Sensor Technology

The mowers use sensor technology to stay within a defined area of the yard, and are typically able to avoid obstacles such as trees and lawn furniture. Some of the mowers, including those made by Husqvarna, move around in random patterns, while others such as Bosch machines follow distinct lines. Unlike traditional mowers, they don’t collect the cut grass, as the clippings are so small they break down fast and act as fertilizer; instead the rechargable mowers are used frequently, often daily.

The price of robotic mowers may be barrier to their success. Husqvarna’s models start at 1,700 euros. Most electric walk-behind mowers sell for 300 euros to 900 euros.

Prices will come down, and when they’re inexpensive enough the market will become mainstream, according to Husqvarna’s Andersson. About 1,000 euros may be “a magical line for the customer,” he said.

Robots aren’t only gardening, they’re also cleaning the house. Sensor-loaded machines have grabbed a 6.1 percent share of the European vacuum-cleaner market, according to GfK. The market has grown about seven times over the last three years and is now worth about 205 million euros in the region, the researcher reports.

Robotic Vacuums

Their success also offers a cautionary tale for pricing. Electrolux AB, (ELUXB) the world’s second-biggest appliance maker, was first to introduce the robot vacuum cleaner in 2001 and after reaping little success stopped making the product in 2009.

Electrolux spokesman Erik Zsiga said the development costs kept the retail prices too high.

Companies that still make robot vacuums include Siemens AG, (SIE) Samsung Electronics Co. Ltd. and iRobot Corp., which raised its earnings forecast in July after sales beat estimates. An Electrolux Trilobite vacuum cleaner retailed for more than $1,500 before it got pulled from the market, while an iRobot Roomba can be bought on Amazon today for as little as $300.

Electrolux’s limited success with robotic appliances isn’t discouraging Honda from betting on auto mowers. The Tokyo-based company said in August it will start selling a machine called the Miimo in Europe next year.

Johan Dahl, an analyst at Erik Penser Bankaktiebolag in Stockholm, who has a hold recommendation on Husqvarna’s shares said even though the competition is getting stiff, there is room for more players to compete profitably.

Annual Remodeling Report Finds 4 Best Improvements For Selling Your Home

MSN

House prices are still dropping, so it pays to know which upgrades will deliver the best return when you sell your home. An annual remodeling report finds 4 basic replacements are likely your smartest choice.

Remodeling is a better investment in some years than others. This year is among the worst if you’re hoping to recoup much money when you sell, says a newly released report. Homeowners are getting back just 64%, on average, of a project’s cost, compared with 87% in 2005, according to Remodeling Magazine’s 2009-2010 Cost vs. Value report.

Some projects pay back better than others. You get more bang for the buck putting money into a basement or attic upgrade than adding a wing to the house. Some of the highest-return projects include a deck addition and quick, conservatively priced replacements of old siding, entry door or windows. (If you want a different perspective, personal-finance guru Liz Pulliam Weston calls remodeling “a waste of money.”)

The report compiles responses from about 4,000 members of the National Association of Realtors in 80 cities to survey questions about 33 hypothetical projects. “I think what the real-estate agents are saying is you’re taking a big risk if you’re buying these high-ticket items, because the market is slow. Buyers are looking for utility,” says Sal Alfano, the magazine’s editorial director. “They’re not so wowed these days as they were three or four years ago.”

A retreat from overbuilding
Some contractors are dropping their rates to get work, so it might seem a good moment, if you have the money, to do a big, blow-out addition. And maybe it is, if you can keep the house long enough. But today, a high-end master suite remodel, for example, returns just 56% of the cost, on average, compared with 80% in 2005. 

“You’re not seeing the big 750-square-foot additions being put on the side of a house like you were a few years ago,” says Martin Conneely, owner of Conneely Contracting, in Arlington, Mass. “Our biggest (jobs) right now are maintenance replacements (of windows, doors, siding and roofing), basement renovations and moderately priced upgrades in the kitchen and bath.”

Despite widespread talk of falling labor prices among remodelers, the cost of construction overall hadn’t changed much.  Return on investment (ROI) is dropping because, in a market flooded with foreclosures, even if labor costs are dropping, the price of existing homes is at such a discount that anything newly built can’t compete.

The 22-year-old Cost vs. Value survey makes clear that return on investment depends greatly on where you live. The highest payback is in the Pacific region (Alaska, California, Hawaii, Oregon and Washington). There, although costs are double the next-most-expensive region (the Mid-Atlantic, including New Jersey, New York and home remodeling Pennsylvania), high resale values more than compensate.

Peter Michelson, CEO of Renewal Design-Build in Decatur, Ga., cautions homeowners to be aware that projects described and priced in this report can — and often do — cost considerably more than the amounts given.

ROI is better in the West South Central (Arkansas, Louisiana, Texas, Oklahoma), South Atlantic (Washington, D.C., Delaware, Florida, Georgia, Maryland, the Carolinas, Virginia, West Virginia) and East South Central (Alabama, Kentucky, Mississippi, Tennessee) regions.

Residents of the Mountain states (Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona and New Mexico) and New England (Maine, Massachusetts, Connecticut, New Hampshire, Rhode Island, Vermont) enjoy average returns.

It’s hardest to make a buck back on your project in the Middle Atlantic, West North Central (Iowa, Kansas, Minnesota, Missouri, Nebraska, the Dakotas) and East North Central (Indiana, Michigan, Ohio and Wisconsin) regions.

The math didn’t always come out so poorly. As recently as 2005, few homeowners bothered to figure out if their plans meant overbuilding for the neighborhood, Alfano says. They just commissioned the work they wanted and assumed prices would rise to cover their costs.

They were largely correct until 2006, when payback began shrinking along with the scale of jobs that homeowners were undertaking. “The projects that were evaluated as having the most return were not kitchens and baths so much anymore. All of a sudden it was these exterior replacements: roofing, siding and windows,” Alfano says.

It was the beginning of the end of the housing boom. “Today, resale value has come to the forefront. People are much more conscious of building for the neighborhood, and they’re worried about their mortgage rates and their jobs.”

Basic replacements rule
As a group, low-cost replacements — new siding, windows, doors and roofing — deliver the best bang for the buck now, a considerably better payback than from a two-story remodel or a kitchen remodel.

Given great improvements in materials, you can replace your inefficient 10- or 15-year-old products with highly efficient ones for a decent return when you sell. In addition, the improvements help you save on heating and cooling bills. Replacing leaky windows with highly efficient newer ones is a good example. The technology behind the glass and frames has so improved that you’re tightening up your home’s weatherproofing in the process. You get more comfort and, from the real-estate agent’s point of view, new windows show off your house from the street.

Replacement projects included in the Cost vs. Value survey all cost less than $20,000 and most cost considerably less. They instantly enhance curb appeal, boosting a home’s marketability, and they require little maintenance once installed - all of which are better prospects than with a home addition. A bonus: Most of these replacements qualify for a federal tax credit for energy efficiency (not included in Remodeling Magazine’s ROI calculations).

1. Replace the front door.

    * The absolute best return on the money of any of the projects surveyed — 129% of cost — is gained by replacing a beat-up front door with a $1,200 steel-shell door filled with foam insulation.
    * A new fiberglass door (more expensive, at $3,490) returns less, about 65%. (Fiberglass is the new chic building material because it’s rugged and durable, can be painted and will mimic almost any wood. Unlike wood, it doesn’t crack, warp or shrink and needs zero maintenance.)
    * Spend about $7,500 on an entire new entrance, including a widened opening, a solid-core wood door and high-end glass, new lighting and better locks, and you’ll recoup 69%, on average.

2. Replace home siding

    * Replacing old siding with a durable fiber-cement product ($13,287) recoups about 84% at resale.
    * Use vinyl siding ($10,607) to get an 80% return.
    * Foam-backed vinyl ($13,022) costs more and earns back less — roughly 79% — but it is much more efficient at insulating a home.

3. Replace windows. Three of the four window-replacement projects considered in the survey pay back about 77%:

    * Wood-trimmed windows ($11,700).
    * Lower-end vinyl windows ($10,728).
    * Windows trimmed in higher-end vinyl ($13,862).
    * The fourth project, higher-end wood-replacement windows ($17,816), has a return of about 72%. Fiberglass windows weren’t included in the study.

Replace the roofing: Spend $19,731 on new fiberglass asphalt shingles and you’re likely to recoup about 67% of the cost.

    * A higher-end roof replacement using standing-seam metal ($37,359) pays back about 61% of the cost, agents told the survey.

Additions aren’t cost-effective
Except for a new deck, which pays back nicely, adding to a home’s footprint brings a poor return these days.

A new deck
    * Wood is high-maintenance, but homebuyers love it: A new wood deck ($10,634) returns 81%.
    * New outdoor decks of midrange composite planks ($15,373) return around 71% of the cost at resale.
    * A higher-grade composite ($37,745) brings an ROI of about 61%.

 

Other additions
    * Adding a 200-square-foot sunroom ($73,167) recoups 51%. [Find a Sunroom Builder in Grand Rapids Michigan]
    * A high-end ($225,995) master suite project, adding 640 square feet to the house, including a bath with walk-in shower and stone walls, brings a 56% return.
    * A less ambitious, less costly ($103,696), 640-square-foot master suite addition including whirlpool bath and ceramic tile recoups 65%.
    * A garage addition ($87,230) earns back about 56%.
    * A high-end bathroom addition ($75,812) earns about 58% at resale.
    * Adding a midrange, 6-by-8-foot full bath ($39,046) recoups about 60%.
    * Add a midrange two-story wing ($156,309) to the house, including 24-by-16-foot first-floor family room and second-floor bedroom and full bath, for a return of about 69%.
    * A midrange family room addition ($82,756) returns around 65% of the cost.
    * Adding a sunroom or home office were the projects that yielded the least payback, presumably because these special-purpose rooms appeal to fewer buyers and are in less demand.

Best use of the money (besides replacements)
Upgrading existing space, such as a bathroom remodel, is the best bet for recouping cost. It makes sense: Pouring a foundation, framing a structure and bringing in electricity and plumbing are among the most expensive aspects of a building project. When you can largely skip these steps and increase your usable space, the payback is richer:

    * An attic conversion, including a 15-by-15-foot bedroom with dormer and a 5-by-7-foot bath with shower ($49,346) returns comparative gold: 83% return, on average. Agents in several cities said this job would return more than 100%.
    * A basement ($62,067) remodel —a 20-by-30-foot entertainment room and 5-by-8-foot full bath — recoups about 75% of its cost.
    * A midrange 5-by-7-foot bathroom remodel ($16,142) with standard fixtures and trim has a 71% ROI.
    * Expanding that bathroom to 100 square feet ($52,295), including moving plumbing and wiring and adding higher-end cabinets and fixtures, brings a 62% ROI.

Kitchens and baths: Scaled back but ever popular
High-end kitchens and baths are fading in popularity, replaced by “very practical things,” Michelson says. “The $400,000 and $500,000 jobs are few and far between. The jobs between $50,000 and $200,000, we’re doing lots of those.”

Bath and kitchen remodeling hasn’t stopped, since these projects maximize the enjoyment of the most-used spaces in a home. But “people are definitely being smarter with their money,” Conneely says. “For instance, a $75,000 remodel five years ago? That same client would today spend $50,000.” People who blithely bought the best of everything now pursue the same look by choosing materials judiciously.

    * A minor kitchen upgrade ($21,411) installing new cabinet fronts, laminate counters and other cosmetic improvements is a decent investment, at 78% ROI.
    * A major kitchen remodel ($57,215) using midrange materials — semi-custom cabinets and laminate counters — pays back about 72%.
    * A high-end major kitchen remodel ($111,794) with top-of-the-line cherry cabinets, stone counters, glass backsplash and expensive, built-in appliances, pays back just 63%.

Bailout Cash For Energy Efficiency
Story from the Wall Street Journal

I'm not among the one-in-nine homeowners who currently qualify for aid under the new federal housing-rescue plan. But Uncle Sam may still foot the bill for nearly $19,000 worth of upgrades at my house. And he could for you, too.

Potentially lucrative new and expanded tax incentives for energy-efficient and renewable-energy home improvements may offer some consolation to homeowners who feel they are falling between the cracks with the government's various economic stimulus efforts.

They include up to $1,500 in tax credits for adding qualifying windows, doors, insulation, roofs, heating and cooling equipment, water heaters and even wood and pellet stoves to your your Raleigh real estate in 2009 and 2010. Perks for installing pricier solar technology, small wind-energy systems or a geothermal-well system include a tax credit of 30% of qualifying expenditures with no upper limit through 2016.

The credits helped spur Joe Lombardi of Pleasant Valley, N.Y., to recently sign a contract for a solar-electric system with Hudson Valley Clean Energy in Rhinebeck, N.Y. He expects to get about $10,500 back via the renewable-energy credit on a system costing him roughly $35,000 after a state rebate. He also plans to invest in a heat pump to work in conjunction with the new solar system, which could net him another $1,500 via the energy-efficiency credit. "That's significant," says Mr. Lombardi, who has been considering investing in a solar system since the late 1970s. "I'm an environmentalist. ... It also adds value to the house."

Notably, these incentives are tax credits, which lower your tax bill dollar-for-dollar, versus a tax deduction, which trims money off taxable income. The Internal Revenue Service is expected to issue firm guidelines on details of the credits soon, and consumers should consult tax professionals for clarity on filing.

To be sure, consumers still have to put out cash to get the incentives, and the products that qualify are those generally deemed to be at the highest efficiency levels, which can cost more. Plus, the $1,500 energy efficiency credit currently lasts only last two years, which means consumers must find the fortitude to spend at a time when their instinct may be to save. "This is a pretty lucrative deal, and I don't think the government can continue to do it going forward because it's expensive," says Steven Nadel, executive director of the American Council for an Energy-Efficient Economy, a not-for-profit based in Washington, D.C.

The credits fall into two primary camps. One is energy efficiency, which covers certain improvements to an existing home's structural elements, such as windows and insulation, as well as for the purchase of qualifying high-efficiency heating, cooling and water-heating equipment. The second is for renewable energy, which includes solar, wind, geothermal (heat generated from the earth) and fuel-cell technologies (which convert the chemical energy of a fuel, such as hydrogen, into electricity).

In a nutshell, the energy-efficiency tax credit increases to 30% of qualifying costs from 10%, and the cap also rises to $1,500 from $500. (That's a $1,500 total credit for all applicable improvements combined in 2009 and 2010.) It also extends the credit to include stoves that use renewable biomass fuel -- wood, pellets, plants -- as well as to certain roofing materials; in certain cases, installation costs can be included. Appliances such as refrigerators, dishwashers and clothes washers aren't eligible. For new construction, consumers won't qualify for the $1,500 efficiency credit but are eligible to receive the renewable-energy credit and a separate energy-savings incentive.

With the 30% renewable-energy credit, the richest change is that for systems placed into service after 2008, there is no longer a cap on claims (except for fuel cells). Previously, it was $2,000 for solar systems. "It's a big deal -- it's a really big deal," says Jeff Irish, owner of Hudson Valley Clean Energy, which sells solar and geothermal systems. He says he doesn't expect to raise his prices because of the credit, particularly given the current state of the economy. "We just want to sell more systems."

Manufacturers are hurrying to figure out which products will earn credits under the government's rules, which means testing them for various standards of energy efficiency. The shakeout could have significant impact on future product lineups. "We have one wood stove that apparently doesn't qualify, and it's our third best-selling stove," says Dave Kuhfahl, president of HearthStone Quality Home Heating Products Inc. "We're wondering if it will ever sell again."

Still, manufacturers aren't waiting to educate dealers and consumers about this potential sales chit. Hearth & Home Technologies, a division of HNI Corp., mailed a letter late last month to dealers of its Harman-brand stoves with a list of models they could start promoting in conjunction with the credit. "We are trying to be proactive, so when the dead-on rule comes, they are up to speed," says Dane Harman, Harman's founder. One of his dealers, John Enea of Home & Hearth in Cortlandt Manor, N.Y., echoes the sentiment: "The government is helping us sell stoves."

Others are ramping up advertising campaigns that, in essence, will compete for consumers' tax-credit business. Insulation makers such as Icynene Inc. and BioBased Insulation have prominent Web pages outlining details of the federal tax breaks. Same with makers of several brands of high-efficiency tankless water heaters, including Bosch Group, Takagi USA and Rinnai Corp. For its part, Andersen Corp. and has been playing up the $1,500 perk online and is preparing an ad campaign to explain the tax credits.

"We are hoping [the credit] really does inspire people," says Maureen McDonough, Andersen's director of corporate communications. While windows are always a significant investment, she says, "it seems like something people might be more interested in now."

Of course, tax credits can only do so much to stanch the spending slowdown amid rising unemployment, which last month surged to the highest rate since 1983.

And in the case of solar electric and geothermal systems, costs can still be in the tens of thousands of dollars even after the tax credit. For instance, an estimate I received this year for a solar system to power my electricity clocked in at $49,003 after a state rebate. The new 30% federal tax credit would knock an additional $14,701 off the bill, while a $5,000 state tax credit would help some more.

But that would still leave me with some hefty out-of-pocket expenses. A less-expensive solar system to heat water would cost about $4,111, down from $9,135 after a 30% federal credit and 25% state credit. If I invested in both solar technologies, and tossed in, say, new qualifying insulation, I'd be looking at nearly $19,000 back from the federal government in tax credits over the next few years.

However, consumers who spent on some energy-efficient and renewable-energy improvements in 2008 may be out of luck. For instance, the $3,600 I forked over for a wood stove in July apparently won't earn me a dime under the new plans. "The little bit of backlash we are seeing is from people who bought in '08," says Mr. Enea of Home & Hearth.