Zacks Analyst Blog Highlights: D.R. Horton, Berkshire Hathaway, Fortune Brands, USG, PPG Industries and International Paper

Mar 24, 2011, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, March 24, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: D.R. Horton (NYSE: DHI), Berkshire Hathaway (NYSE: BRK.B), Fortune Brands (NYSE: FO), USG (NYSE: USG), PPG Industries (PPG) and International Paper (NYSE: IP).

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Here are highlights from Wednesday's Analyst Blog:

Record Low New Home Sales

New Home Sales in February fell by 16.9% from January to a dismal rate of 250,000. Relative to a year ago, sales are down 28.0%. In a very faint silver lining to an otherwise dismal report, the January rate was revised up to 301,000 from 284,000. Thus relative to where we thought we were, it could be seen as a 12.0% decline.

The level was substantially worse than the expected rate of 288,000. The ten lowest months on record (back to 1963) for New Home Sales have all been in the last ten months. February is a new all-time record low.

We are down sharply from a year ago, and it is not like a year ago was a great time in the homebuilding industry either. Relative to the peak of the housing bubble (July 2005), new home sales are down 82.0%.

The graph below shows the history of new homes sales (blue, left scale) along with the growth in population (red, right scale), since presumably if you have more people, you will need more places for them to live.

Take a very close look at the relationship between New Home Sales and the grey recession bars. New Home Sales fall sharply before all recessions (with the exception of the dot.com bust caused recession of 2001) and then start to increase sharply in the middle of, or towards the end of, the recession. That clearly is not happening this time around.

If you want to know why the recovery has been anemic so far, look no further than the graph above! New home sales are vital to the overall economy. If new homes are not selling, then home builders have no reason to build more of them. After all, that is very expensive inventory to sit on.

New Home Sales Crucial to Growth

Unlike used home sales, each new home built creates a huge amount of economic activity. Not only are low new home sales bad for the big homebuilders like D.R. Horton (NYSE: DHI), but also for all the companies that make the products and supplies that go into making a new house. They range from Berkshire Hathaway (NYSE: BRK.B) for bricks, roofing materials and insulation to Fortune Brands (NYSE: FO) for plumbing fixtures and cabinets to USG (NYSE: USG) for wallboard to PPG Industries (PPG) for glass and paint to International Paper (NYSE: IP) for lumber.

In terms of employment, it is not just all the roofers and framers that lose jobs due to weak new home sales, but employees at all the firms that make the stuff that goes into making a new home. Of course, if those employees are out of work, they are not spending on other goods and services dragging down a host of seemingly unrelated businesses.

Not that the direct impact of construction jobs should be underestimated. Since the recession started, one out of every four jobs lost has come from the construction industry.

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