Homebuilding Insiders are Selling Stock

I’ve stayed away from homebuilding stocks for the last few months. I think there are a lot of excellent companies, but investing in homebuilders is all about timing. If you hit it right, you can make a lot, but you also have to sell before the party ends. Even the best companies in the group see their stocks plunge when the sector is out of favor. While Lennar was just added to the S&P 500 yesterday, keep in mind that it was seven years ago when the stock dropped 50% in just a few months. Three years ago, D.R. Horton dropped 45%. Given the dramatic rise, I think the fallout is getting closer. Today, The New York Times reports that homebuilding insiders are selling their stock at a furious pace.

Executives and directors at many of the nation’s largest development companies sold stock at a record pace this summer. Insiders at the 10 largest home builders by market value, including D. R. Horton, KB Home, Toll Brothers and M.D.C. Holdings, have sold nearly 11 million shares, worth $952 million, so far this year. That is a huge jump from the 6.8 million shares, worth $658 million, that insiders sold during all of last year, according to data compiled by Thomson Financial.

Some of insiders are the key players in the industry:

Among those cashing in some chips is Zvi Barzilay, the president and chief operating officer of Toll Brothers, based in Horsham, Pa. He sold 460,400 shares worth more than $39 million, the bulk of it in June and July. That was more than four times the 150,000 shares, worth nearly $8.7 million, that Mr. Barzilay sold last year.
Likewise, David D. Mandarich, the president and chief operating officer of M.D.C. Holdings, sold 285,499 shares, worth nearly $25 million, in three days in July, compared with the 192,115 shares, worth $13.8 million, he sold in all of 2004. M.D.C. Holdings is based in Denver.
Not all executives are taking profits at the same rate. Stock sales at Pulte Homes and NVR, the nation’s second-largest and seventh-largest home building companies, are down from last year’s levels. Still, Dwight C. Schar, the chairman of NVR, who sold $155 million worth of stock last year, tops the list of insider sales so far this year. In eight days in May, Mr. Schar sold $88.4 million worth of stock in NVR, based in Reston, Va.
Mr. Schar’s fortunes have changed significantly from 1992, when NVR was forced to file for bankruptcy protection. Last year, he drew a lot attention when he purchased a seven-bedroom, 18-bathroom oceanfront house in Palm Beach, Fla., called Casa Apava, and an adjacent property for a reported $70 million. The seller was Ronald O. Perelman, the Revlon chairman.

Posted by on October 4th, 2005 at 9:37 am


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