84%...ouch

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America's Most Battered Homebuilders
After years of fat profits, builders are posting negative total returns. The worst hit, TOUSA, fell as much as 84% in the first nine months of 2007. The rest aren't doing much better
By Mara DerHovanesian

Builders are in a funk-and no wonder. Sales are plummeting and cancellations are skyrocketing. Their stocks have taken a beating, falling 65% through Sept. 28, wiping out more than $30 billion in value. As a result, the Home Builders/Wells Fargo index of homebuilder confidence measuring the mood of chief executives has tumbled to an all-time low since the index's inception in 1985.

The worst of the housing downturn may not be over. Wall Street is pressuring builders to sell off assets, especially rapidly deteriorating land holdings. The value of inventory, including undeveloped land and unsold homes, fell by $4.4 billion after write-offs to $41.9 billion for the top five builders as of the end of the second quarter, down from a peak of $49.7 billion last year. But because sales are falling off a cliff, the builders can't seem to shed these assets fast enough-the value of these holdings in relationship to sales has soared 25%.

Worse, the ratio of cash flow to debt has increased from just below 1% to almost two and a half times in a year. "The inability to generate positive cash flow from operations would be a huge negative for credit risk," says Frank Lee, homebuilder analyst at New York research shop CreditSights. "Having a cash cushion is extremely prudent given that this downturn can get much worse."

The following slides list the homebuilders that have posted the biggest negative total returns thus far in 2007.