Home Builders Getting Windfall from Tax Refunds

Home builders across the country, particularly the biggest home construction firms, will be receiving hundreds of millions in bonanza from tax refunds resulting from the approval of the new tax refund legislation recently.

The tax refund would enable companies to recover from their losses, especially large firms which can claim refunds of taxes they have paid over the past 5 years.

The National Association of Home Builders lobbied hard for the passage of the tax break legislation, which also includes all other types of industries. But home builders say they will be helped significantly by the tax refunds because they were directly hit by the housing meltdown and suffered huge losses.

According to several financial analysts, the tax refund would not only help home builders recover; it would also increase the cash hoard of the biggest home construction companies in the country. They claim that the largest home builders have accumulated cash after selling most of their real estate properties over the past years and not building more homes.

Based on a report released by J.P. Morgan, each of the ten top home builders in the country has a cash hoard of about $1.2 billion, compared to their average of $616 million in cash in 2007.

Rob Stevenson, an analyst with investment bank Fox-Pitt Kelton, said that home builders sold a lot of their assets over the past years and that the tax refunds would be equivalent to free money added on top of their cash hoard.

Michigan-based home builder Pulte Homes expects to receive more than $450 million in tax refunds while Lennar Corp. of Florida could receive up to $300 million. Arizona-based Meritage Homes Corp. could claim around $60 million.

With these tax breaks, the extension and expansion of the federal tax credit for home buyers and other positive developments affecting home builders, credit rating agencies such as Credit Suisse upgraded home builders, sending prices of home building stocks to higher levels.

The stocks of Lennar rose by nearly 5 percent or 63 cents to $14.14 and the shares of Meritage increased by nearly 6 percent or $1.11 to $19.90.

According to many housing analysts, what the tax breaks would really significantly help are the small home builders, which had been battered by the housing crisis and which have temporarily closed their home building activities. The cash money would enable them to restart their operations and recover.

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