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MDC Holdings reports 80% increase in revenues

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MDC Holdings is a home builder with exposure to the West, South and Mountain areas.

MDC Holdings (MDC) is a Denver CO-based home builder that sells single-family detached homes primarily to first-time and move-up buyers under the Richmond American brand name. They also have a finance arm that handles mortgage origination, insurance and title services. While they have operations all over the country, the majority of their business is done on the West Coast.

Highlights of the quarter

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MDC reported earnings per share of $0.45, well above the analyst estimate of $0.26.  Revenues increased 80% to $331.7 million from $184.7 million in the first quarter of 2012. New orders rose 22%, while backlog increased 30% on a unit basis and 45% on a dollar basis. Closing prices rose 9%, while order prices increased 12%. Backlog is at the highest level since 2007.

Read-across for the other home builders

MDC’s business model is highly dependent on the first time home buyer. Either they are selling directly to a first time home buyer or their customer needs to sell to one. The first time home buyer has been largely absent from the market, and appears to be coming back. Household formation numbers have been depressed since the recession started; however, this can be attributed to a difficult economy, not demographics. We are finally seeing an improvement in the household formation numbers, and there is a lot of pent-up demand among young adults. The new households are mainly renters, however, with an improving economy they will take advantage of low interest rates and a rent versus purchase decision that is as skewed towards purchasing as it has been in generations.

So far, it seems like mid-level builders with West Coast exposure have done well; the only disappointment has been NVR, which is East Coast based. Ryland (RYL) has shown there is strength all over the country in the entry level and second time move up market. We will see how the luxury market is shaping up when Toll Brothers (TOL) reports in May. Generally speaking, it has been a good quarter for home builders. Lennar (LEN) and KB Homes (KBH) have November fiscal years and reported Q1 earnings last month.

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