Mergers on the horizon for home builders?

Facing reduced demand for new homes and an unstable path to economic recovery, U.S. home builders are likely to seek mergers in an effort to consolidate their operations and gain market share, according to analysts at Citigroup. Likely targets for acquisition are Ryland Group, Meritage Homes and Beazer Homes USA; while D.R. Horton, KB Home, MDC Holdings and PulteGroup are potential buyers, Bloomberg News reported. Pulte completed the last major buyout in the home building industry last year, when it acquired Centex for $3.28 billion. New home sales have suffered steep declines in the wake of the homebuyer tax credit’s expiration, which required buyers to sign contracts by April 30, and building permits have also fallen. “We view consolidation as the proverbial elephant in the room,” Josh Levin, an analyst for Citigroup, wrote in a letter to clients yesterday. “Management teams are not discussing the issue publicly, but we would be surprised if at lease some of them were not talking about it privately.” [Bloomberg]