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Pulte Homes purchases Centex for $1.37 billion

AP Real Estate Writer

Of all the reasons Pulte Homes is buying Centex, one of them suddenly makes a lot of sense: first-time homebuyers.

Rookie homebuyers, who can now qualify for generous tax credits, are one of the few segments in the real estate market that are showing signs of recovery. In fact, low-priced homes for the entry-level buyers accounted for about half of previously owned homes sold in March.

While newly built homes generally are too expensive for the average newbie homeowner, Centex Corp. caters to them. Half of Centex’s homes sold in the most recent quarter went to first-timers.

“The addition of Centex and its strength in the entry-level … expands our presence,” said Richard Dugas, chief executive of Pulte Home Inc.

Pulte’s $1.37 billion acquisition of Centex also will give Pulte large tracts of land in Texas and the Carolinas, and a presence in 29 states and Washington, D.C.

The new company, which will be the largest homebuilder in the country, will keep the Pulte name and headquarters in Bloomfield Hills, Mich. There will be an unspecified number of job cuts.

The merger “will position us to return to profitability as a combined company much more quickly than either company would have reasonably expected on a stand-alone basis,” Dugas said.

But how soon remains unclear.

Pulte reported Tuesday that it lost almost $515 million in the most recent quarter, while Centex said it lost $403 million. While both companies narrowed their year-over-year losses, they also reported that home sales were half of last year’s level — a sign that demand still is sagging nationally.

“It is possible that the impending merger is having a detrimental effect on both companies’ fundamentals; even so, results make it clear that the combined entity needs to cut costs significantly to accelerate its return to profitability,” wrote Deutsche Bank North America analyst Nishu Sood.

Many investors agreed, sending both companies’ shares down 8 percent Wednesday. Pulte closed down 99 cents at $11.31, and Centex ended down 94 cents at $10.78.

In search of relief from the worst housing recession in a generation, the building industry lobbied hard for tax breaks for homebuyers.

Under the economic stimulus plan passed in February, new buyers can get an $8,000 federal tax credit. And California — one of the nation’s largest housing markets — is offering a $10,000 state tax credit for buyers of new homes. New York legislators are considering a first-time home buyer tax credit, according to the National Conference of State Legislatures.

And at least nine states — including Pennsylvania, New Jersey, Missouri and Colorado — are offering state-sponsored loans that allow first-time buyers to spend the federal tax credit on a down payment or closing costs this year. They would then use next year’s credit to pay off the loan.

Centex chief executive Timothy Eller said, “all of these efforts help.”

And that helps Pulte.

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