New Home Warranties:

The new home industry is like the car industry without a bailout: stuck at the bottom with no improvement. Warranty expenses continue to contract, but so does sales revenue. And some companies seem to be artificially managing their accrual levels.

Apparently, it’s year five of the downturn in homebuilding, and the top warranty providers are beginning to show the strain. As they continue to sell fewer homes at lower prices, their customers hit them with not only typical warranty claims, but also allegations of mold, leaks and drywall odors that they insist must be repaired under warranty.

Just staying in business is a major accomplishment. Of the 47 U.S.-based and publicly-traded homebuilders that we began tracking in 2003, less than half are still reporting their warranty claims and accrual figures to the U.S. Securities and Exchange Commission. The rest have either been acquired or gone into liquidation, frequently leaving their customers without any warranty cover.

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