Housing starts in the US sank 6.3% in September to a seasonally adjusted rate of 817,000, the lowest level in 17 years. That's worse than economists had expected, with a consensus forecast of a 1.7% drop in home construction.
Moreover, economists expect further declines in the fourth quarter. Building permits, an indicator of future activity, fell 8.3% to a 786,000 annual rate.
The decline in housing starts--the third precipitous drop in a row--should help weed back existing housing inventories, however, all of this means the home builders remain under severe pressure. That includes Hovnanian (HOV), Centex Corp. (CTX), D.R. Horton (DHI), Lennar Corp. (LEN), Toll Brothers (TOL) and Pulte Homes (PHM).
More so as U.S.-regulated banks are rapidly getting out of home building. "This is, by far, the toughest time for home builders since World War II," said James Hamilton, an economics professor with UC San Diego. "It's really a phenomenal collapse in the market these past two years."
On top of all this, Standard & Poors lowered its credit ratings on seven homebuilders in the last three months, and had cut 11 in the preceding quarter. Large homebuilders--like D.R. Horton, Lennar Corp. and Pulte Homes-are working furiously to cut back production to levels last seen in 2000 and 2001, while others have retreated as far as 1994.
Supply Glut Socks the Home Builders
The National Association of Realtors says that inventories are at a supply of 10.4 months, the highest level in 18 years. The US Census Bureau releases new home sale and supply data, with data dating back to 1963. As of August 2008, there was 10.9 months of supply, down slightly from the peak of 11.2 months seen in March of this year. August marked the sixth consecutive month of double digit months of inventory, a trend that has never happened dating back to 1963.
Previous highs of 11.6 months of supply were made in April 1980, with a few other months of double-digit supply in 1981. In short, the current levels of inventory are unprecedented, warns Meredith Whitney of Oppenheimer Equity Research.
To wipe out the supply glut in housing, builders will have to pump out just 800,000 houses annually for two years, Merrill Lynch says. That's about half of the going rate up until recently.
House Price Declines Hurt
Housing futures imply a housing price peak-to-trough drop of 22% by November 2008, a drop of 29% by November 2009, and a drop of 33% by 2010. Under this scenario home prices would return to levels last seen about eight years ago, essentially wiping out nearly a decades' worth of home price appreciation.
Home Builders' Ugly Debt Picture
The average leverage of investment grade home builders, as measured by debt to earnings before interest, taxes, depreciation and amortization, could grow to four times in late 2007, from a current average of 1.8 times.
Moody's Investors Service has already reported that a worse-than-expected housing slump has left home builders with less cash flow to cover debt interest, and some ratings could be cut if that trend continues.
Cash flow is the key to reducing debt and interest expense, but companies have had a harder time boosting cash flow than in previous downturns, Moody's said.
Home Builders' Hidden Time Bombs
There are hidden time bombs on the home builders' balance sheets--off balance sheet debt, which could keep the home building sector dark for a while longer.
Specifically, many home builders entered into land deals with partners, but then shoved billions of dollars in debt from those deals into off-balance sheet vehicles, debt that could come back to bite their stocks.
Put that debt back onto their balance sheets, already underwater with an ocean liner of debt, and the companies' dirt-cheap book values fall deeper in the hole.
Here's how it works. Many large builders took minority stakes in joint ventures, which let them stockpile land for future needs while keeping billions in debt off their balance sheets. If they don't make sales, if they can't move that land, they're still very likely on the hook for their share of that off-balance sheet debt.
Alisa Guyer Galperin, an analyst at the Center for Financial Research & Analysis, figures that 13 of the country's biggest homebuilders on average have debt to capital ratios that look way uglier with this off balance sheet debt factored in, as much as 977 basis points higher than typically reported.
Why Debt Ratios Matter
This is why investors should care about higher debt to capital ratios. A company with high debt-to-capital ratios faces higher costs, like interest, on these debts that can suck free cash flow out of a company, cash that could go toward expanding an operation (yes taking on debt can also help pay to grow a company, but at a big cost-especially if management is poor).
High debt can weigh on a company and increase its default risk.
The Center for Financial Research & Analysis figures that Lennar, one of the country's biggest home builders out of Miami, Fla, and NVR, a homebuilder in Reston, Va., have the most off-balance sheet debt. The Center also adds that NVR in each of the last three years bought developed lots from a company controlled by a board member-did it get a fair price for shareholders?
Homebuilders may be held responsible for their share of joint venture debt guarantees, based on their pro rata share of the joint venture or the JV's specific recourse agreements. The accounting rules are really loose here-the homebuilders themselves get to decide whether or not they are the prime beneficiaries of an off balance sheet deal, and so whether they need to book the debt on their balance sheets.
The Center's Guyer Galperin has estimated that Lennar is on the hook for up to $910 mn of $5.6 bn in debt through partnerships not on its books. Lennar and other home builders are already fighting with lenders that are stamping their feet to force it pay off its share of their partnerships' total outstanding debt.
And Deutsche Bank has already sued Technical Olympic USA, alleging the Florida builder is in "multiple potential defaults" on $675 million in debt owed by several failed joint venture partnerships. Lennar says it's protected from any problems because it's hooked up with solid institutional investors like the pension fund CalPERS and has set up deals to ensure it isn't liable for partners.
This all had to happen eventually. Housing appreciation was too much ..too fast. It left a person making ever $50,000-75,000 a year unable to buy a small home in a safe neighborhood. A large segment of this population is single and in that tax bracket. Therefore, we are unable to buy a home but still get slammed with taxes. If housing costs are forced to come down and equalize then more of us in this tax bracket would gladly buy homes. With 60% of the population single, this is something to think about.
October 21, 2008 at 11:35 am
Rooster
Talk about the ultimate trickle down effect,just look at the home building industry as a whole. If everyone of you stopped and thought about it for a minute you could name at several people that you know, or are related to that is in someway connected to the home building industry. All of the "experts" kept saying there wasn't a housing bubble, when they all knew different. Now that the bubble has burst, where are those experts now? Hopefully they are out looking for a job just like I am. Yes we are in a recession, and have been for almost 18 months. It largely has been caused by the burst of the housing bubble.
I have seen first hand the greed and excesses that home builders have had raging for the last eight years. It can't be a good thing when a new home buyer would have to take out a second mortage just to get into their "American Dream"! What a line of crap that they fed every one of their customers. All the while every one of them knew that the construction and price levels that they were at 2 years ago couldn't be sustained. As history has once again repeated itself, the home building industry will go through a "thinning of the herd" and the healthy will survive. Then we will start the whole thing over again, I just hope that this time will be different and everyone will remember what we are now going through and temper their greed.
October 21, 2008 at 8:23 am
cjs
OK is it just me but 817,000 housing starts means to me that the economy is still producing homes at a large rate. If you listen to the news, you would think that no homes are being built at all and the sky is completely falling in. It would be refreshing to read or watch a show that actually says how great our economy is that we can still start 817,000 homes in September!!!!
October 20, 2008 at 11:45 pm
LaQuanta
When Obama becomes president just hand over your keys to me, cuz I'll be gettin more money from da rich folks.
October 20, 2008 at 12:25 pm
Heywood Jablome
>>People are still moving to Fla.. Why not? Its a great place to live with a great climate and there is always something to do.
ALways a hurricane to run from!
October 19, 2008 at 9:56 pm
mj
In the Sunbelt city where we live, homebuilders built on every inch of open space they could get their grasping hands on, including a lovely area right next to the landfill.
New subdivisions by the bazillions, everywhere you look. And absolutely no concern for the adverse effect on our community which did not, and probably never will, have the infrastructure to support the huge, rapid influx of new residents. Also we'll probably run out of water. Thanks a lot.
October 19, 2008 at 9:20 pm
PeterC
An economy dependant upon growth for it's survival is doomed to fail.
October 19, 2008 at 7:12 pm
Sherry
The high cost of fuel this past year has been a major contributer to the decline of our economy. Every aspect of our economy from the cost of building a new home to our groceries at the check out line have suffered. At least we are hearing more about becoming energy independent which should be at the forefront of any presidential agenda. The incredible ripple effect of our dependence on foreign oil to power our country has had a devastating effect on every aspect of our economy. From fueling our vehicles to heating our homes and increased electric bills American's are hurting from the high cost to our society. Every consumer product has seen a sharp increase in price. There is little left over after fueling up the family cars to get back and forth to work and paying more for every item purchased. There is little left over to save or invest. Most have had to dip into their savings just to get by as of late. Jobs and homes are being lost at rapidly increasing rate that keeps rising higher and higher. We have so much available to us as a nation such in the way of free renewable energy such as wind and solar, technologies that reduce our consumption of oil such as hybrid and electric plug in cars. Yet, we seem to be at a loss as a nation when it comes to developing a plan to get ourselves off being so dependent of foreign oil. Our economy is a slave to the whims of those who supply the exorbitantly priced oil to us. We pump our hard earned dollars into their economy with each gallon of THEIR oil we pump into our energy consuming cars, businesses and homes. We need to, as a nation WAKE UP AND SMELL THE COFFEE... I just read a very compelling recently released book called The Manhattan Project of 2009 by Jeff Wilson. It needs to be a required read for every member or our elected officials.
October 19, 2008 at 4:49 pm
bubba
Keep this in mind as you hear/read the political spin.
The press is our chief ideological weapon.
Nikita Khrushchev
I once said, "We will bury you," and I got into trouble with it. Of course we will not bury you with a shovel. Your own working class will bury you.
Nikita Khrushchev
I prefer to see this work itself out on it's own. Greed and bad decisions deserve to be punished. The wise will watch and learn from it. Fools will repeat the mistakes again...
October 18, 2008 at 11:43 pm
Bill
It is very likely that Obama will be President starting Inauguration Day in January 2009. However, since I am certain the existing home prices and new home prices will continue to fall the next four years, I predict that Barack Obama's bubble will burst before December of 2009 and he will become even less popular as a President than George W. Bush.
The only cure to the real estate crisis is to allow the prices to fall - allow the market to work. Prices will stabilize at the proper valuation. Since wages and salaries have increased only 2% or so per year, the real estate prices have a lot more to fall in the future. Add to that the peak of option ARM resets in 2011 and 2012, then you have a recipe for a one term President and a fly-by-night celebrity that was as overhyped as a McMansion in, say, Hesperia, California in 2005. You can thank billionaire socialist Penny Pritzker for manufacturing the Obama bubble.
October 18, 2008 at 8:42 pm
GJP
All the home buyer wanted to know was how much to move in and how much a month to stay in. With ARM finacing there was more order taking than selling.
All the builder wanted to know was how much he would make on the house.With inflated appraisals and one hundred percent liar loans profits were unbeleivable.
All the Mortgage Broker wanted to know was how many points he would make and how quick he could sell the loan.
All the secondary purchaser of the loan wanted to know was how fast he could pool the loan with others and bring in the investors.
All the investors wanted to know was the yield on his money.
Nothing new.Has happened before and will happen again. Time and greed.Now all the Feds want to know is how soon they can talk to all the players and start arresting them.
October 18, 2008 at 7:09 pm
JohnyV
MACBETH, you are right on with reporting the numbers for shareholders.
We are in a new era of building the future. I still believe there will be micro economies which need homes (new ones), and now. Where land hasn't been pushed up over the last ten years.
USACE reports 75% of US citizen live within 25 miles of the US coastline and 98% of US citizens live on 2% of US land! Just take a plane ride and look out the window! Sure water and power availability will change for the better with our needed GREEN push.
RE Broker's are out scouting land for the big builders for the next play. The current builders with a heave options, (on or off the books) will find a way to dump some of those option communities they over built by selling them off to RDA groups and move on, with some huge tax credit - WATCH!
Yes, these new communities may be out of the mainstream areas, but cheep land and smart cities will lure them with tax incentives to the new promise land!
Keep the faith home buyers, newer greener communities are on the drawing boards!
JohnyV
October 17, 2008 at 1:57 pm
Susan
I really feel like there is no quick fix and that our whole economy is going to ride this out while the market readjusts itself back to a more realistic scenario in the home building markets.
Things got out of hand from the bottom to the top, and now the market is flooded with housing and not enough people out there qualified to buy, and with the way the economy is, I don't expect there to be a flood of people in line to purchase new or exhisting homes.
This is going to take I would guess around 5 years for the current inventory to be sold.
I is not a great time to be in the New Home building arena, I would suggest that Cabinet Makers, dry wallers, and the like look to home renovations, as that is where I think they will find their salaries coming from in the next 5 to 10 years.
October 17, 2008 at 1:29 pm
Rebelman
Soooooooooo, you are saying the experiment by Barney Frank, Chris Dodd, Chuck Shumer, and Nancy Pelosi to substitute Fannie Mae and Freddie Mac for HUD housing did not work? Socialists or communists style programs cannot work in a free market society!
October 17, 2008 at 12:46 pm
Carol
We own a small business in north-central Florida- fabricating and installing granite and marble counter tops. Having a glut of new homes on the market is not just bad for those of us connected to the construction industry! When our small businesses have to layoff workers because there's a sharp decline in new construction, then those former employees are also out looking for work which saturates the labor pool which translates into lower wages since most employers won't pay top dollar if they don't have to for the same work. Good for the employer? Perhaps...until the local economies start feeling the hit that all of a sudden shoppers at Wal-Mart, Target, or worse-- high-end specialty shops, aren't buying because they don't have the "extra" money in their budgets since they had to take a pay cut just to keep working. And one of the candidates thinks raising taxes on businesses that make more than $250K will HELP the economy? I'm not an economist by education, but 10 years operating a small business I do know that that won't work around here!
October 17, 2008 at 12:27 pm
New homes Florida guy
its is definitely rough here in Florida. It is putting tons of people out of work and is due to a lethal combination of a rough economy and homebuilders putting themselves in this situation.
October 17, 2008 at 12:16 pm
L.T.
People are still moving to Fla.. Why not? Its a great place to live with a great climate and there is always something to do. I watched as the flood of tradesman moved into this state. A lot of whom purchased homes on speculation their self. I could tell things were headed down a bad road about four years ago. Land prices on lots adjacent to the local dump were selling for around 5k to 10k about eight years ago. Two and Three years ago they were flipping like hot cakes at prices near 45 and 50k. The volume of uninhabited homes was sky rocketing. I often asked myself how long can we go at this pace.. Too many people were in the belief that we were all gonna get rich off of the housing boom just as if it were the yesterdays tech market.. The laws of supply and demand were totally over looked in the housing market.. I have learned that in history when people start trying to act as professional investors, the guys who make their living doing it and have it down to a tee, the professional investors begin to pull out of that particular market leaving the baggage of their destruction for those who are more uneducated to hold.
It happened in the Tech stock market. The investors bailed and left the amateurs holding the chips. Those investors turned to the housing markets and started trading real estate as if they were stocks. They drove the price of land and homes trough the roof. Like moths to a light the amateur investors started playing the same game. As if on que the pro investors began leaving that market and it began to fall.. I mean seriously.. Who were these amateurs going to sell to? Each other? The pros quickly jumped onto oil futures. The question now is how many amateur investors tried to follow suit? Those amateurs who did are soon eating a plate of crow. My best advise to the amateur wanna be traders.
Where ever the trend in the market starts next is a great place to stay away from.. Let them sink their own ship for once. After all.. They are betting that the amateur who sees the next get rich quickly market trend will follow them right until they leave like last years news paper. Once again leaving the burden of an over weighed market for the blue collar man to bare.
These market trends were only able to drive so fast because the pros were speculating on the fact that they could rope enough people into following the latest artificial trend.
On a final note.. Dont be a sucker.. Invest your money in your family's future and put aside your own personal greed for quick gains. Let the chips fall where they may but make sure your not under them when they do fall..
October 17, 2008 at 12:04 pm
Tom h
Thank to the wisdom of our government the FHA home buyer Down Payment Assistance was eliminated. There reason was default. I think if you really look at the numbers the default was no greater than conventional or subprime. FHA could have raised credit requirement not do away with a great program. Many graduate students come out of college with no down payment saved and this program helped them.
Now what is going to happen the first time home buyer will be delayed for years. How does this affect the seller of a $800,000 home. Well the first time home buyer purchases a home and those people move up to another and those people move up.
Does anyone understand. Once you cut off the bottom layer all home sales come to a slow pace.
October 17, 2008 at 12:01 pm
DMW
"Here’s how it works. Many large builders took minority stakes in joint ventures, which let them stockpile land for future needs while keeping billions in debt off their balance sheets. If they don’t make sales, if they can’t move that land, they’re still very likely on the hook for their share of that off-balance sheet debt"
Please expound on this part of the story. Is it possible that these minority interest in joint ventures don't have exposure as it is likely that the debt associated with the purchase of a land parcel in non-recourse, i.e., the joint venture simply walks away if they can not significantly reduce the debt associated with the parcel of land. This was pretty common back in the S & L RTC days with land partnerships.
October 17, 2008 at 11:51 am
G.P.
E-MAC,
I am a mortgage trader. This bailout off 700b will not work as you have
stated. Instead of buying up dead cmo or cdo’s that are dead asset’s now flow
of funds because the homeowner will and cannot pay. Instead of trying to get
mortgage rates to 5.00% the homeowner cannot refi. Banks will not lend to him
anyway. Take down the wamu, countrywide etc signs and put up federal govt 2009.
How much can you pay mr. smith to stay in your home $500, $1,000 whatever. Ok
we will PAY OFF the existing mortgage. That amount that you can pay comes to 2%
3% 1% whatever. Done. The old mortgage now in a cmo or cdo’s shows cash flow
into the dead assets as a trader I can analyze flow of funds (speeds) and know
dead asset’s show some life, have value. The man on the street stays in his or
her home and the economy shows life. Banks have lending competition with the
govt, won’t be under pressure to lend what they do not have, money. Buy just
buying up assets and giving citi 100b of the 700b they are not being forced to
lend it out. The main on the street already in under pressure how can he refi
with say 20% down. Another bailout package is being floated. What will another
$600 do? Get the money into the hands of the people that need to stay in their
homes. The govt will make money on anything over 1.5% and the dead asset’s mr.
Paulson is buying will have value if they show movement within the various
traunches that make them up. Modification of the loans just reduce the value
of the traunche that that loan is in and makes them more worthless not more
valuable . so the 20 or 40 cents on the dollar the govt is paying will just
cause the govt to lose money. As traders we need to look at cmo’s or cdo’s with
cash flow. Then we can trade them. Why would I participate in a market of
worthless assets. Get the flow of funds into them and then a trader can spot
value at a price. The housing market will never recover with more and more
foreclosure’s. in the short run a homeowner will have a mortgage rate, rather a
payment he can pay. The govt is already the largest land owner thru fannie mae
and freddie mac. Let the govt back into the rate. The mortgage market can never
get mortgage rates low enough nor can the homeowner ever get the necessary down
payment to refi his exsisting mortgage.
a tired old mortgage trader
G.P.
October 17, 2008 at 11:47 am
aboutthis blog
Elizabeth MacDonald is the stocks editor for Fox Business Network. She is recognized as one of the top prize-winning business journalists in the country, and has received 14 awards, including the top prize in business journalism, the Gerald Loeb Award for Distinguished Business Journalism, and the Newswomen's Club of New York Front Page Award for Excellence in Investigative Journalism.
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cks
This all had to happen eventually. Housing appreciation was too much ..too fast. It left a person making ever $50,000-75,000 a year unable to buy a small home in a safe neighborhood. A large segment of this population is single and in that tax bracket. Therefore, we are unable to buy a home but still get slammed with taxes. If housing costs are forced to come down and equalize then more of us in this tax bracket would gladly buy homes. With 60% of the population single, this is something to think about.
Rooster
Talk about the ultimate trickle down effect,just look at the home building industry as a whole. If everyone of you stopped and thought about it for a minute you could name at several people that you know, or are related to that is in someway connected to the home building industry. All of the "experts" kept saying there wasn't a housing bubble, when they all knew different. Now that the bubble has burst, where are those experts now? Hopefully they are out looking for a job just like I am. Yes we are in a recession, and have been for almost 18 months. It largely has been caused by the burst of the housing bubble. I have seen first hand the greed and excesses that home builders have had raging for the last eight years. It can't be a good thing when a new home buyer would have to take out a second mortage just to get into their "American Dream"! What a line of crap that they fed every one of their customers. All the while every one of them knew that the construction and price levels that they were at 2 years ago couldn't be sustained. As history has once again repeated itself, the home building industry will go through a "thinning of the herd" and the healthy will survive. Then we will start the whole thing over again, I just hope that this time will be different and everyone will remember what we are now going through and temper their greed.
cjs
OK is it just me but 817,000 housing starts means to me that the economy is still producing homes at a large rate. If you listen to the news, you would think that no homes are being built at all and the sky is completely falling in. It would be refreshing to read or watch a show that actually says how great our economy is that we can still start 817,000 homes in September!!!!
LaQuanta
When Obama becomes president just hand over your keys to me, cuz I'll be gettin more money from da rich folks.
Heywood Jablome
>>People are still moving to Fla.. Why not? Its a great place to live with a great climate and there is always something to do. ALways a hurricane to run from!
mj
In the Sunbelt city where we live, homebuilders built on every inch of open space they could get their grasping hands on, including a lovely area right next to the landfill. New subdivisions by the bazillions, everywhere you look. And absolutely no concern for the adverse effect on our community which did not, and probably never will, have the infrastructure to support the huge, rapid influx of new residents. Also we'll probably run out of water. Thanks a lot.
PeterC
An economy dependant upon growth for it's survival is doomed to fail.
Sherry
The high cost of fuel this past year has been a major contributer to the decline of our economy. Every aspect of our economy from the cost of building a new home to our groceries at the check out line have suffered. At least we are hearing more about becoming energy independent which should be at the forefront of any presidential agenda. The incredible ripple effect of our dependence on foreign oil to power our country has had a devastating effect on every aspect of our economy. From fueling our vehicles to heating our homes and increased electric bills American's are hurting from the high cost to our society. Every consumer product has seen a sharp increase in price. There is little left over after fueling up the family cars to get back and forth to work and paying more for every item purchased. There is little left over to save or invest. Most have had to dip into their savings just to get by as of late. Jobs and homes are being lost at rapidly increasing rate that keeps rising higher and higher. We have so much available to us as a nation such in the way of free renewable energy such as wind and solar, technologies that reduce our consumption of oil such as hybrid and electric plug in cars. Yet, we seem to be at a loss as a nation when it comes to developing a plan to get ourselves off being so dependent of foreign oil. Our economy is a slave to the whims of those who supply the exorbitantly priced oil to us. We pump our hard earned dollars into their economy with each gallon of THEIR oil we pump into our energy consuming cars, businesses and homes. We need to, as a nation WAKE UP AND SMELL THE COFFEE... I just read a very compelling recently released book called The Manhattan Project of 2009 by Jeff Wilson. It needs to be a required read for every member or our elected officials.
bubba
Keep this in mind as you hear/read the political spin. The press is our chief ideological weapon. Nikita Khrushchev I once said, "We will bury you," and I got into trouble with it. Of course we will not bury you with a shovel. Your own working class will bury you. Nikita Khrushchev I prefer to see this work itself out on it's own. Greed and bad decisions deserve to be punished. The wise will watch and learn from it. Fools will repeat the mistakes again...
Bill
It is very likely that Obama will be President starting Inauguration Day in January 2009. However, since I am certain the existing home prices and new home prices will continue to fall the next four years, I predict that Barack Obama's bubble will burst before December of 2009 and he will become even less popular as a President than George W. Bush. The only cure to the real estate crisis is to allow the prices to fall - allow the market to work. Prices will stabilize at the proper valuation. Since wages and salaries have increased only 2% or so per year, the real estate prices have a lot more to fall in the future. Add to that the peak of option ARM resets in 2011 and 2012, then you have a recipe for a one term President and a fly-by-night celebrity that was as overhyped as a McMansion in, say, Hesperia, California in 2005. You can thank billionaire socialist Penny Pritzker for manufacturing the Obama bubble.
GJP
All the home buyer wanted to know was how much to move in and how much a month to stay in. With ARM finacing there was more order taking than selling. All the builder wanted to know was how much he would make on the house.With inflated appraisals and one hundred percent liar loans profits were unbeleivable. All the Mortgage Broker wanted to know was how many points he would make and how quick he could sell the loan. All the secondary purchaser of the loan wanted to know was how fast he could pool the loan with others and bring in the investors. All the investors wanted to know was the yield on his money. Nothing new.Has happened before and will happen again. Time and greed.Now all the Feds want to know is how soon they can talk to all the players and start arresting them.
JohnyV
MACBETH, you are right on with reporting the numbers for shareholders. We are in a new era of building the future. I still believe there will be micro economies which need homes (new ones), and now. Where land hasn't been pushed up over the last ten years. USACE reports 75% of US citizen live within 25 miles of the US coastline and 98% of US citizens live on 2% of US land! Just take a plane ride and look out the window! Sure water and power availability will change for the better with our needed GREEN push. RE Broker's are out scouting land for the big builders for the next play. The current builders with a heave options, (on or off the books) will find a way to dump some of those option communities they over built by selling them off to RDA groups and move on, with some huge tax credit - WATCH! Yes, these new communities may be out of the mainstream areas, but cheep land and smart cities will lure them with tax incentives to the new promise land! Keep the faith home buyers, newer greener communities are on the drawing boards! JohnyV
Susan
I really feel like there is no quick fix and that our whole economy is going to ride this out while the market readjusts itself back to a more realistic scenario in the home building markets. Things got out of hand from the bottom to the top, and now the market is flooded with housing and not enough people out there qualified to buy, and with the way the economy is, I don't expect there to be a flood of people in line to purchase new or exhisting homes. This is going to take I would guess around 5 years for the current inventory to be sold. I is not a great time to be in the New Home building arena, I would suggest that Cabinet Makers, dry wallers, and the like look to home renovations, as that is where I think they will find their salaries coming from in the next 5 to 10 years.
Rebelman
Soooooooooo, you are saying the experiment by Barney Frank, Chris Dodd, Chuck Shumer, and Nancy Pelosi to substitute Fannie Mae and Freddie Mac for HUD housing did not work? Socialists or communists style programs cannot work in a free market society!
Carol
We own a small business in north-central Florida- fabricating and installing granite and marble counter tops. Having a glut of new homes on the market is not just bad for those of us connected to the construction industry! When our small businesses have to layoff workers because there's a sharp decline in new construction, then those former employees are also out looking for work which saturates the labor pool which translates into lower wages since most employers won't pay top dollar if they don't have to for the same work. Good for the employer? Perhaps...until the local economies start feeling the hit that all of a sudden shoppers at Wal-Mart, Target, or worse-- high-end specialty shops, aren't buying because they don't have the "extra" money in their budgets since they had to take a pay cut just to keep working. And one of the candidates thinks raising taxes on businesses that make more than $250K will HELP the economy? I'm not an economist by education, but 10 years operating a small business I do know that that won't work around here!
New homes Florida guy
its is definitely rough here in Florida. It is putting tons of people out of work and is due to a lethal combination of a rough economy and homebuilders putting themselves in this situation.
L.T.
People are still moving to Fla.. Why not? Its a great place to live with a great climate and there is always something to do. I watched as the flood of tradesman moved into this state. A lot of whom purchased homes on speculation their self. I could tell things were headed down a bad road about four years ago. Land prices on lots adjacent to the local dump were selling for around 5k to 10k about eight years ago. Two and Three years ago they were flipping like hot cakes at prices near 45 and 50k. The volume of uninhabited homes was sky rocketing. I often asked myself how long can we go at this pace.. Too many people were in the belief that we were all gonna get rich off of the housing boom just as if it were the yesterdays tech market.. The laws of supply and demand were totally over looked in the housing market.. I have learned that in history when people start trying to act as professional investors, the guys who make their living doing it and have it down to a tee, the professional investors begin to pull out of that particular market leaving the baggage of their destruction for those who are more uneducated to hold. It happened in the Tech stock market. The investors bailed and left the amateurs holding the chips. Those investors turned to the housing markets and started trading real estate as if they were stocks. They drove the price of land and homes trough the roof. Like moths to a light the amateur investors started playing the same game. As if on que the pro investors began leaving that market and it began to fall.. I mean seriously.. Who were these amateurs going to sell to? Each other? The pros quickly jumped onto oil futures. The question now is how many amateur investors tried to follow suit? Those amateurs who did are soon eating a plate of crow. My best advise to the amateur wanna be traders. Where ever the trend in the market starts next is a great place to stay away from.. Let them sink their own ship for once. After all.. They are betting that the amateur who sees the next get rich quickly market trend will follow them right until they leave like last years news paper. Once again leaving the burden of an over weighed market for the blue collar man to bare. These market trends were only able to drive so fast because the pros were speculating on the fact that they could rope enough people into following the latest artificial trend. On a final note.. Dont be a sucker.. Invest your money in your family's future and put aside your own personal greed for quick gains. Let the chips fall where they may but make sure your not under them when they do fall..
Tom h
Thank to the wisdom of our government the FHA home buyer Down Payment Assistance was eliminated. There reason was default. I think if you really look at the numbers the default was no greater than conventional or subprime. FHA could have raised credit requirement not do away with a great program. Many graduate students come out of college with no down payment saved and this program helped them. Now what is going to happen the first time home buyer will be delayed for years. How does this affect the seller of a $800,000 home. Well the first time home buyer purchases a home and those people move up to another and those people move up. Does anyone understand. Once you cut off the bottom layer all home sales come to a slow pace.
DMW
"Here’s how it works. Many large builders took minority stakes in joint ventures, which let them stockpile land for future needs while keeping billions in debt off their balance sheets. If they don’t make sales, if they can’t move that land, they’re still very likely on the hook for their share of that off-balance sheet debt" Please expound on this part of the story. Is it possible that these minority interest in joint ventures don't have exposure as it is likely that the debt associated with the purchase of a land parcel in non-recourse, i.e., the joint venture simply walks away if they can not significantly reduce the debt associated with the parcel of land. This was pretty common back in the S & L RTC days with land partnerships.
G.P.
E-MAC, I am a mortgage trader. This bailout off 700b will not work as you have stated. Instead of buying up dead cmo or cdo’s that are dead asset’s now flow of funds because the homeowner will and cannot pay. Instead of trying to get mortgage rates to 5.00% the homeowner cannot refi. Banks will not lend to him anyway. Take down the wamu, countrywide etc signs and put up federal govt 2009. How much can you pay mr. smith to stay in your home $500, $1,000 whatever. Ok we will PAY OFF the existing mortgage. That amount that you can pay comes to 2% 3% 1% whatever. Done. The old mortgage now in a cmo or cdo’s shows cash flow into the dead assets as a trader I can analyze flow of funds (speeds) and know dead asset’s show some life, have value. The man on the street stays in his or her home and the economy shows life. Banks have lending competition with the govt, won’t be under pressure to lend what they do not have, money. Buy just buying up assets and giving citi 100b of the 700b they are not being forced to lend it out. The main on the street already in under pressure how can he refi with say 20% down. Another bailout package is being floated. What will another $600 do? Get the money into the hands of the people that need to stay in their homes. The govt will make money on anything over 1.5% and the dead asset’s mr. Paulson is buying will have value if they show movement within the various traunches that make them up. Modification of the loans just reduce the value of the traunche that that loan is in and makes them more worthless not more valuable . so the 20 or 40 cents on the dollar the govt is paying will just cause the govt to lose money. As traders we need to look at cmo’s or cdo’s with cash flow. Then we can trade them. Why would I participate in a market of worthless assets. Get the flow of funds into them and then a trader can spot value at a price. The housing market will never recover with more and more foreclosure’s. in the short run a homeowner will have a mortgage rate, rather a payment he can pay. The govt is already the largest land owner thru fannie mae and freddie mac. Let the govt back into the rate. The mortgage market can never get mortgage rates low enough nor can the homeowner ever get the necessary down payment to refi his exsisting mortgage. a tired old mortgage trader G.P.