‘Challenging Conditions To Continue’: KB Homes
Some housing bubble news from Wall Street. “Homebuilder KB Home said negative trends in the U.S. housing market could persist in 2007, as inventory accumulates amid higher interest rates, according to a filing with the SEC. ‘Conditions in many of the markets we serve across the U.S. have become more challenging in recent months,’ the Los Angeles-based company said.”
“‘We expect the current negative trends in the U.S. housing market to continue for the remainder of 2006 and possibly into 2007,’ the company said.”
“The company added that several of its markets ‘have been affected by a buildup of new and resale home inventories, higher interest rates and higher cancellation rates, particularly markets that have experienced rapid price appreciation or substantial investor activity, or both, in the past few years.’”
“For the quarter ended May 31, KB Home, the nation’s No. 5 builder by 2005 deliveries, said net orders fell 19% from the year-ago period to 9,908 homes.”
The Fort Worth Star Telegram. “The rush to build homes in North Texas continues at a full gallop. But with interest rates and the supply of available homes on the rise, builders may face a field crowded with inventory for the last half of the year.”
“That could be a boon for buyers, as builders offer new incentives such as plasma-screen TVs and free upgrades.”
“Nobody is talking about a free fall, just a slip from last year, when 47,000 homes were built in North Texas. Realtor Mary Manry said she has noticed homes taking longer to sell and more aggressive pricing in the past six months. ‘It’s taking a little longer to move them,’ she said. ‘If you are a Realtor, you are going in and pricing that property — getting it closer to the nub.’”
“Foreclosures remain at historically high levels, as homeowners’ budgets get squeezed by..rising interest rates that are boosting the payments on adjustable-rate mortgages. ‘There is just not a reason that we see that it will go down,’ said George Roddy, (who) tracks foreclosure activity.”
KB CEO was in Businessweek a month or two ago talking about things turning around in no time!??! WTF?!?!? Looks like he had some stock to dump!
OT, from a Money magazine article on retirement:
“Tap Home Equity - Now
“A survey by home builder Del Webb reports that almost 60% of boomers plan to move when they retire, but why wait?
“There’s no need to stay in a four-bedroom house in the state’s best (and most expensive) school district after your kids move out. Trading down to a smaller house in a less expensive neighborhood may free up significant sums to invest.
“The strategy makes even more sense now that real estate markets are cooling off; the money you can take out of your house might be better invested in growth funds.”
There’s going to be a flood of inventory…
I think we’re already seeing this in D.C. I’ve noticed a lot of houses in the 1 to 1.5 million dollar range coming on to the market in recent weeks. These homes are in Bethesda and Chevy Chase, which are prime locations because of the public schools. And these are not starter homes, we’re talking 4 bedrooms here. Maybe it’s just a part of a larger trend of houses in all price ranges coming on the market, but it seems unusual to me for these kind of homes to hit the market in July. Realtors here always say that nobody buys homes in DC in July and August so people usually wait until the fall if they can. Just my observations. Maybe if I have time, I’ll zillow some of them and see when they were purchased. That would probably tell you whether they’re owned by boomers.
Just save yourself the money and put your kid in private school.
The huge price increase doesn’t justify any public school system unless you have 20 kids.
(the money you can take out of your house might be better invested in growth funds.”)
except if the cool period turns into a hard landing, the IMF asset bubble study shows stocks fall harder than RE. something to think about if you think RE will fall by 30-50%.
Who cares what the IMF thinks? It’s the institutional equivalent of the Island of Lost Toys.
I think public schools in good districts are pretty much on par with private ones.
You just end up paying 1.5 million for the house instead of 750k. So the Public school costs you 750k plus all the extra you pay in taxes? Sounds like a good move to me!
Not really; virtually all public schools dole out politically correct mindsludge. The private schools can actually teach, if they are so inclined.
HA! Private schools get sued if they teach something parents don’t like or give too much homework. I subbed at a private school for a while, and it was an eye-opening experience. The kids were lazy and rude. They did whatever they pleased. This was at a prep school with one of the best reputations in the country.
‘It’s taking a little longer to move them,’ she said. ‘If you are a Realtor, you are going in and pricing that property — getting it closer to the nub.’”
Doesn’t the nub mean to the central core….like when there is no excess.Bwahahaha
Simmssays…10 Ways to Freak Out Your date
http://www.americaninventorspot.com/node/1266
MMM reports news such as this and their stock drops $6.90; KBH is down $.11.
????????
It’s called, “the news is already priced in.” I’m still long these stocks.
So what’s your exit strategy?
“That could be a boon for buyers, as builders offer new incentives such as plasma-screen TVs and free upgrades.”
I hardly see how a plasma TV is a great incentive. You can get a 42″ plasma for under $1500 these days which is less then a mortgage payment.
I think there is a Plasma TV bubble.
Prices will drop as the inventory of Plasma TV’s increases.
Why pay $1500 when you can pay $9.98 a month for 30 years?
there is going to be a huge glut of everything that goes into a house pretty soon. granite countertops for everyone!
everything is going to be on sale. every electronic gadget and RE bmw.
John in VA - email me, have a question….
nurseliz27@msn.com -
Foam pillars and stick-on rocks for everyone
“That could be a boon for buyers, as builders offer new incentives such as plasma-screen TVs and free upgrades.”
Statement speaks volumes about about how the builders perceive the mental prowess of the average buyer.
As Gene Wilder said in Blazing Saddles, “They’re the salt of the earth, Average Americans….In other words, They’re MORONS.”
Mongo just a pawn in game of life, Mongo buy house ’cause real esate always go up.
Why does it always go up Mongo? Don’t know, have something to do with where choo choo go…
salinasron,
Well that’s what I keep wondering! I believe they have grossly underestimated the mental capicity of the “average” buyer. Obviously it hasn’t been terribly effective b/c home sales haven’t exactly spiked with free TV’s or even pools that matter. Even someone that’s not exactly the sharpest tool in the shed can probably figure out by now that prices are dropping and that TV will be junk long before the house is paid off. (At least I hope so!)
The people who would buy those homes already bought a PLASMA tv with their cash-out refi from their previous home. That’s why it’s not working.
3M shares were off last week on reduced earnings and the reason they gave was a reduction in sales of the film they sell for monitors like Plasma screens. Looks like the plasma bubble has burst already.
(“There’s no need to stay in a four-bedroom house in the state’s best (and most expensive) school district after your kids move out. Trading down to a smaller house in a less expensive neighborhood may free up significant sums to invest. There’s going to be a flood of inventory… )
Yep, the 1960s generation is going to screw those of us at the back end of the baby boom again. They’ll sell the stocks out of their mutual funds before us too, causing their value to crash.
Knowing what they are going to do will help you with investing . I agree with you that the tail end of the baby boomers ,(born 1960-1967 ) , get the worst of it . The one plus with this group is they have longer to save for retirement .
With the foreknowledge of what boomers might do, coupled with the knowledge of what they are doing, any investor can make some very smart decisions ahead of these moves. You said yourself you know where they are going, be bold and get there first.
Larry,
I’ve often thought this. Having worked on WS in a previous life, I think one (albeit unscientific) way to detect this will be measuring the outflow of funds from EQ funds into FI and cash. An indicator that measured this as a ratio would be interesting to follow.
no one has ever gone broke by underestimating the intelligence or good taste of the american people.said by mencken in the 1930’s,still true.
‘Standard & Poor’s on Monday changed its outlook on luxury home builder Toll Brothers Inc. to stable from positive, citing declining new orders in the housing market. ‘The outlook revision is due to negative new order trends that have been deeper and broader than anticipated during the early stages of the overall housing market correction, precluding an upgrade in the near term,’ S&P said in a statement.’
‘Given the longer construction cycle for Toll’s luxury homes, these trends are likely to pressure profits for several quarters,’ S&P said.’
Toll up 11 cents on the news.
So I suppose a downgrade just issued today was also “already priced in”??
They are playing some amusing games here. Long term direction: down. Short term direction: Ask the person at Toll in charge of using borrowed money to buy back shares.
All bad news, past, present, and future, is already priced in to the homebuilder share prices. That is why their prices always go up, just like price of the homes which are sold to provide their revenue stream.
only 40% late= roflow
is S&P playing the same game as analists now ?
only 40% late= roflow
is S&P playing the same game as analists now ?
Translation of fundspeak:
“Hold” means SELL
“Stable” means UNPROFITABLE.
We *did* learn this after the tech bubble…. right??
Translation of fundspeak:
“Hold” means SELL.
“Stable” means UNPROFITABLE.
We *did* learn this after the tech bubble…. right??
i think this is related to the debt from toll.
they habve stable, positive and negative.
this is very significent news.
Maybe S&P has realized what I have long suspected: The US housing market is suffering from a shortage of McMillionaires.
CNN has an article today about the future housing boom. It says the boom will be in inner-city urban areas. Does anyone else believe that’s how it will play out?
(I do - the suburban lifestyle today is becoming unappealing due to cookie-cutter houses, consumerism, lack of community, high gas prices, homogenous lifestyles, etc…..the end of the boomers will be the end of the suburbs. I lived in the suburbs but moved into town and love it after 7 years. The quaint, unique, older houses, ability to walk to nice restrautants, bars, and stores, and living a lot less ‘rat-race’ appeals strongly to me)
how about when the drums stop?
You say that because we have the lowest crime rate right now that we have had in a half-century. If the economy tanks, crime will rise. Dramatically.
Do you still believe that? Have you read Freakonomics? I would highly recommend it for you.
This booms been going on for 10 years and for 10 years people have been talking about gentrification of certain Seattle neighborhoods BECAUSE of the boom.
But those neighborhoods never quite got to where they were expected to go.
If it hasn’t happened during the longest sustained housing bubble in history, why would it happen after the bubble bursts?
Because the close land has already been transformed to suburbs. There is lots of far away land where I live but nothing undeveloped that is close. Looks like a great future for redevelopment. This city will be a lot more beautiful if they would tear out a bunch of old houses and build new neighborhoods (which is already being done in some areas).
Suburbs are 1990s. Urbanization is the new buzz word.
Since I am new to the area, could you please name some of these gentrifying areas.
*nods* I totally agree - the next boom is going to be in the inner cities - closer to where the people who still HAVE jobs are working, because they won’t be able to afford fueling those 16mph gasguzzlers for their 60 mile one way trip in from Suburbia.
As far as crimerates going on - cops follow the money. If there is a housing boom in the innercity, all of a sudden, more cops will be ‘affordable’. Look at Times Square.
I agree– but then, I’ve been expecting this for 30 years. I never did like suburbs, and I was willing to live with the extraordinary crime rate in the late 70’s - early 80’s rather than move into one of those ‘little boxes all the same’. Still, I expect it to be a long, slow process. For one thing, people are going to try to hang onto the mcmansion because they’ve counted on the phantom equity for their retirement. They’ll try to stay as long as they can. Their kids will have to drag them out of there and sell the mouldering heap when they can no longer stand the drain on their time, energy and pocket-books of ferrying them around to doctors’ appointments.
I don’t see it happening in most cities. Urban areas may appeal to singles, empty nesters and young couples, but they generally do not appeal to people trying to raise children. Crime was a huge problem in the past and will be again in the future. I lived in an urban area as a youth, and let me tell you, you don’t want to raise your daughter in most urban areas. I frequently had men offering me money to have sex with them, and I was in a supposedly gentrified, upscale area. That never happened in the suburbs.
Most people with children want a back yard, a low traffic street and clean air, and they are willing to commute longer distances to provide a more idyllic lifestyle for their kids. Suburbs offer most of the things that cities do - coffee shops, restaurants, markets - they are just spread out more so walking isn’t always an option. That’s okay, my mother in law lives downtown and she never walks to any of those things due to bad weather or not wanting to cross busy streets. Most people do not patronize museums and symphony halls often enough to justify the added expense of living in an urban center. And that’s the thing. Suburban housing is cheaper and suburban taxes are cheaper. It will always be that way because big cities are very expensive to maintain. Most people do not want to pay for amenities they rarely use.
I think the idealization of urban centers comes from those who grew up in the suburbs and believe that the unprecedented low crime rates we’ve seen since the late 90s are the norm. If it’s a matter of demand for cute housing, shops within walking distance or cheaper commutes those things can easily be addressed within the framework of suburban living.
Agreed that a lot of urban areas aren’t so much on the “way up” or the “way down” as they are barometers of the always changing economic and social climate. However, at the risk of making people’s heads explode (somehow this rather practical issue always becomes a political one) - energy is not going to get cheap again any time soon, not if the whole planet joins hands and sings Kum-Bay-Yah. So yes, especially in the older metropolitan areas that still show the footprints of long-dismantled trolley lines and other infrastructure, urban living may well “come back” and push poverty to the outlying areas.
…But then there are all the urban areas that were sleepy little noplaces a century ago - much of the south never developed that kind of density or commute infrastructure in the first place…I think it would take an incredible crisis to coerce those regional governements to fund fundamental changes in how areas are developed or re-developed, and it’s possible that a technology that allows us to retain the commuter lifestyle would arrive first. Probably more voters would go for mandating “recharge” stations every few miles than mandating where folks live?
Climate and global warming is the wildcard. If Coastal communities keep going under in a dramatic way from the Gulf to New England, I could see widespread panic and all sorts of prohibitive legislation. Mind, we aren’t interested in what we are doing to our great-grandchildren, but if it’s US, NOW, we’ll be more than happy to over-react.
The study by First American Real Estate Solutions identified Minnesota as one of the top 5 States to be hardest hit by “mortgage payment reset”:
http://www.firstamres.com/pressrelease?page=detail&id=77
“The states with the highest percentage of risky properties, where fewer borrowers have significant equity and face greater likelihood of experiencing reset sensitivity include Tennessee, Colorado, Minnesota, Alabama and Arkansas.”
It seems Minnesotans used plenty of Interest-Only and Negative-Amortization loans….
“Homebuilder KB Home said negative trends in the U.S. housing market could persist in 2007, as inventory accumulates amid higher interest rates, according to a filing with the SEC. ‘Conditions in many of the markets we serve across the U.S. have become more challenging in recent months,’ the Los Angeles-based company said.”
It seems as though there is a never-ending supply of good news to spark yet another rally in the homebuilder share prices.