The Construction Folks Have Played Out Their Hand
A report from Bankrate.com on California. “In the California real estate market the ‘b’ word is on the minds of many: bubble. One place where home sales were legendary for their risky offers, stripped of contingencies to woo sellers with full dance cards, is Silicon Valley. Inventory is fattening and sales are slowing. ‘At our peak, in my area, if you listed a home you could count on get 15 to 20 offers. We’re still in a market where we’re getting multiple offers, but things are changing,’ says Robert Whitelaw, broker/owner of Whitelaw & Sons Real Estate Services in Morgan Hill, California.”
“‘One, not just anything will get multiple offers. If you have a crappy house, the odds are it’s going to take you longer to sell. And that wasn’t always the case. You could sell absolute crap really quickly. The other part of it is you’re getting less offers, maybe four or five,’ he said. ‘I got an email from a builder recently. It was the oddest email, it read: ‘Now affordable housing at the low $1.3 millions.’ The construction folks seemed to have played out their hand when it comes to high-end construction. The really sad thing is that, in the really high-priced homes, the folks that bought them are likely going to have to sell for less than they paid for them.’”
The Kingman Daily Miner in Arizona. “Home sales have slowed across the nation after a busy spring, and higher prices in certain markets are giving buyers cold feet as they fret about another housing bubble. Doug Angle, founder of Angle Homes, said he’s seen a slowdown in sales over the last couple of months. ‘We’re still selling homes, but not as much as the spring,’ Angle said. ‘You’ve got to keep an eye on it. It kind of makes you nervous. You don’t know if it’s peaked or not.’”
“Angle is actively building in eight housing subdivisions around Kingman with homes starting at $152,000 for a three-bedroom, two-bath home in Cerbat Vistas and ranging up to $575,000 for a four-bedroom, 3½-bath home on two acres at Copper Wind. ‘Many of the buyers are from California, about half of them,’ Angle said. ‘We hope things will keep growing in the next two years, but in the last 45 days, we are starting to see a slowdown in sales both locally and nationally.’”
“Homes are sitting on the market a little longer and buyers are negotiating a little harder for deals, he added. Some builders may give them a $5,000 discount, but then recent buyers get upset because they didn’t have the same opportunity, Angle mentioned.”
“Angle said sales are slowing in higher-priced markets such as Denver, Seattle, San Francisco and Los Angeles as buyers think twice about taking on a substantial mortgage. ‘Prices have been going up the last three to four years. At some point, people say that’s too high, they’re not interested in buying,’ Angle said. ‘It’s going to reach that point. You’re going to have a correction. They’re starting to see that in expensive markets.’”
From Builder Online. “Clearly, although new-home builders in many markets continue to drive sales growth and can expect to record year-on-year increases in sales volume, revenue, and profits, the interest rate wild card is at least showing signs of raining on our builders’ parade. Ivy Zelman and her team at Zelman & Associates call out a statistically important inflection point in the latest issue of The Z Report, a recap of second quarter 2018 earnings among 14 public home builders who booked revenue of $20 billion on 51,500 closings–about 37% of high volume builders sales in the nation.”
“They note that the Zelman home builder basket had a great quarter from a business operating margin and profitability standpoint, but appear to have reached a pivotal moment in terms of the sustainability of their sales volumes and margins. The report takes particular note of new order growth of 6% across the 14 companies analyzed, a 500-basis point quarter-to-quarter decrease in sales volume growth from the first quarter of 2018.”
“‘To put this quarter’s 500 basis point deceleration in order growth into perspective, over the last 28 years spanning 113 quarters, order growth has decelerated at least 500 basis points in 32 other quarters, or 28% of the time. In 69% of these instances, order growth decelerated further in the subsequent quarter, by an average of 1,000 basis points. In other words, periods of large deceleration in order growth more times than not are followed by additional periods of weakness.’”
From the Coloradoan. “A decade ago, L&L Acoustical averaged about 60 jobs a month. Today, the drywall company completes 35 to 40 jobs, not because the work is shriveling up — quite the opposite. There’s enough work to do 60 to 70 jobs in Fort Collins’ robust housing climate, co-owner Gery Lockman said. ‘The cost of building these homes are through the roof,’ Lockman said. ‘Materials and labor are going up, but they can’t keep going up because we won’t have any work. No one’s going to be able to afford the houses.’”
“While the labor shortage continues, the appraiser shortage has eased. John Mayea, who has been appraising property in Northern Colorado since 1984, said there was a shortage right up until interest rates started to rise. ‘In those 30 years, the whole real estate business has tapped into capital unimaginable in the ’80s.’”
“When he started in the business, there were fewer appraisers than today and less work. ‘People didn’t use their houses as piggy banks back in the day,’ Mayea said. ‘There was not the whole volume of lending and borrowing, refinances and seconds.’”
“Appraisers were stretched beyond the breaking point during the height of the refinancing boom, when interest rates were at record lows. ‘There will always be a shortage when there’s a refi boom, but you can’t build an industry based on peak demand.’”
“Ron Harding got 20 to 40 appraisal requests per day during the refinancing boom. He could only accept one or two. Instead of a shortage, he calls it ‘an overabundance of work that no one was prepared for. It couldn’t last and it didn’t last,’ he said. ‘Nowadays, that’s gone. There are plenty of appraisers,’ he said.”
“Realtors and lenders know to call for an appraisal immediately once a home is under contract to ensure there is no delay in closing the purchase, Realtor Ben Blonder of Fort Collins said.”
‘If you have a crappy house, the odds are it’s going to take you longer to sell. And that wasn’t always the case. You could sell absolute crap really quickly’
Odd how they brag about such things in California. Later they’ll wonder why they lose money.
‘‘I got an email from a builder recently…it read: ‘Now affordable housing at the low $1.3 millions.’
You could sell absolute crap really quickly
“Price cures all defects.” —Realtor’s proverb
The really sad thing is that, in the really high-priced homes, the folks that bought them are likely going to have to sell for less than they paid for them.’
Gosh, that is so, so sad! I doubt Robert felt bad at the time he was selling these poor victims their overpriced houses and cashing the commission checks.
This is getting good, and it is only the beginning.
Ben, you are working overtime these days. Thanks for keeping this blog updated - kinda like drinking from a firehose right now.
https://wolfstreet.com/2018/08/13/housing-market-inflection-point-bay-area-sonoma-county-supply-volume-price/
Sacramento County Housing Prices Plunge As Real Estate Interests Scramble To Conceal Correction
https://www.sacbee.com/news/business/real-estate-news/article216455775.html
If you follow the Sacramento market, the appraiser in the article, Ryan Lundquist, has a blog where he publishes detailed stats about the Sacramento housing market.
My interest is at the core of this thing…. Crime.
‘Homes are sitting on the market a little longer and buyers are negotiating a little harder for deals, he added. Some builders may give them a $5,000 discount, but then recent buyers get upset because they didn’t have the same opportunity’
Well yeah, you just put them underwater.
‘Many of the buyers are from California, about half of them’
I know a bit about this area. I doubt these Californians are buying new shacks to live in there. It isn’t a good place to vacation either. And what happened the last time Californians snapped up speculative purchases in Kingman?
‘Many of the buyers are from California, about half of them’
Fools with holes in their pockets.
Kingman is in the middle of nowhere, and there’s absolutely nothing to do there. I stop there for fuel sometimes, but I cannot imagine living there.
Ha! … it’$ on the way to Lo$t Wage$ baby!
(Mi$ery love$ companion$!)
Word.
‘Materials and labor are going up, but they can’t keep going up because we won’t have any work. No one’s going to be able to afford the houses.’
The article mentions the quality is crap.
‘there was a shortage right up until interest rates started to rise. ‘In those 30 years, the whole real estate business has tapped into capital unimaginable in the ’80s.’
‘When he started in the business, there were fewer appraisers than today and less work. ‘People didn’t use their houses as piggy banks back in the day,’ Mayea said. ‘There was not the whole volume of lending and borrowing, refinances and seconds.’
‘Appraisers were stretched beyond the breaking point during the height of the refinancing boom, when interest rates were at record lows. ‘There will always be a shortage when there’s a refi boom, but you can’t build an industry based on peak demand.’
Refi boom? Piggy bank? But Senator Running Deer said this would never happen again?
Along these lines, here’s a California loan guy excitingly telling the world about new opportunities to leverage up 100%!
https://www.pe.com/2018/08/09/first-time-ever-standalone-fixed-rate-second-mortgages-allow-100-cash-out/
First time ever!
A person I know of is buying a house in Houston with no money down because they qualify because they were displaced during the flooding last year.
I was told ” their are always deals from the government you just have to know how to get them”
And all I do is pay taxes how dumb is that ?
I should be lining up sweet deals screw this working for a living, paying taxes, waking up early, etc.
Why don’t you go buy a zero down house in Houston then? Quit whining and do it.
$9.7 billion - that’s the amount of federal money going to the City of Houston and Harris county for disaster relief from Harvey. The funds are going for things like flood mitigation, rebuilding houses, and even building new ones, etc., you name it. Disaster relief is a growing industry.
Disaster relief = vote buying.
Hypothetical and slimy question - but interesting i think.
What if you and your wife ’separated in name only’ say 5 years ago? Gave her everything in the divorce settlement. You buy a new house in just your name (but you/wife/kids live there there). Keep taking out equity - and when the bubble breaks - just declare bankruptcy. All the real assets are in her name and you guys are officially divorced.
Tariffs on Canadian lumber, and lots of Mexicans leaving so no materials and no labor. MAGA
Emeryville, CA Housing Prices Crater 6% YOY As Tech Wreck Ravages Alameda County
https://www.movoto.com/emeryville-ca/market-trends/
“Melbourne’s Market Continued to Lead Australian House Prices Lower Last Week”
https://www.businessinsider.com.au/australia-property-corelogic-weekly-house-prices-2018-8
Our cities house-price index suggests the property market is slowing
After years of strong growth, property prices are on the turn
https://www.economist.com/finance-and-economics/2018/08/11/our-cities-house-price-index-suggests-the-property-market-is-slowing
‘Angle is actively building in eight housing subdivisions around Kingman with homes starting at $152,000 for a three-bedroom, two-bath home in Cerbat Vistas and ranging up to $575,000 for a four-bedroom, 3½-bath home on two acres’
Ring ring!
Kingman Shacks, Abigail speaking.
Hi, I’m looking to buy a new house in Kingman.
Great! What price range were you interested in?
Around five hundred thousand.
Wonderful, and what part of California are you from?
Dumber than stumps.
“Do you have a hou$e equtie$ ca$h out purcha$ed recreational boat that is home to any of the following?:
10 Most UNWanted Arizona Invasive Species: Plants & Animals
Quagga Mussel.
Buffelgrass.
New Zealand Mudsnail.
Red Imported Fire Ants.
Asian tiger mosquito.
Northern Crayfish.
Yellow Starthistle.
Red Bromegrass.
Kingman is an armpit.
Monterey, CA Housing Prices Crater 11% YOY As California Housing Glut Expands
https://www.movoto.com/monterey-ca/market-trends/
“Some builders may give them a $5,000 discount, but then recent buyers get upset because they didn’t have the same opportunity, Angle mentioned.”
Some. May. $5000 discount. Didn’t have the same “opportunity.”
How friggin’ sad is that? Good thing that huge discount is only temporary. /s
Some thoughts/ramblings…
Basic Ponzi economics:
Incoming cash flows must exceed the servicing costs of previous accumulated debts
Credit is needed to supplement income that is inadequate to service accumulated debts
Rising asset prices are required to create new credit
International money printing is still sufficient in general but:
– The prospect of the end of ECB QE is already stressing the Italian bond market
– Not enough international “investors” coming to buy US homes to keep inflating the housing bubble
On the personal side, stagnant US wages, auto/student loan/credit card/mortgage debt are combining to make debt service increasingly impossible.
On the corporate side, the temporary goose in profits from the tax giveaway was supportive of the junk bond market. Many investors are yield starved/chasing and will be quick to exit when capital losses start to accumulate.
Asset prices MUST rise to keep the game going.
The US is the tip of the spear. The lack of US money printing and the reduction of foreign money (and trade wars) are already causing a leveling/reduction in asset prices. Rising stocks valuations are increasing concentrated in a few names
Weak hands will accelerate this when the trend becomes obvious to everyone
– Flippers will want to dump
– Pension funds and managed bond funds holding junk bonds will dump them when capital losses start in earnest.
Once this acceleration starts, I can’t imagine how the momentum will be stopped.
“Once this acceleration $tarts, I can’t imagine how the momentum will be $topped.”
Google: 2008 Lehman Bro$
American credit card debt$ … $2 Trillion$$$$$$$$$
$tudent loan$ debt$ … $2.5 Trillion$$$$$$$$$$$$$
Corporate$ Debit$ … $8 Trillion$$$$$$$$$$$$$$$$
+ ( Defict$.don’t.matter$.anywho!, … just.you.wait$.&.$ees )
Cue: NYCitydj & the Mary Jane Girls “all night long!”
builder stocks crashing bigly
causa Turkish lira
shortage
trump
Thee.long.lever$.mo$tlyboy$.$omegirl$., $till enjoying end.of.$ummer $oriee’s.in.the.$and … it ain’t back to “Deci$ions.time$” … just.yet!
??? What were you trying to say?
FL question
if you jingle mail and only have SS to garnish
how long before they get a deficiency judgement and attach the 15% of SS they can take?
1 yr
2?
used to be a long time ,but they changed the laws
anyone know?
With all this crap going on, and S about to hit the F, why in heaven’s name are gold and silver dropping like rocks? My gold miner stocks, already at the bottom of their range, are getting freshly hammered it seems like every day for the past few weeks.
People need cash?
https://finviz.com/futures_charts.ashx?p=d1&t=GC
What’s the best silver bet
Paas? Cde ?
M ii need are usually debt blobs
Downtown Los Angeles, CA Housing Prices Crater 10% YOY As Double Digit Price Declines Push Millions Of Homeowners Underwater
https://www.zillow.com/downtown-los-angeles-ca/home-values/
*Select price from dropdown menu on first chart
It is truly happening here in my corner of West LA. I am not saying that the median price is reflecting anything yet. Houses are still selling, and some still go above asking price, like these ones, one from June and one from August
https://www.zillow.com/homes/recently_sold/Los-Angeles-CA-90064/20498920_zpid/96045_rid/34.077758,-118.386655,33.992761,-118.473344_rect/13_zm/
https://www.zillow.com/homes/recently_sold/Los-Angeles-CA-90064/20502179_zpid/96045_rid/34.077758,-118.386655,33.992761,-118.473344_rect/13_zm/3_p/
But there are also houses sitting for much longer and real reductions, which is something that I had not seen happening for a long time. There are actually open houses in my hood during weekends, and realtors are not knocking at my door to buy the rental where I live. I guess we are at a point, at least in this area, where people can find evidence to support both sides of the equation if they look for it. But the upward trend has definitely stopped. The next couple of years will be a thing to behold.
Oh Professor, they building new landfill$ in San Diego Countie$?
“San Diego’s recycling program brought in $4 million in revenue last year. Recycling could now cost the city $1.1 million.”
BUSINESS
What Happen$ When China Doesn’t Want Our Recyclable$
By Noreen O’Donnell / NBC Los Angeles
“While we’ve been shipping into China for years, we also have opened up market in other parts of Southeast Asia, India, South America and Europe,” said Brent Bell, a Waste Management vice president for recycling. “And so when the Chinese starting restricting the imports we quickly shifted that material to some of these alternative markets.”
San Diego historically had exported 80 percent of its curbside material, 60 percent to China, according to the city’s Environmental Services Department. The percentage dropped to 24 percent in the first quarter of 2018.
Its recycling processing contractors in May proposed suspending all revenue payments to the city — which stood at $4 million in the last fiscal year. Instead it would assess the city a $1.1 million annual cost. The loss of the China market and low oil prices together have tanked the value of plastic.
The department is working to amend the contract to adju$t for the effect$ of China’s National $word Policy.
CHINA TACKLE$ POLLUTION
Here’s how we got to this point: For decades, the U.S., rather than recycling its own material, had been sorting it, baling it and shipping it to China, where it became raw materials for new goods. But then China began warning that as part of its efforts to tackle its environmental pollution, it would impose stricter demands on scrap imports.
China launched Green Fences in 2013 to enforce regulations on the quality of the imports, and announced its latest policy, National Sword, last year. It told the World Trade Organization that it needed to protect China’s environment and the health of its people.
Dirty or hazardous waste mixed in with raw materials had “polluted China’s environment seriously,”
LOL! Yes, all of China’s pollution is due to contaminated recyclables from the US. Including the smog, I suppose.