‘An Industry Epidemic’ For The Homebuilders
There is big news from Wall Street this morning. “The largest U.S. homebuilder said that its orders for the quarter ended June 30 fell 4.4% to 14,316 homes from 14,980 a year earlier. The value of the homes sold dropped to $3.8 billion from $4.1 billion.”
“‘The current home sales environment is characterized by an increase in both existing and new homes available for sale, higher than normal cancellation rates and an increase in the use of sales incentives in many of our markets,’ said Chairman Donald R. Horton.”
“‘We think the sharp deterioration in earnings throughout the end of fiscal 2006 likely reflects sharply lower closings and significantly lower margins,’ Bank of America analyst Daniel Oppenheim wrote.”
“Raymond James released a report that said contracts for housing sales fell 42% year-over-year in June in the greater Washington area, according to an area realtors groups. Closings declined 38% and the inventory on the market now represents 7.1 months of supply, compared with 1.6 months in June 2005, and 5.9 months in May.”
“‘We continue to believe the Washington, D.C., market is headed lower as excessive speculation and overbuilding will weigh on the market for the foreseeable future,’ Raymond James analyst Rick Murray wrote.”
“Not even price cuts could save Horton from the forces of higher mortgage rates and a rising inventory of unsold homes. ‘It’s pretty brutal out there,’ JMP Securities analyst Jim Wilson said. ‘The strategy they’re trying is to move product no matter what it takes. Their margins are getting clobbered.’”
“Some analysts following the industry were caught off guard by the magnitude of D.R. Horton’s profit warning. ‘To say our initial reaction was surprise’ would ‘heavily underestimate the impact; we were shocked,’ wrote analyst Stephen East. ‘Cancellations have taken a mighty toll on D.R. Horton’s ability to deliver on its forecast, which has reduced its revenue and pressured margins as incentives have jumped substantially,’ he said.”
“‘Even this housing bear is stunned,’ said A.G. Edwards analyst Gregory Gieber in a note Friday. ‘This is an industry epidemic, and we believe others could get hit worse.’”
And from Washington Mutual. “Washington Mutual Inc. said on Thursday it was planning to cut 900 jobs as part of a bid to match capacity with ‘current and anticipated market conditions.’ Spokeswoman Olivia Riley said 350 of the job cuts would be in its home loan group as it moves to outsource residential appraisals.”
“Employees were informed on Wednesday about the job cuts, Riley said, the latest in a series of payroll reductions at the largest U.S. savings and loan. Like its rivals in the home lending business, Washington Mutual is dealing with a drop in activity as interest rates rise and the housing market cools.”
The LA Daily News. “Washington Mutual’s big Chatsworth campus took another hit Thursday, losing 140 more jobs as the bank continued its aggressive cost-cutting plan. Since January, the Seattle-based banking company has cut its Chatsworth work force by about 34 percent.”
“The jobs are among 900, 350 of them real estate appraisers, that the company is eliminating across the country. Further job losses are possible, said company spokesman Tim McGarry.”
Not surprising. The DC area has seen record speculation. Recently a study by the HSBC bank found it overvalued by 40%.
I expect to see massive reductions around here.
http://bubblemeter.blogspot.com/2006/07/price-index-for-average-selling-price.html
who knows maybe the GOP will grow balls and actually cut some gov parasites
Yeah, hopefully they roll back the giveaways to the rich as well. No more free lunch!
When Rangle becomes chm of Ways and Means, the Dems will raise your taxes and reduce write off for mtg deduction and taxes. Real Esate will tank. Good luck G.I.Don’t blame me.
When you talk about taxes, be more specific. There are a thousands of different tax categories. You sound like a moron when you make it sound like there is only one kind of tax.
An extraordinarily high proportion of last year’s sales around the country were driven by speculators. That activity shut off like a lightswitch. It’s completely gone. That’s why we may see a much, much faster drop than even we had anticipated.
After all, what happens to any business when 40% of its customers disappear overnight?
Not only that but the customers now are the competition!!!
You can see this stuff coming but it’s still unnerving to see it in real time.
This is why Wall Street analysis is so horrible. If you had your ear to the floor, this was one call that the analysts could have predicted. And few did. If you are a home building analyst and you still have clients in homebuilding stocks, you are a disservice to you profession.
I manage the investor relations department of an S&P 500 company and we can miss and no one would see it coming because there is no way to get data from third party sources. But the housing breakdown was right in from of everyone’s face.
Actually there is if you are really looking under the hood, doing channel checks, calling competitors, analyzing industry/currency risks, etc. like I had to do when I got my first securities job out of college. Of course those were pre Reg FD days when “relationships” would help you out as well. But most of them don’t seem to do that legwork anymore. It’s all computer modeling.
And what’s really really really funny is… the analysts will say one thing… and the internal proprietary trading or fund managers will say something completely different. And you can guess which side has the more realistic opinion. As long as its for internal consumption only, they’re much more honest.
You know what they say, when the FA and the TA say two different things, believe the TA.
If I could figure this out simply by virtue of reading the blog and owning a few rent houses and talking to the sales guys once a month, I cannot understand how the analysts could be so surprised.
Bonk:
Sure it was there, but as many on this site can report, NO ONE WOULD LISTEN! It was lonely out there.. Worst yet, most STILL aren’t listening.
Now to hear that Raymond James fellow talk, he was out in front of this! The best I can remember ALL the high priced regurgitants said this..” Relative to the market, these stocks are all ‘cheap’, we expect earnings to be $$$(blah blah up & blah up ) 50% discount to the market for this years earnings and next years backlog of presales in the pipeline nearly 75% to next!!”
These once upon a time movers and shakers (pre 1998) are pitiful. The markets no longer obey them (IT never did), yet they recall when they were KINGS! Now they are reduced to liars, and Wall Street whores!
That’s right Rick Murray / Raymond James put a lipstick date on that bearish pig call would yah! PunK
Plan A - NOW !!!
Everytime these guys say buy or overweight, give it a day or 2 and SELL SELL SELL, & try to beat them (Wall Street) out the door) In bear markets these anal ysts are nothin more than Casino schills, with fancy titles and letters behind their names.
Nice downgrades on these stocks today! WTF?!?!? Who is doing this analysis Jack Grubman?? What a joke!
They were surprised by this??? Get off your chair and go do some real research. Many here have driven through housing tracts sitting unsold. NO ONE SHOULD BE SURPRISED!
Well put, C&C.
I know that it is not possible to have this many folks involved in a conspiracy but I find it so difficult to understand how anyone with just a modicum of intelligence could miss this call. Add in the fact that they were actually collecting a paycheck to give their undivided attention to this market and it leaves one just flabbergasted. If you were a CEO employing one of these analysts what would be your reaction? If these folks aren’t out of a job by the end of the day then I guess I have to assume that this wasn’t nearly the surprise that they are making it out to be. What else could one assume? There are several blogs dedicated to nothing else but shitting on the morons running around trading houses like so many baseball cards. How could someone in charge of analyzing a particular aspect of this market not be aware of these blogs? Would they not check in on occasion just for giggles or to see if they were overlooking an issue? When in the history of financial markets has the availability of intel from “boots on the ground” been so prevalent and easy to access? How is it possible so many diverse people were totally clued in to what was going on in one industry and the paid analysts were dumbfounded? I really don’t get it.
Waitress! A round of pinksheet ass-poundings for the RE analysts sitting clueless at the corner table please!
LMAO!
“I find it so difficult to understand how anyone with just a modicum of intelligence could miss this call”
It’s just more of the ol’ pump-n-dump my friend. These analysts know what’s happening, they just choose not to mention it or report on it. And then, when something like this comes out they feign suprise and say, “Gosh, what a shock! We will issue a downgrade!” Meanwhile, all of their fat-cat, wise-guy Wall St. buddies have long-ago cashed out at the top. What a scam! I don’t see how anyone with any self-respect or sense of ethics can do that for a living.
“all of their fat-cat, wise-guy Wall St. buddies have long-ago cashed out at the top. What a scam! They ain’t that smart, otherwise they wouldn’t be working on a steamy, hot July Friday in NYC. The smart ones are already on their boat somewhere, it’s the dumb ass ones left on CNBC and Krammer that most investors follow with conviction. The blind leading the blind. If an expert doesn’t go along with the CNBC company line, no more TV time…No, these are just palin stupid used car salesman dressed up in $2000 suits, with zero brains.
It’s the same game they played during the internet bubble days.
“Yeah, Maria, our analysis tells us that Pets.com is a great buy here at 65.”
Two months later…
“Pets.com is trading around .10. The rapid deterioration in fundamentals took everyone by surprise, so we are downgrading that stock today.”
I saw some loser at (I think it was) First Boston downgrade Sonus Networks in the fall of 2002 at .20 with a target of zero. That was the bottom and it went from there to 9 bucks.
“..I find it so difficult to understand how anyone with just a modicum of intelligence could miss this call. ”
A very good question and worthy of further discusssion.
A few theories:
1) Towing the party line = Secure Paycheck
2) The phenomena of ‘Cognitive dissonance’,
a term used by psychologists to describe
how individuals attempt to resolve
conflicting pieces of information.
In other words, analyst wears blinders.
“He who joyfully marches to music in rank and file
has already earned my contempt. He has been
given a large brain by mistake, since for him the
spinal cord would fully suffice…” – Albert Einstein
The thing is that we must all do this to a certain extent to survive.
Is the Earth flat or round?
How do you know?
How would you react if I claimed it were flat? If your best friend did?
We go on little but faith in this world. We are ALL irrational creatures. Every one.
Invest accordingly.
“…but I find it so difficult to understand how anyone with just a modicum of intelligence could miss this call.”
A very good question worthy of further discussion.
A few theories:
1) Towing party line = secure Paycheck
2) The phenomena of ‘Cognitive dissonance’,
a term used by psychologists to describe
how individuals attempt to resolve
conflicting pieces of information..
In other words, analyst is wearing blinders
3) all the above
“He who joyfully marches to music in rank and file has
already earned my contempt. He has been given a
large brain by mistake, since for him the spinal cord
would fully suffice…” – Albert Einstein
I enjoyed reading your post twice
FYI, it’s “toeing the line,” not “towing the line.”
Auger: see my other post - Raymond James Rick Murray Wall street Casino Schill.
That is how the game is played!
Now you know, don’t forget!
Anybody who follows the “free” advice of Wall Street brokerage houses deserves to lose money. These guys are and always have been sharks trained by the best con artists on the planet.
If you want advice, like anything else, you get what you pay for.
“‘To say our initial reaction was surprise’ would ‘heavily underestimate the impact; we were shocked,’ wrote analyst Stephen East.”
Where has this guy been for the last six months; shopping for property in Nicaragua? Shocked, I tell you, Shocked!!!
Somehow I don’t think this guy has much of a future as an analyst.
Anal-ists: “…caught off guard” , “we were shocked”
Economists: Masters of 20-20 hind-sight
Blah! We are on our own folks. These guys are pretty much worthless.
I see where the next job cuts are coming! He is saying Fire me Fire Me!
All these Analysts were caught up in this Ephuria. The either were long on Homebuilder stocks, heavily indebted in Real Estate / Flipping, or both.
Conflict of interest????
Euphoria
Watching builder stocks this year is beginning to resemble dot-coms c. 2000
Anyone look at the % of institutional ownership of most of these HB stocks? It is high - very high.
This is big news. I think the much more telling bit of news though was a couple of weeks ago when KB homes reported that for the first time ever, they had more people cancel orders than they got in new orders. (I believe it was for may sales)
This did not get much attention but seems to me to be a point of critical mass. If that statistic crops up amongst a few more home builders, then look out below.
I thought that the KB report of more cancellations of orders than making new orders was very telling, also. Equally telling, in my local large-city ( depressed area ) paper, a couple of Sundays ago, there were exactly four pages of job ads and 15-20 pages of RE ads. Ooooh, not a good balance.
The builders are not alone. Dow is down 118!
Slightly O/T
Anyone with an Ameritrade account having problems accessing their site?
Called them. Their servers are down. On a Friday, no less.
ca renter…is this the mirror image of “the Nasdac brokers NOT piicking up the phone in 2000-1?
Interesting way to trap the little fellows…”with servers down” - great plan I wish I had figured out this one out for myself before you brought it to my attention.
This is the kind of thing that makes me nervous about all the electronic access we rely on for our money. The market is tanking and their servers are down. Yikes. Maybe they are overloaded? I remember when the Japanese markets suffered a mini crash just a few months ago and the computers crashed from the load. Kinda scary.
Yes, I’ve considered the same thing.
They didn’t volunteer the reason for servers being down, but I explained that many of us could be making/losing thousands of dollars with such market volatility. They seemed rather indifferent.
Ameritrade has been having server trouble ever since they merged with TD Waterhouse. They have been offline for more than a day on at least one occasion that I am aware of.
This is hardly news to people who watch this in the manner that we who post on this blog do, but it’s quite amazing to watch the pundits, forecasters, analysts, etc use words like “shocked”.
This will be worse than we’ve been even speculating about and a huge cultural carving. Things will be much different in several industries when the smoke clears.
Shock and gnaw
hehehe…Washington Mutual laying off appraiser’s who were valuing their own originations.
LMFAO…Talk about a conflict of interest.
Washington mutual is co-sponsoring short sell training in San Diego for realtors in conjunction with local NAR . Last months newsletter(I don’t remeber if it was Nar or CAR) was stuffed with flyers offering short sale training for agents.
Now *that’s* a sign that times are changing.
But CAR and Gary Watts and the USC professor, and Dataquick and so many other “experts” and “economists” have told us that prices aren’t going to crash, and that the 1% decline in San Diego was just “noise.” So, why would Realtors need to know anything about short sales when they have assured us that prices will not fall? Hmmm. Sounds like the Realtors are, as always, saying whatever they can to calm the market while trying to maximize transactions (including short sales) to increase their profits. Lying bastards.
If having your own non-independent apprasiers isn’t a sign of shady dealings I don’t know what is.
I saw one of the talking heads on CNBC this morning (Pisani?) saying that everyone has been expecting a soft landing in housing, but the numbers that are now coming out may be indicating that a “much harder landing” is in store.
No, no, no! That’s just impossible. David Lereah said housing prices would continue going up through the end of the decade. Even wrote a book about how all us bears are missing the boom.
To be sure, prices will just bounce right back up again, now that we’re at the bottom of the market. The bounce is coming… Any day now…
Bounce but no meow!
“The bounce is coming… Any day now…”
Yeah, a Dead Cat Bounce…gotta clear away the last of the GFs…
Don’t count the dead cat bounce out. I was playing cards with a bunch of guys last night and one of them has a lease expiring in Feb. He said that if prices come down just a little bit further he’ll buy a place instead of “throwing money away on rent” Whats worse is he plans on leaving the area in 2 years… It took a lot of effort to stay calm and warn him about the possibility of further price declines and of the difficulty overcoming transaction costs (realtor commisions and closing costs). He shrugged it off saying he wanted to start “building equity.”
You can’t help some people. This mentality will create true bargains down the road but it might take until 2009-2010.
“…he plans on leaving the area in 2 years”
These stories get me too. I’ve given up warning these people…it’s like deprogramming cult followers.
“He said that if prices come down just a little bit further he’ll buy a place instead of “throwing money away on rent” ”
This ideology is pervasive throughout the country. A lot of people feel if they are able to buy a house for a little bit less than 2005 pricing, they will jump at the chance, figuring they are getting a “good deal” since they are paying less than peak prices. These idiots are going to cause this thing to drag on for quite some time. I have a friend who was telling me he wants to sell his place, or cash in, and then downsize. I advised him that if he is even able to sell, (which I personally question since he is in one of the most bubbly of bubblicious cities), he should rent, not buy. He does not grasp that if he buys a smaller place, he will still lose, although dollar for dollar, not as much, but lose nonetheless. This is a guy who has always been intelligent, and owns his own business. This real estate bubble has warped peoples minds…
Bubblevision was in shock this morning, I distinctly heard “Hard Landing” being bandied about.
So what is really the difference between a “Hard-Landing” and a crash?
Is this a hardlanding where you hit the runway and the plane erupts into a fireball?
or where your balls go up into your throat but you live to tell about it?
I’m guessing that what’s going to happen is more like the plane crash in Iowa about ten years ago….half the passengers got smooshed and roasted like bugs, the other half wandered out of a cornfield dazed and confused.
Sometimes I wonder how folks would have felt about the “soft landing” metaphor if they had looked at the crazed runup in prices as if it literally were the flight path of a plane. If I had been riding in the back of a plane that went up almost vertically I think I would have said my prayers.
Pilots say that any landing you can walk away from is a good one. Perhaps in the coming years mortgages will be seen in the same light.
I found this quote on a the DH board, I wish I had wrote it
“Many are asking the question: Is this a soft landing? Well, since nobody ever defined what a soft landing was, and then everybody started calling the current situation a soft landing, let’s accept the default definition as current situation.
Then the question is not whether or not we are in a soft landing, but what we think of soft landings. The builders view is 30-50% sales decline and price incentives of $10K - 100K+. The existing home sellers view is you put a home on the market at a reasonable price and it sits unsold for 6 months — no liquidity whatsoever. The homebuilder stock owners view is a 30-40% decline in value in the past year.
Soft landing is still a subjective question, because even assuming the default current market definition, nobody can even define the impact of this soft landing in precise terms. In fact, the terms are being redefined every day now. Nonetheless, I will stick my neck out and say that for a lot of people, soft landings are absolutely brutal.”
I’ve been saying the same thing.
The greatest trick they ever pulled was debating the terms “bubble”, “soft landing”, “pop” and “crash”.
They are IRRELEVANT here. They are WORDS. We need NUMBERS.
Words can be very powerful, but you cannot pay your mortgage with them.
Landings imply you’re already on the ground? My Spidey-sense suggests we’re still at least 2000+ feet above the ground, the engine’s cut out, and the wings…. well, they used to be to the left and right of us, where they are now, I’m not too certain. Let’s try and change the semantics… are we in a soft dive or a hard dive?
And with 0.5Tto1.6T (including helocs) reseting this year and 2.0T+ reseting next year, when we finally do get down, I can’t see anything but a hard landing.
Soft landings are especially brutal for the short term flipper who can’t even take a 10% correction because of holding costs / transaction costs .
feepness,
I do the same thing with my kids. Right before you see they are going to throw a tantrum… you can distract them with something else to take their mind of the immediate crisis (in their minds). “Oh look, a shiny penny…”
This works well for a little while until they remember their initial problem.
The NUMBERS cannot be obfuscated with REspeak forever!!!
The industry has finally realized they can’t clear the malfunction in their main parachute caonpy, have cut away the main, and are trying to deploy the reserve. Unfortunately, they are too low for the reserve parachute to fully open before the ground interferes with their fall. Hard Landing.
lol
“I saw one of the talking heads on CNBC this morning (Pisani?) saying that everyone has been expecting a soft landing in housing, but the numbers that are now coming out may be indicating that a “much harder landing” is in store. ”
I saw that too. The MSM is finally on board. The (dead) cat is out of the bag and I’m waiting for one final bounce to buy more puts!
Now all of those analysts are busy trying to CYA. They were afraid to tell the truth, even if they were able to really indicate it. It wouldn’t paint a rosy picture, and no one wanted to be the canary.
Your absolutely right. The analyst’s biggest risk is in being different from the crowd. This “career risk” will always keep them saying the same thing, and not rocking the boat.
It’s not just not wanting to hand out bad news. They almost can’t say negative things about the companies they ‘follow’, or their employers won’t get the lucrative deals issuing more stock and bonds for the covered companies. It’s really a crooked setup. And yet, people buy and sell on the word of these analysts….just truly a clue of how stupid the average investor is.
Anyone who’s been reading this blog for the last year has been far more atuned to what is going on in the real estate market. We have Ben to thank for devoting so much time to this great resource. Personally it has helped me make many thousands of dollars through buying puts on home builders.
More force reductions coming in the telecom industry. Won’t be good for many large cities where such employees are concentrated.
As a DC resident, I have to say, you don’t need to be a housing bear to be fairly alarmed about developments here. For sale signs and lockboxes everywhere. The market is dead in the water. Very few transactions. Cocktail chatter about real estate has changed tenor from marvel to worry. Meanwhile, the sky is still filled with cranes building more condos. Parts of Logan circle and the area between Chinatown and Union station resemble giant construction sites, as more brand new condos go up next door to other shiny newly completed projects whose owners fill Craigslist with ads for overpriced rentals with links to the developers website.
It’s hard not to believe there’s going to be a sharp correction here. I’ve been a bear on DC housing since 2003 or so, but I didn’t think we’d get this far without a correction already, the whole market is afloat on more overextended credit and greed than I thought possible. I think the next two - three years are going to be fairly bloody ones here.
In a country where a majority of the population believes in superstitions, it isn’t much of a leap for them to believe that real estate goes up forever. The age of reason died 194 years ago.
In a
countryplanet where a majority of the population believes in superstitions,Fixed that for ya.
I would bet the US has one of the highest proportions of agnostics/atheists on the planet. Not THE highest, but one of them.
I agree but one of the funniests things I’ve seen was an athiest throwing salt over his shoulder after knocking over the shaker. Superstition is a hard thought pattern to break. The difference between belief and delusion depends upon the observers perspective.
http://secularoutpost.blogspot.com/2006/03/atheists-and-nonbelievers-by-country.html
U.S. is #43 for percentage of nonbelievers, #7 for absolute number of nonbelievers. It’s a pretty religious country.
Top ten for nonbelievers as percentage of population: Sweden, Vietnam, Denmark, Norway, Japan, Czech Republic, Finland, France, South Korea, Estonia. The U.S. is below Portugal (one of the most religious countries in Europe; Ireland and Poland are more religious) and above Albania. Britain is at #15.
Your study doesn’t count agnostics. I consider atheism a much stronger religious statement than agnosticism.
The list does include agnostics. It is at http://www.adherents.com/largecom/com_atheist.html and the USA is between Portugal and Croatia. I’m starting to understand why the American sheeple let Bu$hco seize the white house.
A friend of mine is developing several projects in Logan/U area. When I told him that indications were that some areas of DC were contracting, he went into deep, argumentative denial with me: “No, you’re WRONG. The market’s going UP! People like you who don’t buy NOW are going to come crying to me in a year that they missed the bus!!!” His response was nearly psychotic; I’m very grateful I’m not in his shoes at the moment.
In a year your friend will be riding the bus.
Interesting point, Rainman. I’d speculated elsewhere, and got flamed by bitter realtors, that the bottom may be characterized by real estate agents riding the metro, or driving second-hand Fords, at best.
Am I the only one who sees something wrong with non-salaried sales people, in an industry with no barriers to entry, driving around in Mercedez-Benz automobiles? That’s just nuts, I’m sorry.
I have often wondered that myself. Engineers have to work hard to get a degree (much harder than an degree in business or psych) and don’t get paid that much more than the median for a given area. Meanwhile pooly educated realtors are stuffing money into their pockets hand over fist (all the while patting themselves on the back because they earned the money by working so hard for it).
Trust me, I know that I have worked much harder developing systems in the aerospace industry than any $250K/year realtor has every worked. I guess engineering pays less since it gives back an sense of accomplishment.
America is hard at work hollowing itself out into an empty shell.
Egineers are being outsourced as well as diluted by H1B visa engineers. otherwise they would make more money.
I love these people who want to take the bus ride but don’t want to pay the fare .
the emotional nature of the response is the true answer
Exact-a-mundo.
I wonder how many first time home buyers are buying in 2006 in the D.C. area.
As the bottom of the pyramid cracks, the structure sinks.
Not many. A 1-2 bedroom condo in DC will run you about $350,000-$600,000 right now. At current mortgage rates, you have to be a pretty wealthy first time buyer to qualify for a mortgage. Also, it’s hard not to notice what a bargain rents are relative to prices. I know one couple who are moving in together - he rents, she owns. She’s selling and they are moving into a larger rental together instead of buying a bigger place - it’s just so much cheaper.
That is, if she can ever sell her place. It’s been on the market for 3 months at the price she bought it for two years ago with only one nibble that walked away.
Matilde, you’ve made a couple of points that are very important. 1) Manias, bubbles, call it what you will, always go on far longer than any reasonable person thinks is possible. Your observations and instincts were sound in 2003. Trust them in the future.
2) You mention “fear,” among the most powerful human emotions, particularly with respect to matters financial. It can drive asset prices completely into the ground. Warren Buffet, among others, has pointed out that if you want to make a dollar or two, you must be prepared to act when all others around you are PETRIFIED. I don’t think we are there yet, but it is coming. DC is out of control.
1) Manias, bubbles, call it what you will, always go on far longer than any reasonable person thinks is possible. Your observations and instincts were sound in 2003. Trust them in the future.
Yes, if there is ONE thing I have learned from the housing bubble it’s that rational people will recognize these things well in advance. You can’t time it exactly and you’ll feel nutso for awhile. Par for the course for paying attention.
The price of not being an idiot is watching every else act like idiots.
I’m in DC and I see and think the exact same thing. The amount of inventory yet to come on the market is amazing.
(This is why Wall Street analysis is so horrible. If you had your ear to the floor, this was one call that the analysts could have predicted. And few did.)
Nonetheless, when it comes to reacting to the markets, the homebuilders and Wall Street are way ahead of existing homesellers and data from the NAR, aren’t they? They got the memo — get out now. Homebuilders have been cutting prices for months, and their shares were a low share of earnings before that.
11:00am 07/14/06 A.G. Edwards cuts D.R. Horton price target to $25 from $31 - MarketWatch.com
The Sacramento Bee just published this glowing article:
Sales of new homes surge: Builder discounts spark capital-region rebound from dismal quarters.
The double-speak here is this they’re reporting a q-o-q increase. The y-o-y is down 25%!! They’re getting desperate here.
I sent this “reporter”/ cheerleader a nice email! As a fellow valley resident I am sick of the unbiased reporting!
Just sent that guy an e-mail on how he should do a report on homebuilders stocks are doing quarter to quarter.
The SacBee story says sales are up Q2 from Q1, but says nothing about seasonal adjustments. Of course there will be more sales in Q2, it being the Spring and all. All the story does is parrot information handed to the reporter by the homebuilders, who conveniently forgot to “seasonally adjust” their sales numbers.
“Builders also are sweetening deals to lure buyers. The average second-quarter incentive was $15,200 worth of freebies, with some ranging as high as $120,000, the Gregory Group reported. The same time last year, incentives averaged $4,800 and topped out at $30,000.”
These are “incentives”, NOT price reductions…Nothing to see here, move along..
Tell the guy who paid the extra $120,000 for those “upgrades” last year….are they not priced into his mortage?
DR Horton Market Cap:
7/20/05 (1 year ago)
$13.4 Billion
7/14/06 (today)
$6.48 Billion
Geez. Tough year. My Gosh. Ouch. Grimace. Grin.
Two years from now - ZERO! LOL
Somehow I think if I went and hung 50% off signs on the condo sales offices there would be people walking thru the doors.
So… tempting… must… resist…
I’m an appraiser in Calif. Word around the campfire is that WAMU cut the appraisal department to sheild themselves from possible impending litigation that may arise when this housing market downturn really begins to pick up more speed. What WAMU has done is hired an outside management (LSI) company to handle all appraisal related items. LSI now sub-contracts out the appraisal orders. LSI is known for paying really low fees and for having an army of newly licensed and incompetent appraisers working for them as contractors. If anything, WAMU’s paper will suffer. WAMU used to have a top notch in-house appraisal dept that minimized risk very well. Its all down hill from here.
OC Resident
Emphasis on “resident”, that is a campfire I would like to be around! Personally I don’t think it will do them a lick of good from a litigation standpoint but VERY telling indeed. Most of the damage has been done but it would appear to me anyway that the are doing this for the long haul and anticipate no end in sight. Smores anyone?
Around Boise, new construction is selling really slow. Compared to last year, the RE boom has ground to a halt. I live in Meridian, a city of about 52,000 and is the fastest growing city in the state. According to the MLS, there are 330 home on the market that are “new and never occupied” with another 330 on the MLS that are under construction- this is half of the total inventory of homes for sale in the city. That is quite a few homes for such a small town.
What WAMU has done is hired an outside management (LSI) company to handle all appraisal related items. LSI now sub-contracts out the appraisal orders. LSI is known for paying really low fees and for having an army of newly licensed and incompetent appraisers working for them as contractors.
I was doin’ work for LSI back in 1984.
Even back thern, they were nothin’ more than a low-balling sleazebag, deadbeat appraisal management bucket-shop.
Gives ya an indication of what WAMAU management is all about, by having their name associatied with this outfit.
They are now tryin’ to escape the racketeering liability of appraising their originatiions because the roof is about to cave in.
I’ve got some puts in WM and am tempted to just get out NOW because this stock market crash seems to be good to them.
What do you guys think… Hold the fort, or take my losses? Perhaps buy some more? News like this *should* filter into their stock price at some point… but maybe not before the puts expire.
For whatever it is worth, I am holding onto my WM puts.
…they were nothin’ more than a low-balling sleazebag, deadbeat appraisal management bucket-shop.
Now tell us what you really think
MjM
You hit the nail on the head and called this one early. I have a lawsuit against Citibank now for the very thing you spoke of. LSI hired an inexperienced appraiser to appraise my property for an equity loan. Although property values dropped in Chicago, they didn’t drop that low. My home had been appraised in 2004 for $260,000. I’ve been in my house for 22 years. With the real estate drop, I figured my house still at $235,000, $240,000. LSI’s Citibank low-life appraiser appraised my property at $170,000 in early 2009. Citibank declined the loan application only on “insufficient equity to value”. I commissioned my own appraisal from an independent appraiser, not telling him what any of this was all about. That appraisal came in at $240,000. My Allstate Insurance market appraisal came in at $236,800 and now I find that an appraisal done by WaMu before they hit the tank and were bought up by Chase, had appraised my home at $235,000. WaMu refused to show me their appraisal, but I ended up getting it when Citibank subpoenaed that appraisal to defend LSI. An unfair judge dismissed my case for discrimination against Citibank and fraud against the appraiser (Andre Lanier), but I am appealing it in the U.S. District Court, Seventh Circuit (Gloria E. Swanson, et al. v. Citibank and Andre Lanier and PSI Appraisers. Lanier subcontracted under LSI out of Santa Ana, CA. Although Lanier lives in Chicago, he is so inexperienced and incompetent that his appraisal license should be taken and that will be my next step with the Illinois Dept. of Professional Regulation.
Last year there was some concern about WAMU’s mortgage exposure:
Is a Mortgage Bubble A Cause for Concern?
Anybody know if they’ve clarified their position since then? There’s been a lot of paper piling up on Wall Street lately, and the Chinese seem to have lost their appetite…
Don’t miss this web site ad from Lennar, a paper version of which was in today’s Palm Beach Post … I like the “any reasonable offer accepted” quote. Smacks of desperation to me.
http://www.lennarhurryhome.com/index.php
“The current home sales environment is characterized by an increase in both existing and new homes available for sale, higher than normal cancellation rates and an increase in the use of sales incentives in many of our markets,’ said Chairman Donald R. Horton”
SCal update on increasing home inventory in Riverside county:
Pardee is building a huge master-planned community of SFH’s out in beaumont/banning. Just went out to the Capella development tract and seen the plot designs for tracts 31893-1 and 31893-2, each of about a hundred homes. Capella is just one phase:there may be as many as 4-6 other phases.
You can google Pardee homes and click on Inland empire under Sundance homes/Capella. The Development is off the 10 fwy:get off going north on highland springs road about a mile to Sundance rd : go left into develoment, which is at border of Beaumont/Banning.
Not especially enamoured of this area: a bit seedy close to the fwy, with rough patches,some low elements , ragged trailer parks and low-income housing pockets. The units are listed in the high $300,000’s , which IMHO is way too high and should drop down to under $300,000 as the IE experiences slowing sales and exploding inventory.
The sales pitch on Pardee’s website says that Commutes to LA,OC are close and convenient, a real whopper. Try 3 hrs min commute to OC and add another half to 1 hr into LA.
i used to live in cherryvalley. banning is full of parolees, gang bangers. just drive down main street in banning. lots of closed up bussiness. crips bloods to name a few.
All you have to do is get off in banning/beaumont for gas or refreshments on way to or from Palm Springs/Joshua Tree and you wil notice the local hoodlums/gang bangers/dregs who inhabit Banning.
Every large Region has its sewer communities where the population’s dregs, junkies and Gov’t dependent folks are congregated. The San Gabriel Valley has Pomona, SAN fernando valley has Pacoima, South Bay has Hawthorne, Long Beach has the extreme north end near Artesia blvd, ect.