‘Lower Sales And Higher Cancellations’: CEO
Some housing bubble reports from Wall Street and Washington. “Standard Pacific Corp. today reported the Company’s 2006 second quarter operating results. Stephen Scarborough, CEO, stated, “We are impacted by growing levels of both new and existing home inventories..these conditions have resulted in lower sales rates and higher levels of cancellations which have given rise to a greater use of incentives and other forms of discounting.”
“Other income (expense) for the 2006 second quarter includes a pre-tax charge of approximately $16.3 million related to the write-off of deposits and capitalized pre-acquisition costs for abandoned or uncertain projects. Net new home orders were off 56% year-over-year in Southern California on a 33% higher average community count. The lower level of sales activity in Southern California was due to..a doubling of our cancellation rate. In Northern California, net new home orders were down 48%.”
“Net new home orders were down 67% in Florida, (on) a nearly threefold increase in our cancellation rate. In Arizona, net new home orders were down 62% on a 100% higher average community count. The Phoenix market is clearly experiencing challenging market conditions for new and existing homes as evidenced by the surge in our cancellation rate during the second quarter and the increasing need for incentives to sell homes.”
The US Census Bureau. “National vacancy rates in the second quarter 2006 were 9.6 percent for rental housing and 2.2 percent for homeowner housing, the Department of Commerce’s Census Bureau announced today. The Census Bureau said the rental vacancy rate was not statistically different from the second quarter rate last year (9.8 percent) or the rate last quarter (9.5 percent). For homeowner vacancies, the current rate was higher than a year ago (1.8 percent), and also higher than last quarter (2.1 percent.)”
From the investment bank to the housing bubble. “Friedman, Billings, Ramsey Group, Inc.today announced a net after-tax loss for the quarter of $30.2 million. For the second quarter, FBR earned $126.4 million in interest on its mortgage investments compared to $135.1 million in the second quarter of 2005. The portfolio yield was 6.39% with a corresponding cost of funds of 5.38%.”
“At the end of the quarter, the unpaid principal balance of the mortgage portfolio was approximately $8.6 billion.”
The yield curve is inverting. “Treasuries rose, pushing yields on 10-year notes below 5 percent, after U.S. economic growth slowed more than forecast by analysts, raising expectations the Federal Reserve will stop raising interest rates next month.”
“‘Housing is ugly,’ said Adam MacKillop, a U.S. fixed- income trader. The impact of around half of the Fed’s 4.25 percentage points of rate increases since June 2004 hasn’t reached the economy yet, MacKillop said. There’s a lot of this tightening that hasn’t hit the mortgage refinancing.’”
From Reuters. “The shifting foundation of the U.S. housing market is sticking buyers with their old homes for longer, pushing many to slash prices and take on even more debt in the form of so-called bridge loans.”
“‘These loans are more for the individual who is in dire straits, who has bought a house and can’t sell’ the existing home, said Bob Moulton, president of Americana Mortgage Group in Manhasset, New York. ‘That person ends up carrying the new house, the old house and the bridge loan. I’m seeing the reliance on bridge loans now more than ever.’”
“‘Bridge financing is necessary in a short-term situation, but if a homeowner carries the bridge financing for an excess period of time, he could be forced to sell at a lower price, contributing to softer sales prices,’ Moulton said.”
“The rise in bridge loans ‘is further evidence of a slowing in the market, and of the lack of planning that most homeowners do in making these types of decisions,’ said Dave Savage, CEO of an Irvine, California-based company that provides mortgage-planning software to loan officers.”
BEN JONES!!!!!!!!!!!!!!!!!!!!! You’re doing a great job getting the word out. Thanks!!!!!
I believe this is a record for homeowner vacancy and the rental vacancy is still near a 40 year high. If FBR is losing money, you know the group is weak. Also, I believe this is the first time bridge loans have popped up.
BTW, we have some new photos up today and will put more up this weekend if received.
If rental vacancies are unchanged and at a 40 year high, what is the justification for rising rents?
You should check out the PDF at the CB site. Vacancies are lower in the west. I don’t know what to make of reports on rising rents. They aren’t rising here in Arizona.
One personal observation; fellow I know that was trying to time the market moved out of his house a few months ago and rented a condo so the house would show easier.
People losing their house in foreclosure, or just walking away as their arm resets. They still have jobs and income, but they just can’t pay their mortgage. 124 Notice of Defaults published in Nevada Legas News on July 27, 2006. In a falling market, these people are moving out in the middle of the night to a rental before their credit shows a foreclosure.
I have a sad bridge loan story to tell:
My dumb a$$ father in law. Who claims he is a real estate genius -has been trying to sell his house in Bakersfield since February 2006. The has dropped the price about 14% and invested about $10k in improvements and NO BITES! UGH. I TRIED TO TELL HIM. He is in the title business and he moved to SLO county to work for another title company. He rented at first, HOWEVER, he is buying a home there and since he has been unable to sell his current home - HE TOOK OUT A BRIDGE LOAN. This loan was only going to be used “for a short period of time, until his house sells.”
The sad part is he is in the hospital today. He went to sign his loan documents last night and was shocked at the payment, in particular the DRAMATIC increase in monthly property taxes. He has heart issues already and this made them worse. UGH. Unbelievable! He is in the business and he should not be SHOCKED at any part of the transaction. I swore to my wife - WE WILL NOT BAIL THEM OUT!
Of all the people, he should have know better.
I am sorry to here that Crispy. You know good old Bako is sort of a wierd place. It is sucks to live there in some ways, but great in others. Being a fomer Bako resident myself I remeber it took two years for my parents to sell their house. That really sucks about your father in law. It is weird why so many in the real estate business are having a hard time coming to grips with what is going on. It is very sad in some ways.
Bako has it place though. I have great memorys of that place.
He now says he is willing to come down 5% more and NO MORE. UGH. He needs to back out of the house in SLO and then buy once it sells!
actually ben, bridge loans are more prevalent in a hot market, as the sellers will not accept a contract contingent upon a sale of the buyers home. the buyer must decide if they want to take on a bridge loan in order to avoid “losing” the house they want to buy. if anything, the bridge loans placed last summer at the peak are probably starting to fester.
HB stocks on a tear today and GDP down to 2%. 10Y TN trading under 5 again and mortgage rates sliding back down this week.
Bubble re-inflating a little?
“Net new home orders were down 67% in Florida, (on) a nearly threefold increase in our cancellation rate. In Arizona, net new home orders were down 62% on a 100% higher average community count. The Phoenix market is clearly experiencing challenging market conditions for new and existing homes as evidenced by the surge in our cancellation rate during the second quarter and the increasing need for incentives to sell homes.”
I guess all this great news probably explains why SPF stock went up by 5.72% on the opening bell, then stayed on a permanently high plateau for the rest of the trading day on zero volatility? Curiouser and curiouser…
http://tinyurl.com/sxe6t
The stock market is rigged, and anybody playing in this arena is silly putty for the sharks on Wall Street. If there is anyway they can make a dollar off the suckers that watch CNBC, they will. I still don’t believe reported earnings. I wish they would tell me who signed off from the accounting firm, so when they have to restate earnings, we can somebody to ask why.
The earnings are reported, but they don’t tell you which accounting firm did the work, and who at the accounting firm said the numbers are good. Ken Lay and Enron showed me how the accounting can be bought and sold, and numbers reported any way they wanted. Nothing has changed.
Well, where is Ken Lay now, speaking of those who rig the market? Karma will catch up with the rest of these thieves the same way it did Kenny Boy…
I agree with david cee…
The stock market is rigged and today is a beautiful example of the rig. Who in their right mind would buy Standard Pacific in the face of their disclosures today? It is not only bad news for shareholders, it is abominable news! All shareholders should be selling. Look at the chart in the link posted by Get Stucco. I can tell you that I have been watching the daily charts for homebuilders carefully for a couple of years. When I see that steady line on the chart, it is telling me that someone is artificially supporting the price of the stock. The normal peaks and valleys aren’t there. Someone wanted that stock to stay up and was willing to buy everytime someone sold so that the price didn’t plummet as it should have given the news.
PPT at work.
When the PPT is artificially supporting homebuilder prices, it is a golden opportunity to sell short those stocks. Those who have been reading the information posted here should know by now that there is almost no chance that homebuilders will do at all well in the foreseeable future. They are all reporting slower sales, higher cancellations and deteriorating order rates. Meanwhile they are watching the price of land fall as the demand for buildable lots plummets. Who wants land for future building when we are grossly overbuilt now? So homebuilders are going to have to report losses to the shareholders as they adjust their accounting on falling land values in their inventories.
If you haven’t shorted the hbs yet, think about doing so. There is a long way from where they are trading now and where they will be trading as some of them go bankrupt.
Short covering and anticipation of a FED pause and then drop in rates by the end of the year which could improve HB financials?
Don’t think it is enough to overcome the operational problems of the HBs. There may be a temporary rise in HB stocks but the bad news is going to just keep coming.
The drop in rates will be too late to forestall the oncoming recession; Fed interest rates operate with a 9-18 month lag, and continued slowing of the economy against a backdrop of unacceptably high inflation will be the consequence if the Fed does pause.
And so far as housing demand? Stick a fork in it — there are not enough greater fools who can qualify to buy at unaffordable price, and the ones who are left in the game get to catch a falling knife.
Helicopter can flood the market with liquidity and a 100bpt drop at the Sept meeting will get a lot of attention if necessary. In fact, the Fed hasn’t always only made rate moves at meetings. There is no requirement to move 25bpts at a time either.
The more Copter Ben floods the market with liquidity, the more the foreign creditors are tempted to see the U.S. debt they hold. He is between a rock and a hard place. The inflation rate is considerably higher than reported by the government. Will he hike it more? Don’t know but I kinda doubt it.
From the Reuter’s article: ” On top of higher rates on bridge loans, prepayment penalties can erode profits on the sale of the existing home.
“Let’s say you’re one of lucky ones that sells their house [HAH! nice quote], gets the appreciation and wants to pay the bridge loan off quickly. The average, I believe, is about 6 percent prepayment penalty,” said Mitch Freifeld, president of Global Branch Solutions in Clearwater, Florida, which has about 400 broker offices nationwide. “So, if you borrowed $200,000 you’re paying $12,000 to get out of that loan.”
Ouch!
That seems like a pretty onerous penalty for a short term loan instrument. Can anyone out there confirm that this is normal course of business for bridge loans?
A bridge loan is short term….why would you pay 6% prepayment on a loan that is probably in the 9% range and only a 3-6 month loan. I think the poster is ill-informed.
Also — a bridge would only be for the down payment, in this day and age, 5%, right?
The yield curve is inverting. “Treasuries rose, pushing yields on 10-year notes below 5 percent, after U.S. economic growth slowed more than forecast by analysts, raising expectations the Federal Reserve will stop raising interest rates next month.”
Notice how the press is quick to seize on the prospect of a Fed pause, ignoring the increased recession probability. I guess the bulls need to stay focused on reasons why stock and housing prices always go up…
Some insurance company CEO was on CNBC this morning, his company thinks rates will drop by 0.25-.50% by year end.
The middle of the curve is really sagging. Heck, should we say “crashing?” 5-10 year money is getting very cheap.
the reccession already started- what financial co is immune frommort collarse ?
I started telling confidantes about two weeks ago “The recession began in mid June, but it will take a while for the mainsteam media to catch on”.
Maybe the ones whose mortgage bonds are covered by govt guarantees (explicit or otherwise)?
I wouldn’t be surprised if we see inventories temporaily dip as some sellers temporarily remove their properties. However, this will be hidden inventory. Any dip in inventories will be seized on by the builders and realtors to try an scare people into buying.
I don’t think lower interest rates will help much as they are already historically low, prices have already run up to unafordible levels and there’s alreadry been a massive build out in the last five years, add to that the builders will keep creating more inventory. The games already been played out. Real estate will be a terrible investment for the next several years.
Get the word out. There’s still some clueless dopes out there that need to be saved from themselves.
I’ve long held that rates are only part of the story behind the bubble. Rates could have been 12%, but if people beleive that they can make 25% a year in RE, they still would have borrowed at 12%.
I think loose lending standards and bull market psychology have more to do with how we got here.
Mozo,
Definitely agree.
Just back from vacation in Montana,Wyoming and Utah. I think half of the states have for sale signs on the properties ranging form ranches to single family homes and many of the new homes sit vacant. This RE bubbles is everywhere. This is going to ene UGLY as there are no buyers and potential buyers can wait as they have all the money. The sellers have property and DEBT! Funny how things work out. Do we have blood in the streets yet!!