‘Demand Has Hit A Wall’
Some housing bubble news from Wall Street. “Toll Brothers Inc. early Tuesday cut its 2006 profit outlook again, blaming a glut of homes on the market and a decline in buyer confidence. The company is scaling back its land position as demand for new homes continues to deteriorate.”
“CEO Robert Toll said, ‘builders that built speculative homes are trying to move them by offering large incentives and discounts; and some anxious buyers are canceling contracts for homes already being built.’”
“Meanwhile, buyers are waiting on the sidelines to see how the market shakes out, the CEO added. ‘The continuing malaise in the housing market, we believe, is the result of an oversupply of inventory and a decline in confidence,’ Toll said.”
“The company cut its land holdings by 2.2 percent in the third quarter from the previous three months, to 82,800 lots. The company wrote off $21.1 million in so-called ‘options,’ or contracts to buy land at pre-set prices, according to the report.”
From Dow Jones Newswires. “Watch out, California. Your housing market is about to get smacked. The Southern California housing market is ‘in the early stages of a tsunami wave of cancellations and price cuts,’ predicts JMP analyst Alex Barron. Home builders with big exposure to this market could potentially take a hit that’s even bigger than the beating many took in Florida.”
“‘Demand has hit a wall’ in Southern California as skyrocketing prices over of the past few years have made homes less affordable, said Barron. Builders have responded by offering higher incentives and steep price cuts, and by allowing buyers to put down shockingly small deposits, of less than 1%, on homes, he said.”
“‘Deposits below 1% are a very ominous sign as it signals to us that demand is very weak and homes have now become very unaffordable,’ said Barron.”
“‘One of the more troublesome developments we saw in Southern California was that most builders were spec building entire communities at a time, with very few sales to support this level of construction,’ said Barron. ‘In one instance, we saw a community of about 100 homes where there were over 20 complete unsold homes, and yet the builder was already building the next 100 homes in the community next door with five sales.’”
“‘It appears to us in Florida, the one left holding the bag was the flipper or speculator,’ said Barron. ‘In Southern California, it appears to us the one left holding the bag is the homebuilder.’”
The Associated Press. “Some mortgage lenders are feeling the heat from Wall Street to tighten their lending standards and cut their exposure to riskier loans. The force at work is the increasing demand from investment banks for lenders to buy back the loans due to borrowers’ failure to make their first few payments on those loans.”
“At subprime lender Fremont General, the amount of home loans repurchased and re-priced reached $238.4 million in the second quarter, up from $67.7 million in the year-ago quarter. The Santa Monica, Calif., company said it had cut back on ‘certain higher loan-to-value products and lower FICO’ loans during the second quarter to reduce early payment defaults and thereby loan repurchases from investors.”
And Paul Muolo at National Mortgage News. “Investors are starting to eye the default management services market. With an anticipated boom in defaults, some buyers are hoping to get in on the ground floor. Two former Goldman Sachs executives have raised $50 million to buy DFM companies.”
“Super-jumbo lenders take note: Life-style guru (and former inmate) Martha Stewart is selling her home in Westport, Conn. The asking price is $8.9 million. The home has been on the market two months. So far, there have been no bids.”
“Two decent-sized subprime lenders, both based in Southern California, are expected to announce layoffs in the next week or so.”
From the Morningstar link:
‘Joe Snider, senior credit officer at Moody’s Investors Service, was surprised to hear that public builders were constructing entire communities on spec right now. ‘The last time homebuilders did something like that was in the late ’80s and early ’90s, and some of them just didn’t make it,’ said Snider. ‘There were seven homebuilders that went bankrupt in 1990, and the reason in every case was that they were long on land and they were financing it with short-term debt.’
HOLD ON. We were told they learned from the last bust?!?!?
It is amazing that everyone can review history and try to learn from the last bust but almost nobody learns anything. Another is the cycles are so long that some of the older people that saw the last cycle has passed away.
As P.T. Barnum said “There is a sucker born every minute.”
“We were told they learned from the last bust”
Hee-hee-hee, and “this time it’s different”. The more things change, the more they remain the same.
Hee-hee-hee, I’m giggling my @ss off watching this unfold…
When I here people say that I respond by agreeing with them… Yes, sir it is different this time. We have a serious housing situation that is affecting the entire nation, not just a few regional ares like previous housing busts. In addition, housing is now so intertwined with the rest of our economy that we may even be headed toward a great depression. So, yes I agree, it is different this.
You may be giggling, but I’m gonna split a gut when the crap hits the fan!
All this confirms is what everyone here already suspects. Every blogger that has been calling this for the past year or so is more qualified to be running these companies than the CEO’s. Every one of us would have been selling these land options for top dollar months ago, reining in development and garnering gains for shareholders instead of propping up stock options with buybacks, etc., while proceeding full speed ahead into the reef. It is painfully clear that America will not weather this downturn very well with this crop of idiots at the corporate wheel and I mean that in the most disrespectful manner possible. These criminals are beneath contempt.
> Every one of us would have (…) garnering gains for shareholders instead of propping up stock options with buybacks
And then every one of us wouldn’t have made the big buck from stock options like the CEOs have. They were only looking for their best interest.
I concur with Peter T. I suspect the CEO’s of the public homebuilders (and the large lenders as well) were largely aware last year of what the future held. They just had no incentive to act on their insight. It fits with what I think Keynes said: “the goal of a banker is not to avoid failure, but rather to ensure that when he fails he does so in the same way and at the same time as his colleagues, thereby avoiding blame on himself”
Can you imagine the dumb luck of some land owners who may have owned the land outright, then had some idiot give you $20 million dollars to buy it, then say “F it just keep the land and the money”
They did learn…how to:
1) cash out options at the top
2) declare BK
Well, they’ve already done #1. Next stop, BK. All aboard.
talk about spec. communities, in Oxnard, CA. four builders are in processes of building a community of 1800 homes (riverwalk) that in the begining phase. who’s going to buy thees 1800 homes???????
talk about spec. communities, in Oxnard, CA. four builders are in processes of building a community of 1800 homes (riverwalk) that in the begining phase. who’s going to buy thees 1800 homes???????
Yeah - in Oxnard no less. It would be less of a disaster if it was in more-desirable Ventura, but Oxnard? Isn’t that where people who can’t buy elsewhere end up?
Robert Cote has an excellent rant on Riverpark. Robert, knock this one out of the park.
And there building right next to El Rio and on a flood plain along the Santa Clara River.
Remember what happened to the Fillmore Airport?
Oxnard is a fine place to live. It has a nice Barrio sort of feel to it. The boarded up plaza mall is a nice feature also.
Right along the beach ain’t too bad…..
where in socal might one find excessive overbuilding? from my culver city vantage point this is a non-issue.
are we talking ie, or sd, palmcaster?
or closer to home, scv?
The beach cities. Santa Monica, Venice, MdR, PdR, Manhattan, Hermosa, Redondo. In the past couple of years there have been a ton of builders buying up houses and lots, doing the teardown, and building brand new 4000sq ft McMansions. Drive down Pacific Ave in Venice/SM and you’ll see all of the construction.
Or, you’re in Culver, just take Jefferson westbound. Cruise past Playa Vista; that’s a great example of the overbuilding taking place. 700k 2br condos with paper-thin walls.
mb, i have no way to track things in the playa / mdr developments.
the graders have been working 24/7 from lincoln to centinella for the last 4 months or so.
i could read this as a “hurry up and build it before the market turns” manuever. these playa places won’t be done for 3 more years at least. i guesstimate another several thousand units are scheduled.
also, the “grove” developers are building a similar project in pv
on a “entry level” townhome oof 750,000 in the pv develmnt you can expect the following:
building HOA $300
grounds HOA $300
mello roos $500
prop tax $750
we’re at $1,850 / month and…….we haven’t paid our mortgage yet.
put that in your bong and smoke it
Yeah but traffic is non-existent there now…especially the Lincoln/Jefferson corridor.LOL. Who wouldn’t want to live at PV with such quality “amenities”?
4 months? Try 4 years. Playa Vista is such a colossal joke of a “planned community” it’s astounding. The whole thing is built on either a Native American burial ground, a WW2 munitions dump, or a huge methane gas deposit. No kidding– that baseball field right off Lincoln is where they found at least one burial site, a la Poltergeist. The developers should have just let the Ballona wetlands reclaim all of it, including the big Howard Hughes aircraft hangars.
But even on the micro-level, the “hurry up and build” sentiment is definitely in overdrive. Just driving through my neighborhood the contractors are getting the workers out earlier in the morning, and having them stay later at night, just to try to get their houses up and on the market. There are also a few MLS listings that have computer renderings instead of actual photos, because the houses are nothing but framework right now.
“There are also a few MLS listings that have computer renderings instead of actual photos, because the houses are nothing but framework right now.”
Hadn’t thought much about it, but recently I have been seeing a lot more of these drawings-in-lieu-of-photos on listings in the areas I follow.
Actually, My preference was that they dredge out the swamp and expand Marina Del Rey. Think of how cool that would have been!
Instead we have ultra-dense McShoeboxes plopped in a sea of concrete, separated from the Marina by a dedicated swamp.
One of the big arguments for keeping the swamp was to preserve a landing zone for birds on the Pacific Flyway. IMHO an expanded marina would have been great for the migratory birds, much prettier, and far less dense. A bigger marina would have been a major draw, but instead we got unattractive urbanist infill blight.
Yea, That development in Playa is hillarious. Watched a special on PBS where a lady collected methane gas in a plastic bag and flicked a lighter and the bag exploded in her hand. The gas actually bubbles up in the underground parking garage when it rains you can physically see it. They have warning notices posted all over the place down there. It’s akin to paying 700k for a seat on a lit piece of dynamite. It baffles the imagination why anyone would buy anything over there. Nevermind paying what they are paying. I guess they need a few three legged babies to pop out before they come to their senses.
Forget the combustibility danger…what about long term health risks? I mean, what would a decade of ingesting methane gas at levels sufficient to ignite do to the person’s liklihood of developing cancer? On top of that, pay an arm and a leg to live there? Heck, after the radical cancer treatment, you wouldn’t even have an arm and a leg left to sell.
How about Riverpark in Oxnard.
Valencia area, Rancho Cucamonga, the remaining “wilderness” parts of The OC…and any blank postage size lot in LA propper that you can wedge 2-3 houses in with no yard.
also a lot of older, smaller apartment buildings being torn down w/ 5 story condo complexes going in. i can think of 3 or 4 on beverly glen alone, w/ a lot more interspersed throughout the westside of LA.
Mike’s right–five new condo complexes on Beverly Glen between Wilshire and Olympic. Toured two of the complexes the other weekend. They are all listed at about 800-1.2 million. Nice features but come on! The RE agent for one of them told me flat out that the prices were very negotiable and that they would throw in plasma TV and other perks to try and entice people. I didn’t quite have the heart to say “How about halving the price before the bank takes it back?”
- ‘in the early stages of a tsunami wave of cancellations and price cuts,’
- ‘Deposits below 1% are a very ominous sign blah blah,’ said Barron.’
- ‘One of the more troublesome developments we saw in Southern California was that most builders were spec building entire communities at a time, with very few sales to support this level of construction,
- Hey out there! We do things different here in So Ca. Life is on big audition for American Idiot!
I can report from San Diego. Massive overbuilding in North County (Carmel Valley, Carmel Mountain, etc) and in southern communities (Eastlake, Bonita). Also, San Marcos, Vista etc have their share of “too much, too late.”
I am really not sure that there is overbuilding. I just think things are overpriced.
Go to a San Diego Padres game. From the first- or third-base seats you can see several multi-story condo buildings in various stages of construction. Even the ones that are “complete” are virtually all dark during the night games (unsold? investors? out of town owners?). Downtown is way overbuilt and way overpriced. IMO, it will be the hardest hit area in San Diego. Yes, the suburbanite’s SFH may “lose” value, but chances are it’s owned by a person living there, not some flipper or person who thinks they can afford a “weekend getaway” because of their killer RE commissions over the past few years…
‘Yes, the suburbanite’s SFH may “lose” value, but chances are it’s owned by a person living there, not some flipper or person who thinks they can afford a “weekend getaway” because of their killer RE commissions over the past few years…’
I agree the downtown SD condo market is the most overbuilt and will take the hardest hit. But I have to point out that flippers during this cycle have encroached upon market segments which traditionally did not constitute speculator territory. I can vouch for this first-hand, as the Rancho Bernardo home my family and I rent was an owner-occupied SFR from the time of its construction in the early 1980s through 2005, when it was purchased as an investment property for the first time.
Re: San Diego, next up to be overbuilt (specifically with condos) is North Park. Now that they have the “arts district,” it seems there are way too many multi-floor complexes breaking ground with banners flying. Meanwhile, the Lafayette Hotel on El Cajon Blvd. has put the brakes on their proposed plan for residential housing by adding a tower to the hotel — citing the “stabilizing real estate market.” They’re putting the “stab” back in stabilize!
I would have to nominate the Centex project on Topanga Canyon Blvd. as the worst blight that can be imagined. I drove by it for the first time this weekend. I am too stupid to put it in words, but holyshit what a “f ing” disaster. If somebody could take pictures and get it on the site to let everybody see it. Sad, very very sad.
French Valley and Lake Elsinore are prime examples.
John Lang Homes is building a 1,400 home development within the Lake Elsinore flood plain. The builder has spent the last 10 months moving dirt from one area of their property to build up the rest so the homes will be elevated above the 100 year flood elevation. They still have two months of grading remaining before the first pads are ready for the model homes to be built. The cost for the grading is so great, that they have no choice but to continue with the development. The owners of the adjacent property where Skydive Elsinore operated a small airport and landing zone is being prepped for a large tract housing development. The skydive operation needs to be moved out by the end of the month. Interesting note, John Lang Homes, one of the nations largest private home builders was just bought out by a company from Dubai (our oil dollars are flowing back into the country with foreign governments buying up US businesses).
In the French Valley area (located between Temecula/Murrieta and Hemet on Hwy 74) Lennar is in the process of grading a site for more than 1,000 new homes. I was just out there last week and they have huge amounts of equipment operating non-stop to prepare the site for the construction of the model homes. Access roads to the site are still unimproved dirt, with no signlaized access to the development from Hwy 74 yet. KB Homes is in the final stages of planning before they begin a housing development of similar size right next to Lennar’s project.
This development is truly astounding considering the lack of good paying jobs in the area and the extreme commutes for people driving from here to LA, OC, and SD. Existing home inventories in Temecula have more than doubled since the beginning of the year, and there are several large developments which are just beginning construction of their final phases. Developers in the area are in the process of adding thousands of new homes to the market at the absolute worst time possible. I believe you would be hard-pressed to find a more overbuilt area in Southern California that SW Riverside county.
Agree with your assessment of the vast amount of HB in SW riverside, Rancho Cal
A few monthes ago i went to Dos lagos, a large master planned community just off the 15 and 10 miles south of corona. The project was in mid-construction phase, with 1/3 of homes ready for occupancy. though the proposed shoppimg mall was still a steel skeleton( this is a mixed-use project). Have also noted the vast amount of homebuiding in the Temecula Valley also, and throughout the SW riverside region. Would like to know the status of Dos Lagos?
Have been out to Lake elsinore area also, and did drive thru that flood plain section which i belive is at the southeast/south shore of the lake. Thought it was a bit run down around that area. Not overly impressed with the LE region: the uprooting and displacement of the rural ranch plots with their trailers to be replaced by suburban cookie cutter tract homes has left an ugly imprint in the LE region.
“Have been out to Lake elsinore area also, and did drive thru that flood plain section which i belive is at the southeast/south shore of the lake. Thought it was a bit run down around that area.”
That’s skydiving turf. I didn’t think they’d survive this RE cycle, but they just might wiggle through again.
Actually In La county other than The Santa Clarita valley and palmcaster there really isn’t the large(500+) tract SFH developments occuring, as South LA county hasn’t that much open areas left. What you see instead is a lot of apt/condo projects going up, ranging from small scale(10-units_ all way to large condo projects such as Playa. THIS IS THE CORRENT HB TREND IN BOTH LA AND OC, TO PUT UP MID-RISE/HI-RISE CONDO/APT COMPLEXES.
to give an example, there is the village apts going up in south irvine, a massive apt complex(est 25% of units ready this year. Santa monica has at least 4 small to mid-size multi-unit projects going up in the area just east of the dwtn. There is the massive project going up at jamboree and main in irvine, which seems to have hit a construction slowdown or maybe halt(haven’t seen much feverish construction activity around that site recently).
A good-sized apt project at sepulveda and cabrillo in torrance looks like it has stopped in it’s tracks. Bad location, bad area, crap timing of builders(moneywell dried up?).
One thing LA area economists have noted is a lot of commercial construction projects are still humming in the Scal region. They are right up to a point, though a lot of these projects are just fenced off cleared ground only and may end up remaining that way, or will be several long years before completion.
“‘It appears to us in Florida, the one left holding the bag was the flipper or speculator,’ said Barron. ‘In Southern California, it appears to us the one left holding the bag is the homebuilder.’”
It seems to me people who bought with risky loans have a hand inside the bag the builders are holding.
I like reading these kind of articles. burn baby burn
And Toll is of course up $.88 on this news! So I guess all of the idiots assume that all of the bad news has been “priced in” to the HB’s. Think again suckers!
what ever happened to “sell the news”?
More opportunity - buy puts on TOL, CTX, etc, or if you have more guts, just short the stocks directly.
What makes you think some hedge funds aren’t writing those put options at an attractive price, then using some massive amount of leverage to keep Toll’s share price just high enough so they are never exercised? This is what I would try if I were a hedge fund manager…
Desperately looking for alternative. Lease to own is a new way to get people into a home. $1500 security deposit, and drumroll please……..$7500/month. Hmm…I wonder who could afford that.
http://seattle.craigslist.org/est/rfs/197308555.html
Why do all the crappiest properties say, “this one won’t last long”? Sigh.
I think what they mean is the owner is prepared to torch it soon if it doesn’t sell by the next mortgage payment date.
I think the kitchen on that one is bigger than my living room, but at least I have veiws of downtown Seattle and Mt Rainier. Bet the kitchen would hardly get used too.
My email response:
Great looking house.
I’m interested but I’ll need to relocate. Can you give me a list of jobs in Bellevue that pay $7500 a month?
Actually, I seem to recall a banker telling me my mortgage should never be more than 25% of my monthy income so could you make that a list of jobs that pay $30,000 a month?
Thanks.
that’s funny…lol
That is freakin _hilarious_! Anyone who can afford $7500/mo in Seattle already owns a home. Either that, or is intentionally out of the market until sanity returns.
Jon
“‘Demand has hit a wall’ in Southern California as skyrocketing prices over of the past few years have made homes less affordable, said Barron. Builders have responded by offering higher incentives and steep price cuts, and by allowing buyers to put down shockingly small deposits, of less than 1%, on homes, he said.”
“‘Deposits below 1% are a very ominous sign as it signals to us that demand is very weak and homes have now become very unaffordable,’ said Barron.”
At the very least, he’s saying that affordability is gone. This is what will continue to drive middle and upper-middle class out of southern California in droves. The artificial housing market is over, the self-delusions of the “investors and speculators” have failed, and finally some people in the industry are calling a spade a spade. His words would be even more truthful if he predicted widespread panic and crushing financial blows all around.
I even think the Asians have stopped buying in Santa Clarita.
I prefer a cycling commentators term.
“Bitter blows!”
A prediction: there will be no GSE bill this year. None. And if the Democrats take the House you can kiss the whole thing goodbye, which means the folks at FM Policy Focus can keep their jobs. One colleague quipped to me that some GSE lobbyists are already doing a victory dance in the end zone…
2006-2007, maybe, but once the Democrats take back the Executive based upon balancing the budget again, you’ll see FNM taken to the woodshed.
Dems ties to FNM run deep. Nothing will happen to FNM — business as usual.
The message that is being sent is, rules can indeed be skirted and laws broken with no punishment. Not the way I was raised. Guess we can all go out and break the law with no consequences.
“Guess we can all go out and break the law with no consequences.”
No, not all of us. Only those who with financially-greased lobbying ties to Congress can do so.
Taking some snippets just from the few paragraphs in this thread :
As concerns Demand:
“…demand for new homes continues to deteriorate…”
“…demand is very weak…”
“…buyers are waiting on the sidelines…”
“…decline in buyer confidence…”
“…decline in confidence…”
As concerns Supply:
“…a glut of homes on the market…”
“…oversupply of inventory…”
“…yet the builder was already building the next 100 homes…”
Supply up , demand down. Substantially. And all of this coming on the heels of:
“… skyrocketing prices over of the past few years…”
And all these hammerheads are telling us we ‘may’ see a ‘10% or so’ decrease in home prices?
Were all these people born in the last five years? Do they remember Nasdaq 5100 ? Was anything learned at all?
New term : the housing crash will soon reach ‘Nasdaq-ian’ proportions.
YAWN!!!!!
It is nice to see this stuff coming out in the news…but the regulars here KNEW this was coming.
Just sit back and watch this unfold. It is going to be painful…but having to actually earn 6-figures instead of buying crappy condos and spec houses with ‘creative’ financing and watching the appreciation grow is not a LONG-TERM phenomenon.
The fundamentals are going to return to this market like a wrecking ball.
SoCalMtgGuy
http://www.housingbubblecasualty.com
SoCal - Just when I start to think how quickly this is unfolding, you’re always there to remind everyone how much worse this will get.
This is only the beginning!
6+ years of RE madness will NOT correct in 6 months. 2007 will be when things REALLY get interesting.
You think inventories are high now? just wait 12-18 more months. Lots of people still savoring their 3-5% ARM payment. But every month that passes, they come closer to having to make a decision. And refinancing isn’t going to be as easy as it was from 2002-2005.
Things ARE happening….but this is going to take years to sort out.
SoCalMtgGuy
http://www.housingbubblecasualty.com
Are you seeing anything specific regarding lenders tightening their standards or reining in some of their products? Or will it just be declining values that will make it harder for people to re-finance? I’m always interested in this, as re-financing will just prolong the inevitable, and force me to keep on the sidelines longer before I can/will purchase my first home. Thanks for your insight, and I’m looking forward to you posting another update on your blog.
SoCalMtgGuy, when are you going to have a new post on your blog? I’m one of your biggest fans!
I wonder who the two lenders are? Any educated guesses?
“Some mortgage lenders are feeling the heat from Wall Street to tighten their lending standards and cut their exposure to riskier loans”
Really? In Europe credit standards are still getting more loose then they already were. 10x income mortgage with no downpayment and bad credit history? No problem at all over here. And for most of the deals, a government fund will bailout the lender in case something goes wrong and the ‘owner’ has to sell the home at a loss. The risk for the lenders seems close to zero (maybe with some serious mortgage fraud cases as the exception).
I cannot imagine the US market starts tightening lending standards while Europe is still headed the other way. One would assume that if Wall Street really gets scared about mortgage defaults etc. the EU market would follow very soon.
but we’re so in debt to China that we might start worrying about bad debt looking starting to look unattractive to the Asian economies we depend on to bankroll *everything*, no? That would be a big difference between the Euro-nations and us on lending standard counts perhaps?
I just saw this compact and compellingly depressing outline on why and how we’re heading for ‘economic disaster’…sorry if the link’s been posted already..
cheers all!
http://www.marketwatch.com/News/Story/79TXNsRThQ64XvT48DvJPmM?siteid=yhoo&dist=TNMostRead
It’s only money - no intrinsic value. China still does not have their own economy (workers can’t afford the products they make), so they need the USA to keep on buying. The global economy has put almost all countries in the same boat, so you’re going to just see everyone write the debts off and move on.
When the Chinese military is strong enough (in a decade) to ensure against this kind of theft, the US will devalue the dollar and allow massive internal inflation (to be able to continue to service its debt). Smart money will see it coming and act years before. The average American’s standard of living will drop for a couple of generations as incomes stagnate but costs soar. The extra dollars in circulation from inflation will be used to pay debts back. The weak dollar will drop domestic demand for foreign products, rejuvenating US industry and banishing the deficit. But that won’t finish unwinding till your grandchildren are retiring. :p
China’s “middle class” was approaching 200 million as of last winter. That’s 2/3 of the US population.
So they’ve got their own people who can buy the stuff they make.
India’s middle class is also growing rapidly.
The world does not need the US consumer as much as it did just a couple years ago.
What do you mean the Chinese can’t afford the stuff they produce? Hello! Ever heard the expression “Possession is 9/10 of the law?” And I’ll let you in on a little secret… they’re communists… Oh, I know the plan, we’ll draft every American man, woman and child and invade and get our capital back. Oops. Time to get back to viewing pictures of Arab men stacked in naked pyramids…
The interesting aspect of a mania is that the regulators eventually wake up. They eventuly see a portion of the danger and raise rates and make lending standards more conservative. This is analogous to an fat man worried about a heart condition starting an excercise program. The excercise is the triger for the heart attack. The inevitable movement toward more conservative lending will trigger a debacle in realestate. The FED will not be able to stop it. The longer they allow reckless loans the more vulnerable the victim.
Here is what gets me. Toll just started buidling on these http://tinyurl.com/etorl
And, no those are not typos. These are townhomes for 600K +. Apartments right behind these rent for $2K/month. Seems like a disconnect somewhere.
Whoa. Is that supposed to be “high-end” styling? They look like the ones that should sell for $150-200K — o n a good day — here.
Oh my.
“65 modern, elaborate townhomes located in the heart of Chatsworth’s fine dining, entertainment, recreation and shopping centers”
Fine dining in Chatsworth? Entertainment in Chatsworth? Chatsworth has a Heart? With nearby SFHs on Zillow priced for less than $600K?
Warning: Reality Disconnect in Progress! Call the Time Lords, an Interdimensional Rift has opened in Chatsworth!
aren’t there restaurants where you can ride your horse and hitch it right outside? That’s fine dining in my book!
These people must be geniuses. My brother’s been working in Chatsworth now for about 3 years and he STILL hasn’t found the fine dining they’re referring to.
I love how the “nearest city” is listed as “San Fernando Valley”. Uh huh. I hear Europe is a great little country, too.
Not to mention that Chatsworth is the #1 Porn industry shooting spot in the world. Great place to be where you can sit on your porch and explain to your kids why the neighbors are doing it for all to see with a camera crew and line of fluffers. Condos with roof-top patios should be in high demand for pervs.
If anybody remembers the movie “Trianing Day” with Denzel Washington and Ethan Hawke, the “Barrio Seen” must have been filmed in or next to beautiful “Chatsworth”
no fine dining here in chatsworth except the free bbq at the cowboy bar on sundays.
and yes they have a hitch out back and people use it.
easy on Chatsworth, some of us live there
Jesting aside, this is a good location but not THAT good. Anyone want to join a pool to buy these at the fire sale when they are completed? They will make great rentals, guaranteed. email me @ oknish AT google’s mail (gmail) dott com
going to los toros right now its only decent spot in chatsworth except the candy cat.
Love Los Toros! When they mentioned “fine dining” that was the only place I could think of. Of course, a small, old, understated Mexican restaurant would hardly be called “fine dining” by most, but to each his/her own.
Now, the Candy Cat is definitely NOT fine dining!
The title of Hulbert’s piece belies where his opinion falls on the difficult question he raises…
———————————————————————————-
MARK HULBERT
Catching a falling knife
Commentary: Newsletters split on home-builder stocks
By Mark Hulbert, MarketWatch
Last Update: 9:12 AM ET Aug 22, 2006
ANNANDALE, Va. (MarketWatch) — Have housing stocks dropped enough to justify buying them?
http://tinyurl.com/mfjgb
John Templeton recommends buying an investment when there is maximum pessimism. We aren’t there yet.
Well then, it’s time to go long on Beanie Babies.
I should start my own investment newsletter.
I actually considered Beanie Babies a few days ago!
I was talking about bubbles with a friend of mine and it occurred to us that beanie babies might indeed end up worth something again as they will then be TRULY rare. Hell, people collect bottlecaps, I don’t think BB can outnumber them.
That’s the “buy when there’s blood on the streets” syndrome. We are about 2 or 3 years away from that where property is concerned. As far as John Templeton is concerned, he said about a year + ago that property will end up at 10 cents on the dollar. 50 cents on the dollar IS a possibility but I think John Templeton (he’s way up there in years) has moved into his ga-ga years.
Templeton is not alone in predicting prices at 10″% of peak before this is over. Bob Prechter and Nick Guarino are also looking for 10% of peak at the bottom. And remember…that is what happened in the early 30’s.
The probability of a 90% fall is far greater than one limited to just 50%, IMHO.
The real question is, even if they are “low enough,” what will make them go back up and stay up?
Nothing I can think of. But I wouldn’t short them either.
Last August was the time to get your shorts in place…
2004 was even better. Hell, I was shorting them in the spring of 2003. For a trade.
There are plenty of reasons for beaten down stocks to go up, not the least of which is a high days-to-cover.
The other, of course, is buy outs and mergers. Almost always a premium over the current price.
Things don’t have to be “good” they just have to be “not as bad” as expected.
I saw that one. I especially liked the graph comparing the current housing market to the tech boom.
“‘It appears to us in Florida, the one left holding the bag was the flipper or speculator,’ said Barron. ‘In Southern California, it appears to us the one left holding the bag is the homebuilder.’”
So true in Northern Cali too… Too much on the market and not enough demand to meed supply. But, we do have too many greedy sellers. That to will change! BAHAHAHAHAHAHAHAHAHA
I assume you mean Sacramento. SF Bay Area shows no sign of price reduction in the core. There may be some in far flung suburbs - I wouldn’t know about that.
Prices in places like Gilroy are still higher than last year, so no, no drop in outlying areas either. We’re lagging by around 3 months - the psychology is just now starting to change.
We really should stop calling them “sellers.” They aren’t sellers at all, but merely listers that are much more likely to withdraw their property than get a contract. Eventually RE agents won’t accept listings unless they are priced below comps because they are getting killed on fees without any sales. We are seeing inventory slowly declining in my area (Fairfax and Loudoun) as listings are withdrawn or expiring without being relisted.
Realtors need to eat and may compel listers to lower their prices, thereby expediting the correction in housing prices.
We are seeing the same exact thing down here. Listing numbers are starting to flatten out, yet sales numbers keep dropping.
Keep on watching!
Many homebuilders did not learn from past overexpansions. They were working on the idea that, “If you build it, they will come.” Field of Dreams only works for a few years.
” The Fed is poised to accommodate the ongoing profligate financing environment. I find it astounding that our policymakers have absolutely no inclination – or demonstrate any sensitivity to their responsibility - to discipline or subdue “Wall Street finance.” Instead, they are determined to safeguard a highly improvident and destabilizing financial backdrop and incentive structure. This may very well perpetuate the current aged boom somewhat, but there will be no avoiding the painful aftermath. Today’s Menacing Financial Structure has decisively sealed such a fate.
In a predictable replay of the Technology Bubble, the U.S. homebuilding industry now faces the inevitable consequences from a period of spectacular over-finance and over-speculation (including massive industry overcapacity, collapsing profit margins and acute price uncertainty and instability). Industry executives have not previously experienced similar dynamics to this downturn specifically because there has never been a Financial Structure so capable of completely inundating the entire housing and mortgage arenas with cheap finance for such an extended period – never. ”
Doug Noland
http://www.prudentbear.com/creditbubblebulletin.asp
The policy makers ARE wallstreet’ers. Lot’s of anecdotal evidence that Goldman Sach’s and JPM are fronts for the banking cartel. We know that the lobbyists are the folks who actually write policy (laws) that originates from their interests. Should not be any surprise that we have entered fascism at this point in time. You may be interested in viewing this film for more info.
http://www.freedomtofascism.com
It gets rereleased next month I believe.
I looked for it the last time you mentioned it, but found no showings in Central Florida.
Oh for heaven’s sake. And you accuse the Repubs of “scaremongering,” by going on about the threat from terrorists who have, actually, been known to blow stuff up from time to time.
You morons wouldn’t know a fascist if one broke your bones. (And you’re too ignorant of the history of fascism to recognize the quote that phrase refers to.)
The ostrich speaks from deep in its hole….
Auger , cannot wait to see it. Fascinating interview with Aaron Russo at the site:
http://video.google.com/videoplay?docid=-3254488777215293198
Tinfoil hat wearing anarcho-capitalistic libertarians , unite!
Down with the FED. I’m going home to stick needles in my Woodrow Wilson voodoo doll! M3 ? Ah who needs to know in this day and age , what are you a dinosaur? (he gets a little carried away with the human impanted RFID tags , but otherwise , he’s my kind of guy. I pray this movie gets wide exposure.
RFID tags, lets get used to that idea. We never thought that many of the things we take for everyday reality would ever happen. There is really no limit to what can happen as long as people are too lazy to think.
What an idiot.
Shiller (spelling?) on NPR’s talk of the nation right now, talking about Housing Bubble. Check your local NPR/public radio affiliate.
Just heard an NAR-shill economist on NPR (not sure what became of Shiller). Lots of blathering on about how a steady stream of new imigrants will bolster the market, once they have had a chance to save up a downpayment. No mention of the fact that home prices are too high to afford a traditional-sized downpayment (3%+) in most places where people live.
It’s coming…the statistics are starting to come out from the other side now on the show.
3% is a traditional size down payment? You must mean earnest money deposit. The traditional down payment is 20%
I said 3%+, which means 3% or more. My recollection is that until recent rule changes allowed 0% down, FHA loans required 3%.
It is Shiller versus the untutored moron who wrote books entitled “The Fearless Seller” and “The Fearless Buyer,” Elizabeth Razzi, who sees no problem with Option ARM financing for the masses. If most Americans are as dense as she is about basic finance, then I suppose real estate prices might keep going up by 20% per year, forever.
I just wish the geeks didn’t always come across as such wobbly, negative, unhip naysayers. The dumb chick pushing her money-for-nothin books knew to sound upbeat and positive… I just pictured her with Dorothy Gale ponytails.
The geeks are painfully honest regarding their uncertainty about fundamentally unforecastable future events. This gives those who are sufficiently ignorant to confidently hype their simple-minded predictions a big advantage in media interviews.
I heard a portion of the show when I was at lunch. The positive spin made me so I dizzy I had to pull over. Oh well, at least in the mm are starting to talk about it.
Martha Steward can’t even sell her house and “that’s not a good thing. “ha ha
from the toll conference call
quote from the ubs analyt
“congratulation on the good quarter”
can you believe this. after 3 warnings during the last quarter
http://www.immobilienblasen.blogspot.com/
toll declined to comment on cash flow.
on the latest 10q filing from june 06 for the 6 month period endet in april
they have had net cash from operating activities minus 375m$ plus 71m$ in 2005
net cash from investing minus 137m$ vs plus 81m$ in 05
cash flow from financing (taking on more debt) plus 221m$ vs minus 51m$ in 05
from april to july they burned 76m$. no wonder they won´t disclose this matter on the call
http://www.immobilienblasen.blogspot.com/
Mmmm. Sounds like the Toll Bros executives are in line for the congressional medal like Rumsfeld and Bremmer. The secret to success this century is to screw up (or screw others.)
homebuilders
Little Pink Houses Out of Homebuilders’ Reach
By Howard Simons
RealMoney.com Contributor
8/22/2006 10:59 AM EDT
URL: http://www.thestreet.com/p/rmoney/homebuilders/10304924.html
Ain’t that America, home of the free
Little pink houses for you and me.
– John Mellencamp
Being an astronaut must be fun, even if NASA manages to lose the home movies of one of humanity’s greatest achievements, as it recently disclosed it did with the Apollo 11 moon-landing footage. As a rocketeer, you get to see things from above and in perspective. Of course, you can do the same thing on a much smaller scale from an airplane window.
I used to have to fly to Tulsa, Okla., on a fairly regular basis, giving me a broad perspective of that state’s topography. Eastern Oklahoma now has more lakes than Minnesota; and Tulsa, which is on the Arkansas River, is a seaport. Both facts are attributable in large measure to the work of Sen. Robert Kerr, chairman of Kerr-McGee, who served in the Senate between 1949 and 1963 and who was a key player in rounding up the votes for fellow Sen. Lyndon Johnson. As chairman of the Select Committee on National Water Resources, Kerr took payment in dams, as evidenced from a mile-high view of his state. The point: from space, you can see what a U.S. senator is really capable of doing.
Fly into any major city today, and if your memory is long enough, you will see urban sprawl extending much farther than before. The point is: From space, you can see what monetary policy and the Federal Reserve are capable of doing. You can see clearly the results of the grand social experiment of driving interest rates lower between 2001 and 2004, when the first rate hikes began, softly and slowly, to remove the stimulus for credit-dependent industries, such as homebuilding.
Changing Fortunes for Homebuilders
This is exactly how interest rates are supposed to affect the economy. In theory, interest rates equilibrate between future and present consumption. Higher rates discourage present consumption in favor of future consumption, while lower rates do the exact opposite. And markets do move to excess. It was not enough for some that a few marginal homebuyers could now qualify for some plain-vanilla 30-year fixed-rate mortgage; no, we had to jam anyone who could fog a mirror into undocumented option-adjustable-rate mortgages. We shifted a lot of housing-related investment into those years and created a boom for homebuilders.
Oddly enough, the beneficiaries of this boom kept a level head, if the National Association of Homebuilders sentiment survey is to be believed. This index, which recently hit a low of 32, spent most of the time in the period from March 2000 to August 2005 between 55 and 70. During this time, the relative performance of the S&P 500 Homebuilders Index to the S&P 500 as a whole did nothing but rise in a straight line. Incidentally, the last time I addressed homebuilders specifically in this column was in August 2005; the negative action then was attributable to rising mortgage rates.
The homebuilders could have gotten giddy, at least in their sentiment survey, but chose not to do so. Homebuilders have seen booms and busts before, and they were determined not to confuse a bull market for brains.
If only Wall Street kept such a clear head. A casual observer might think there are some out-of-control egos in this business.
A Picture of Homebuilder Confidence
Click here for larger image.
Source: Bloomberg
The Interest Rate Connection
But if homebuilders kept their cool on the way up, they certainly panicked on the way down. The relative performance of their stocks has fallen, and with it, so have their spirits.
While you may think they are manic-depressives without the benefit of the occasional mania, they are actually reflecting the abyss created by the interest rate mechanism discussed above.
Prior to August 2005, their sentiment index reflected the national average rate for fixed-rate mortgages so well that it was simply a redundant indicator.
But what the small rise in mortgage rates — from below 5.5% to above 6.5% — did was close the door behind the deluge of marginal new homebuyers who had flooded into the market.
The builders satisfied 2006-07 demands in 2002-05. They will have to wait for the next wave of homebuyers, and given how homes define durable goods, that may take many years.
Mortgage Rates and Homebuilder Sentiment
Click here for larger image.
Source: Bloomberg
Another way of looking at this interest rate relationship is by updating and expanding a complex chart from my August 2005 column on homebuilders. The rate-cut era began in January 2001. We can divide the next five-and-a-half years into three regimes, the one prior to July 2003, the one after August 2005 and the one in between these two.
If we map the relative performances of the homebuilders against the relative movements of 10-year note yields and superimpose trend lines on them, we see how both the pre-July 2003 (green trend line) and post-August 2005 (red trend line) periods show strong dependence on interest rate trends. The middle segment (blue trend line) had only a weak relationship to rate trends.
Yield Curve Effect
Click here for larger image.
Source: Bloomberg
We can also, on the chart above, map the relative performance of the homebuilders against the shape of the yield curve as measured by the forward-rate ratio from two to 10 years. This is the rate at which we can lock borrowing in for eight years starting two years from now. During the pre-July 2003 period, the yield curve was fairly steep; the homebuilders as a group tend to do well in a steep yield-curve environment.
The present yield curve is quite flat, which works against the homebuilders. Overall, we have to conclude the group is left wishing for a combination of lower long-term rates, a steeper yield curve and a stronger economy. While nothing is impossible, this combination is unlikely to occur anytime in the foreseeable future.
“‘Deposits below 1% are a very ominous sign as it signals to us that demand is very weak and homes have now become very unaffordable,’ said Barron.”
For you Gary, feel free to cut and paste, don’t say we never offered to help!
“‘Deposits below 1% are a very encouraging sign as it signals to us that affordability is very strong and homes have now become very affordable,’ said Watts.”
There seems to be an extra zero in that rent request.
More news coming in:
‘Builder confidence in the condominium housing market weakened significantly in the second quarter of 2006, as sales continued to retreat from the record-high levels seen last year, according to results from the National Association of Home Builders Multifamily Condo Market Index* (MCMI) released today. ‘Investors and speculators had been a big factor driving sales and production at the height of the condo boom and they have been pulling out of the market,’ said NAHB Chief Economist David Seiders.’
‘Federal Reserve Bank of Chicago President Michael Moskow said the central bank may need to resume raising interest rates to reduce inflation and ensure that expectations for higher prices don’t get out of hand. ‘The risk of inflation remaining too high is greater than the risk of growth being too low,” Moskow said in prepared remarks to the McLean County Chamber of Commerce in central Illinois. ‘Thus, some additional firming of policy may yet be necessary to bring inflation back into the comfort zone within a reasonable period of time.’
What amazes me is that there are still buyers out there. It’s your dim-witted/in denial speculators as well as the average american (who is clueless about most everything that happens in the world) who are still out there buying.
In there defense, our media does not do such a good job reporting the news as evidenced by using realtors as “experts” on the housing market.
However, I’m still dissappointed in the average American. Reality shows and uninhibited spending have turned the once intelligent and imaginative American mind into a mushy bowl of gruel and our government likes it that way. Years ago I once heard a wall street guy say that the American lifestyle is sweeing the world. I hope to god it doesn’t. The earth can’t handle it.
The earth ISN’T handling it.
Or the earth as a self-regulating organism, in which humans are but a cell type, has got a bit of a fever, which is creating conditions less optimal for certain cell types.
Query: Is the environment in better shape in areas where people live an affluent “American lifestyle,” or where people live in Third World poverty or Second World command-and-control worker’s paradises?
How much of said devastation is American lifestyle exported?
In a similar fashion as to the way we export our jobs, why shouldn’t we export/outsource our pollution and shorten their lives not ours.
I noticed the article had mentioned “Default Management” companies, are there any publicly traded companies that anyone could recommend? Of course, I’ll be performing the necessary due diligence on my end.
Thanks in advance!
I also heard Robert Schiller (the Yale Professor) on NPR’s “Talk of the Nation” this morning.
He does not seem to be a “good interview”.
He did say that housing prices, historically, are not driven by interest rates, demand from immigration, etc. (things that an NAR talking head promoted).
Rather, the main driving force for housing prices is construction costs. In normal markets, demand doesn’t come into play because builders just build more housing.
He made the point that current construction costs certainly do not justify the latest push-up in housing prices.