‘A Lot More Supply And A Lot Less Demand’
The Hawaii Tribune Herald has this update. “A glut of houses for sale combined with rising interest rates have turned a once-booming market in East Hawaii into something else for sellers. The situation is most noticeable in places like Hawaiian Paradise Park, where numerous speculative houses line the red cinder roads, waiting for buyers. In a one-mile stretch on 15th Avenue, five ‘For Sale’ signs can be seen along their respective properties.”
“After Susan Rosario put her family’s two-house lot on the market ‘a few months’ ago, they’ve had with just two visits and no offers. ‘I’ll just wait,’ she said. ‘If you can find me a buyer, go right ahead.’”
“‘There’s a lot more supply and a lot less demand. Economics 101,’ said real estate agent Henry Correa Jr. Asked whether he thought home prices have reached bottom, he said, ‘I think it’s early.’”
“‘I was saying this was going to happen a year ago. I’m surprised it took so long,’ he said. He cited one property, originally listed for as much as $900,000, that had to be discounted 14 percent to $770,000 before someone made an offer. (the final selling price was not disclosed).”
“(Broker) Nancy Cabral wrote a letter to her rental investment owners in April informing them of the market conditions. ‘The State of Hawaii, the Big Island and more specifically East Hawaii have experienced unprecedented real estate growth over the past several years. At this time, two years ago Day-Lum Rentals had virtually no rental units available and rent increases were common. Since that time, thousands of new homes have been built in East Hawaii and the supply of homes for sale and for rent has increased substantially.’”
“The letter continues: ‘Our sister company..feels this market adjustment will continue for the coming year or more, as more homes are added to the market.’”
“People are still moving to Hawaii, Cabral said, and supply remains tight around Hilo, toward Mountain View and the area north of Hilo, though it’s not hard to find ‘For Sale’ signs there. ‘Some of your bigger subdivisions will have a bigger surplus of inventory,’ she said.”
“‘What we’re seeing now is that the market is adjusting,’ said Realtor Pat Halpern. ‘The market is beginning to decline into a more reasonable situation, and hopefully it will allow more of the local people to buy,’ she said. ‘We’re sitting with a lot of homes and fewer buyers,’ Halpern said.”
The Age reports from Australia. “Between 1997 and 2003, the price of a home in Australia’s capital cities doubled. But a new mega tax break in the May budget means this probably will never happen again. Instead, house prices from here on are likely to at best flatten out, at worst fall somewhat.”
“It will jeopardise the value of the $160 billion invested in rental Housing by the million or so landlords who are negatively geared. house prices in Australia are essentially driven by investor demand. The long surge in investor housing in Australia has been driven essentially by a cocktail of tax breaks. The negative gearing rules allow investors in effect to push part of their losses onto other taxpayers.”
“Renting out housing has become Australia’s most unsuccessful business, and by a long way. Two-thirds of landlords now tell the taxman they are losing money. A lot of today’s housing investors could face years of operating losses without ending up with much in capital gains.”
“Reserve Bank governor Ian Macfarlane told The Age last week that property prices in parts of outer Sydney had fallen by 20 to 30 per cent since 2003. ‘A lot of small-time investors who came in in 2002 and 2003 are probably way under water,’ he said.”
“Negative gearing has a lot wrong with it as an investment strategy. For a start, it involves losing money. Even in 2003-04, preliminary tax figures show, 938,000 rental owners declared losses of $6.1 billion. Given rising interest rates and house prices since, by now they are probably losing $10 billion a year. That’s a lot of money to throw away.”
“Negative gearing has a lot wrong with it as an investment strategy. For a start, it involves losing money. Even in 2003-04, preliminary tax figures show, 938,000 rental owners declared losses of $6.1 billion. Given rising interest rates and house prices since, by now they are probably losing $10 billion a year. That’s a lot of money to throw away.”
Well, atleast they’re not throwing their money away on rent!
Or making their landlord rich by paying off his mortgage! LOL!
“‘I was saying this was going to happen a year ago. I’m surprised it took so long,’ he said. He cited one property, originally listed for as much as $900,000, that had to be discounted 14 percent to $770,000 before someone made an offer. (the final selling price was not disclosed).”
At which point the Realtor as of suddent said … we have multiple bidders… And made the buyer raise his bid… the only bid Thats why they (the realtors) dont want to disclose the final price….The oldest trick in the book….
They could have multiple bids, and all of them below the asking price. lol
If a Realtwhore pulls that “multiple bidders” bullshit on me when I’m ready to buy near the market cycle trough (2009-2012), I will LOWER my offering price 5%.
“‘There’s a lot more supply and a lot less demand. Economics 101,’ said real estate agent Henry Correa Jr.
Oh, so NOW Econ 101 kicks in! Somebody should have been plotting demand vs price when the market was on its way up to see if THAT made any friggin’ sense in the long-term…
If you want an economic benefit, you need to figure out the economics before it happens. If you don’t, all you’ve done is to figure out the reason why you’re a bagholder. It’s nice to
have figured out the reason. But it’s even nicer if you’re not
a bagholder.
Yeah, imagine that economic principles now come into play. Actually they have always been there. Equilibrum was way off due to demand shifts, based on lies made by realtors. Quantity supplied and quantiry demanded now will cause equilbrum to get back to normal through price decreases.
“Equilibrum was way off due to demand shifts, based on lies made by realtors.”
A record high level of real housing price inflation since 1998 also threw demand way off, pushing it up to a much higher level due to speculators and households willing to purchase homes they could not otherwise afford in order to capture high rates of appreciation. Now that prices have levelled off, with even David Lereah saying they have to drop in order to restore affordability, demand will have to pull back below the level it would have reached if normal (non-negative) appreciation were expected. The discontinuity in demand in response to to the abrupt shift in industry rhetoric from “real estate always goes up” to “prices are going to fall” is likely to result in a hard landing, regardless of what the Fed does with interest rates.
1925 - Average cost of a new house: $7,809.00
Average income: $2,239.00 per year
1929 - Cost of a new house: $7,249.00
Average income: $2,062.00 per year
1954 - Cost of a new house: $10,250.00
Average income: $3,960.00 per year
“…. they have to drop in order to restore affordability, demand will have to pull back below the level it would have reached if normal (non-negative) appreciation were expected.”
(Thanks to SeekPublishing for the figures quoted above.)
I agree with GetStucco.
Abso-f’ing-lutely!
Heck, the Fed could cut rates to negative 1%. Yes, PAY you to borrow money. It still would not prop up prices. The 10%+ a year collapse in RE values far outstrips the benefit of cheap lending.
In late 1999 I saw an ad for a lot in Pahoa, HI for $1,500. I was sure it must be a misprint but called the guy anyway. He said, No Mr. you read it right, it’s 1,500 bucks but it just sold. So I talked briefly w/the guy and he explained he bought in the late 80’s for about 15K! We all know what happened next. Although he assured me there was plenty of other lots to choose from a call to a local realtor revealed that this was in high crime area and any home built will be vandalized and or occupied by squatters. Great.
Well now they’ve been selling for like 30K! Oh let ther be no mistakes here, it’s still a high crime/drug area but now they’re selling for twice their peak under the Japanese driven bubble! It’s also interesting to note that very little has actually been built there but the lot’s have gone from $1,500 to $30,000 from 1999 to 2006.
(No downside here!)
He said, No Mr. you read it right, it’s 1,500 bucks but it just sold. So I talked briefly w/the guy and he explained he bought in the late 80’s for about 15K!
Hawaii economy is pretty dead… I had a few friends who were thinking of moving there and setting up shop… after a short stunt of 3 months they were back…
There just isnt much economic growth in the islands.
yeah pretty much everyone I know there is working two jobs to get buy.
Yeah–much of the Hilo side isn’t exactly the “paradise” people hope to retire to. You can visibly see the sags to the local economy/infrastructure, and with more backlash to newcomers. What’s more, that area drops some 120-140 inches of rain per year, so it’s often clouded over with driving storms. Have fun sitting in your metal roof house, counting the raindrops as they bounce off your ear drums! And count on constantly gardening your lot, or your house will disappear under a canopy of vegetation.
Anyone’s best bet for living on the Big Island is coastal Kohala to S.Kona, perhaps from Waimea/Kamuela/Waikaloa down to Captain Cook. Definitely more expensive, but the weather is much better, and definitely more to do.
I have never been to Hawaii, though most of my family has been multiple times. I suppose it would be enjoyable, but I have always wanted to visit other places first. The only time I have seen it, other than in many friends/relatives pictures, was when one evening while channel surfing, I settled on some show called “The Bounty Hunter”. After watching for a few minutes, Hawaii looked like trash. I am not sure which island this was, but it certainly did not paint a good portrait.
OT:
This could be the big one
“We’ve all seen those animated cartoons where Daffy Duck or Elmer Fudd walks nonchalantly off a cliff. The sap continues walking on thin air for a few moments and then notices where he is. Legs whirl in a wild effort to gain traction, but—the law of gravity is reinstated, and—whoosh!!!
“What goes up must come down.
“Both sales volume and prices of houses and condos in Massachusetts have been up for several years. Now they are down—a lot.
“In July the state’s residential real estate market saw “the steepest year-over-year monthly drop since April 1995,” according to the Warren Group, publishers of Banker and Tradesman.
“Bill Wendell thinks that is an understatement. In his local real estate blog, http://realestatecafe.blogs.com/ he warns of “seller concessions masking deeper discounts on sales prices.” Wendell has a stake in exposing this shell game; he’s a realtor whose Real Estate Café works exclusively as a buyers’ agent.”
Which neighborhood? Many subdivisions have changed dramatically with new homes selling over 300k. I doubt they will revert to shacks and squatters, though prices will fall.
easthawaii,
I think these were in the “Puna District”. Nanawhalie Estates or something like that? We actually did consider it b/c this would have broken up our 16 hour flights to the Philippines for the Mrs. In the end I think the realtor (as always) did us a disservice by bad mouthing the area in favor of his listings in Hilo proper. I had heard that Pahoa was once called “Dodge City” for all of the low lifes on the lamb hiding out from the law but unwilling to leave the country (for whatever reason). This is actually the starting point for the Vincent Bugliosi novel “And the Sea Will Tell” later made into a movie as they commited murder while hiding out in Palmyra? The story is set in the 70’s I believe FWIW.
Nanawale currently has 266 lots for sale starting at $15K. 24 listings under $20K, 167 lots under $30K. 24 homes for sale starting at $164,900. I remember asking a Realtor in 2002 what she thought about Nanawale. She said that when the market is in a downturn, that location was the hardest to sell.
Ken Wells,
Thanks for setting that straight. I certainly never thought about living there full time by any measure be it in retirement or otherwise. But it did seem like a nice alternative to say “time shares in Cabo” or wherever. Done correctly it could have been even more affordable as I understand taxes are quite low in that area. Knowing what you know is this even worth pursuing as a part time retirement area or would you kindly pass altogether? My wife and I planned on building one of those concrete first floor, stick built second floor with a wrap around deck but I’d heard finding reliable contractors in the islands can be a challenge. We have a really nice place in the Philippines but after the flight and the hassle you’d really have to stay at least a month preferably 3 to 6 for that kind of a trip to make sense. Hawaii, hell we could do that for a 4 day weekend!
Dinor, Puna is a fine place for part-timers. The deals for buyers are getting better every day, but I would suggest, as I have before, renting first to adjust to the lifestyle (mold, mildew, bugs, drugs, amount of rainfall, lava zone) and pick a neighborhood that is best for you. You may want to walk to the beach or be closer to shopping and activites in Hilo. When you are ready for a contractor, there are recent arrivals from California doing a higher quality of work and able to build something other than the lumber company kits, just ask your neighbors.
I agree with EastHawaii. It’s a great place for part timers, especially if you like the Philippines. Puna and the whole eastside in general is pretty laid back. Good condo opportunities in Hilo, http://tinyurl.com/nhwjg, and getting better everyday. Hilo, to me, is like old Hawaii. Its not for everyone, but the ones who get it, really get it!
sorry, tinyurl didn’t work. Try: http://www.hawaiiinformation.com/REsearch/. Choose residential, Hawaii Island, South Hilo.
OT: Now here’s a guy who needs to learn how to liberate his equity . . . or to find someone with a good set of hedge trimmers:
http://dallas.craigslist.org/wan/199936093.html
Headline:
Mortgage Banker teams up with Urologist to offer nation’s first “VasectoHeloc”.
“We call it ’snip-equity’ ” says Dr. Penilo.
Motto:
“If you can bring yourself to ‘pull out’ , or keep it zipped-
pull out some equity and get it snipped”.
ooops
…CAN’T bring yourself…
“‘There’s a lot more supply and a lot less demand. Economics 101,’ said real estate agent Henry Correa Jr. Asked whether he thought home prices have reached bottom, he said, ‘I think it’s early.’”
I doubt whether this Realtor (TM) ever took Economics 101. But nonetheless, I think his intuition is correct: At recent sales price levels, the amount of supply currently on the market and entering the market far exceeds the available demand to aborb it, particularly when would-be buyers are wisely balking at the risk of losing money by purchasing a home when prices are falling. Hence prices have to fall until the balance of supply and demand is restored to equilibrium. So long as a huge and growing inventory glut is hanging over the market, you can rest assured that prices have not bottomed out.
“Reserve Bank governor Ian Macfarlane told The Age last week that property prices in parts of outer Sydney had fallen by 20 to 30 per cent since 2003. ‘A lot of small-time investors who came in in 2002 and 2003 are probably way under water,’ he said.”
“Negative gearing has a lot wrong with it as an investment strategy. For a start, it involves losing money. Even in 2003-04, preliminary tax figures show, 938,000 rental owners declared losses of $6.1 billion. Given rising interest rates and house prices since, by now they are probably losing $10 billion a year. That’s a lot of money to throw away.”
Negative gearing? I had not heard that term before, but I am guessing it means something like buying a home and renting it out for less than 2/3 the cost of owning? I hope San Diego-area investors are paying attention, because I think these comments represent the handwriting on the wall for them.
negative gearing is the same as negative cashflow on an investment property.
…and the IRS won’t let you write off those rental losses unless you are in the “business” full time. A friend knows this first had as he just wrote the IRS a check for $140K.
In Oz you can write the losses off. That’s why RE is such a popular “investment” here.
Sometimes it’s economics 101,
sometimes it’s psychology 101, and
sometimes it’s physics 101.
sometimes it’s just friggin common sense.
Come on GetStucco. People love to lose money. They have it figured out how to get even greater tax writeoffs. It is a golden opportunity to get their taxable income down to $0. Then they will squeal (like a bunch of pigs that they are) and cry for a gov’t bailout. So, we, the savers will be sharing our good fortune of saving money with these low life louses.
Housing Industry’s Hidden Cracks
By Dan Fitzpatrick
RealMoney.com Contributor
8/28/2006 1:51 PM EDT
URL: http://www.thestreet.com/p/rmoney/homebuilders/10306065.html
Last week I wrote about the homebuilding sector, an industry that has been getting a lot of attention lately. But after spending much of the weekend looking at what various homebuilding analysts have been saying, I am convinced that some critical issues are being overlooked. The homebuilding industry is unique in many ways, with essential intricacies that matter only during significant downturns in real estate — like the one we’re in now.
The “lead down, lag up” nature of housing is just one factor that pundits and the public alike are ignoring. I’m also concerned about the lack of downturn experience among the bull-market babies who currently make up the executive ranks among homebuilders. And because they haven’t seen these issues before, they’re creating housing-price problems that will have nasty fallout. Worst of all, most Wall Street analysts just aren’t picking up on any of these issues.
First Down, Last Up
I’ve seen this before. I began my career in the homebuilding business back in 1984. By 1989, I was managing the Las Vegas division of a private homebuilder. One summer day, people just stopped buying houses. While the economy was just starting to weaken, somebody turned off the spigot on real estate. During the worst of it, many owners were simply giving their homes back to the bank because the house was worth less than the principal balance of the loan.
People didn’t start buying homes again for another few years, not until the economy had already turned around. This is an important point for anyone looking at this sector to understand: The homebuilding industry has always been the first sector to crack in an economic downturn, and the last to repair itself. This should be intuitive. People make big purchases — and a home is the biggest — when they feel secure, not when they’re nervous. As a result, the homebuilding industry leads on the way down and lags on the way up. It’s a fact of the business.
Since the early 1990s, we haven’t seen a deep pullback in real estate. Yes, we experienced some stagnant real estate values from 1998 to 2000, but the FOMC quickly came to the rescue with cheap money. The 9/11 attacks also put homebuyers on the sidelines and converted many homeowners into sellers. Over the next 16 months, the Fed again dropped rates to historic lows, and the homebuilding bull market continued — until about a year ago.
Staffing Issues
Now that the industry is struggling, a lot of deficiencies inherent in the business are once again relevant. Over the past several months I have outlined my current take on the industry, noting the high cancellation rates, the rising cost of raw materials and the futility of valuing these companies using current projections. I believe that the analyst community is overlooking some critical problems that will become more apparent over the next couple of years.
Homebuilding is the only business I know that relies heavily on information from its divisions with respect to product selection. While the corporate executives must approve all land purchases, product design and pricing, they rely on recommendations from their division officers. But few division executives have meaningful experience in dealing with a real slowdown in the industry.
I recently finished some consulting work for a public homebuilder at which the executives were all quite bright and strong in their divisional roles. But they weren’t at all aware of the macro picture because they lacked a frame of reference. Many had advanced degrees, but most were only in their 30s. Only a couple had been in the industry during the bear market of the early 1990s, and in relatively low-level positions. Those who were around during 1998-2000 or the post-9/11 slowdown considered themselves battle-hardened veterans. A few acknowledged that all of their experience had been gained during strong markets.
These bull-market babies were providing the corporate office with market studies, pro formas and product recommendations. Why? Because experienced executives long ago discovered that cheap money and ample demand for homes made it easy for them to start their own homebuilding companies. Their departures cleared the way for the newer staffers to move up the chain of command and shine during a spectacular bull market. But the bulls have stopped running, and the folks now at the helm are about to learn what happens when they do.
The older execs I know unanimously believe that 2007 will be much worse than 2006, and that 2008 will not be any better than 2007. As for the newer staffers and younger whiz kids with diplomas on their walls? The overwhelming assumption from that group is that 2006 is a really rough patch, but that the ship will be righted in 2007 and the next up cycle will begin. Consider this anecdotal evidence of the unwarranted confidence of today’s decision-makers: One vice-president recently told me, “Oh, this slowdown won’t be nearly as bad as it was back in 1990.” This “old warhorse” was in high school back then.
How Prices Really Get Set
The less experienced staffers on the front lines don’t understand the dangerous battle they are in, yet they’re the ones making key decisions. They continue to set high sales prices, but the bid-ask spread remains obscenely wide.
I recently heard an analyst touting the idea that sales prices have stabilized, meaning absorption rates were really the critical component. That’s just wrong. Sales prices have stabilized only because divisions are refusing to drop them. They want their 2006 bonuses, and that certainly will not happen if they start selling houses for a loss. So they hold back cancellations to give the impression that the price floor is firming up. It’s not.
In today’s market, most division officers are on edge. They fear division consolidation, or outright termination, due to poor performance. Their livelihood depends on capital allocation for new subdivisions. No money, no new subdivisions. No new subdivisions, no job. So they shade the numbers they submit to corporate headquarters. Here’s how they do it.
The division hires an outside consultant to provide an independent market study to present to corporate headquarters along with each new land-acquisition application. The recommended prices support the division’s profit projections for the project.
But these “independent” consultants are often pressured by the division officers to inflate their pricing recommendations, thereby making the project more attractive. A $20,000 per-unit adjustment can be the difference between approval and rejection.
Because of the belief that we are simply experiencing a brief slowdown, this dangerous tactic is used with alarming frequency. Remember, most of these optimistic real estate execs have no firsthand experience in a severe cyclical downturn, so their naïveté is leading them down a very slippery slope.
Another tactic for making new projects more attractive is to build inordinately large homes to justify the high sales prices. Theoretically, larger homes command higher sales prices. But homebuilders in Orange County, Calif., are finding out that few folks are interested in homes that are bigger than 3,000 square feet. That’s a problem when the only way to make your profit projections work is to build 4,200-square-foot homes. But a favorable market study goes a long way toward convincing the corporate land committee to approve the acquisition.
What’s Next
I believe that over the next several months we’ll start hearing about builders slashing sales prices by more than $100,000. This is already occurring Orange County; we’re just not hearing about it yet.
All builders subscribe to a local marketing report that provides monthly updates on pertinent data for all subdivisions in the region, including concessions offered. These data are obtained by calling the sales office and simply asking the sales agent for this information. But the sales agent would shoot himself in the foot by being honest; why tip off the competition that you are slashing your prices? The numbers in the local marketing report are rarely accurate.
But these price reductions are occurring, and they are bound to produce negative consequences far beyond a hit to the bottom line. First, appraised values will be impacted. This will anger recent homeowners. Over the next six months or so, I suspect that we’ll begin to see many homeowner lawsuits against the builders over those reductions. They’ll allege bad faith, fraud, misrepresentation and any other cause of action that the plaintiffs bar can think up to coerce the homebuilder into refunding the equity that just got vaporized by the latest round of price cuts. In essence, they’ll want a retroactive price adjustment. These high-profile lawsuits are likely to create even more hesitancy and suspicion among potential homebuyers. It’s a vicious cycle that is just in its infancy.
Builders also are simply walking away from land deals — forfeiting millions of dollars in nonrefundable deposits. These deals often are included in a division’s unit projections for the next several years. When these deals go away, anticipated sales revenue goes with them. Unless a division is able to replace a canceled acquisition with a new deal, earning projections must be revised downward. Most Wall Street analysts seem to limit their analysis to the multimillion-dollar deposits being forfeited and believe the worst of these forfeits is behind us. I’m more focused on the void left in a division’s business plan when it cannot find a viable deal.
Analysts and commentators have repeatedly mentioned that share prices of most homebuilders have dropped around 40% over the last several months. For example, since July 2005, Pulte (PHM) is down 40%, Toll Brothers (TOL) is down 55%, Centex (CTX) is down 38% and Ryland (RYL) and Beazer (BZH) both are down 50%. In my analysis, this is not even relevant. The market is a future-discounting mechanism, not a rearview mirror. The bull market in real estate values hid a lot of sins at the divisional level, but I think that dynamic has faded. That said, I am cautious about being too bearish in an already bearish environment.
But I think we are barely seeing the top of the flagpole stuck into an iceberg. In trading terms, this has been a blow-off top in housing, and all those who bought over the last couple of years are now sellers. Simply put, no one is left to prop up the bid.
Dayum! This is an awesome story and really sets out so clearly my viewpoint of all this. I could never understand how people let this happen again until it finally dawned on me that the ones driving this ridiculous bubble were in high school and college during the last one! They love to blame the boomers for all this but as I said last week, we are the ones selling houses to them!
The parallels between this housing boom (and crash) with the dot-com mania are scary. It was also young kids who were managing these new dot-com economy and we all saw the result. These bubbles are all essentially the same, but in this case I think the results will be worse.
Never trust anybody under 45 with any business decision. IMO.
I’m an GenXer and within my circle of friends, almost all of which are raising families, there isn’t a single one who lives in any sort of luxury. We (as a group) don’t own vacation homes or investment properties (aside from my 1 multi). We all do well income-wise, but don’t live beyond our means.
The Gen Xer’s had little influence with this housing bubble, but we will live with the consequences. We will live with the consequences of boomers who need to show off their affluence by living in enormous houses (who else drove the increase in average sqft over the last 10 years), having vacation homes and investment properties. We will live with the boomer’s greed in running corporations to the detriment of shareholders and employees, while they line their own pockets (back dating stock option grants is just the latest scheme to be highlighted). We will have to accept the foreign, economic and social policies of the baby boomer politicians and their “politically active” constituents, again to our detriment.
The Gen Xer’s and Y’s will be dealing with the excesses of the boomers for most of our productive lives…
thanks for the great article.
copy, paste, send…
TxChick:
Thanks, great article, I am Cross-posting excerpts over at OCR.
http://blogs.ocregister.com/lansner/archives/2006/08/bib_builders_arent_going_bankr.html#comments
Was is Lenin or Stalin that said a capitalist will sell you the rope that a communist would use to hang him with.
Substitute Boomers for X’ers and the quote works.
The bit about a Capitalist selling you the rope that a Communist would hang you with sounds like Stalin, but it is hard to keep track of Bolsheviks this far along. Stalin was without a great master of the downturn, though. As he says: “Before any great endeavor there must be a great purge.” So be it. Give proper credit to Comrade Koba! Hopefully Single Payer Housing won’t sell here.
Everyone whines about the analysts on Wall St. but it’s the same thing. They are all kids, and have never seen anything but good times.
It’s naivety, not malice.
Not all gen-x’rs have seen all good times either. A lot of us got caught on the Tech implosion early in the decade, and it has been hard to get back to par so to speak. I am still making less than what I made in 1999, and I was not even making exorbitant money back then.
I’m Gen-X and was introduced to the perils of real estate finance in the early 1980s downturn. Some people thought they could weazel their way out using the New Life Church as a tax front and they lost way more than their homes and credit ratings. Never mess with the IRS, even in the current mostly declawed form.
‘I’m also concerned about the lack of downturn experience among the bull-market babies who currently make up the executive ranks among homebuilders.’
Where did this sample come from? I want to see numbers. I am sure a fair amount of us Gen X’ers contributed to the bubble, but as far as being “responsible” txchick57, I believe your wishful thinking is foolish. Between builders, lenders, buyers, sellers, realtors, appraisers, there is no way in hell that the decision making is dominated by Gen X’ers. The bigtime builders are run by men much older than I. The financial institutions, real estate companies, appraisal companies, etc. are the same. I believe, if any one generation had to be held accountable for this bubble, the boomers win out hands down. They are at the helm right now. Check it out.
This is exactly the attitude prevailing not only in the homebuilders but in a lot of companies that do business across the US. Why else would you see backdating of options for senior executives, or giving out real estate price “guarantees” to executives, you will have an attitude in the corporation from top down that the only thing that matters is making money for yourself, and screw the companies, and screw the stockholders.
Of course the companies have been screwing the employees with the lack of raises, cutting pension plans, and laying people off in droves for the last 20 years, so now the corporate trust between employees and corporation is completely broken. I do not think that any company has a chance in hell unless they repair that corporate-employee trust. We can learn from the Japanese in that the employee is devoted to the company, because they will take care of the employee. It works both ways.
The first sign that a company is in trouble is when they start outsourcing parts of their previous corporate persona. Most companies that outsource start a spiral that ends up in bankrupcy. GM is a prime example of a company that has slowly slid into oblivion since it started outsourcing its IT to EDS. Now they are on the verge of BK with a strong union (who can blame them, if Management is that screwed up!) and mediocre products designed in who knows where. I have forsaken any car built by that company, as the last good one rolled off the production line sometime in the mid ’50s!
Pinch-a-penny,
Agree completely!
I don’t think GM’s major problem was IT outsourcing. It’s cost of labor compared to the competition–billions in unfunded pension obligations, while the competition doesn’t even provide defined benefit retirement plans.
BTW, GM had some good years in the last 5.
“This is an important point for anyone looking at this sector to understand: The homebuilding industry has always been the first sector to crack in an economic downturn, and the last to repair itself. This should be intuitive. People make big purchases — and a home is the biggest — when they feel secure, not when they’re nervous. As a result, the homebuilding industry leads on the way down and lags on the way up. It’s a fact of the business.”
Then I guess a downturn is on the way…
http://tinyurl.com/fvjqb
The following graph which depicts inflation-adjusted home values for the last 100+ years tells the whole story:
http://tinyurl.com/e4so5
Thanks for the graph - obviously we are in a “not normal” phase in the economy - just like the dot com boom.
Thanks for the graph - obviously we are a “not normal” phase in the economy - just like the dot com boom.
Interesting. Seen it before but always fun, as the down legs are equal to or longer than the up’s. 8 years of drop coming? Sounds about right.
It’s been interesting to watch the bubble expand and now start to deflate here in Hawaii. I sold a property in the Puna district (east Hawaii Island) for someone three years ago, when things were just heating up–everyone was telling me we’d never get our asking price, but we did. And from then on, the market took off.
Well, I was recently talking to a friend who is still in Puna, and he tells me that there are over 40 new spec homes for sale in the Hawaiian Paradise Park subdivision, and not one has sold. My, how times have changed since 2003!
The market in Hawaii is unraveling there first, as Puna has some of the cheapest housing in the state–however, the initial signs of a deflating bubble are already here on O’ahu: YOY sales have declined, and price drops will soon follow. (Never mind the fact that an estate here on Kailua Beach just sold for $24M last month–but again, the very high-end is a separate world…)