‘Taking The Temperature of The Chill’
The Long Island Business News. “As the nation’s residential market softens, local real estate experts say the mad rush to rezone any available sliver of land to accommodate housing is over. ‘The residential market is kind of in the toilet,’ said Corporate Realty Services partner John O’Hara.”
“Long Island’s housing market is no longer hotter-than-hot. With the days of double-digit annual gains apparently over, buyers are holding back, leaving the market flooded with unsold inventory. Suffolk County is ‘going to watch it for the next few months,’ according to Planning Director Thomas Isles. ‘People are kind of taking the temperature of the chill is here, and residential rezoning is frozen.’”
“Is the developer ‘willing to put up hard dollars today in a stabilizing or falling market in pricing while construction costs are going up?’ broker Brian Lee asked. ‘Are they willing to gamble? My guess is that there are a lot of people getting cold feet in the marketplace.’”
“At the height of the residential boom, rezoning applicants hounded the department for a decision; now, ‘We’re not getting any pressure whatsoever,’ Smithtown Planning Director Frank DeRubeis said. ‘It’s sort of like standing around in the room – everybody’s looking at each other.’”
The Asbury Park Press from New Jersey. “Kara Homes Inc., one of the biggest home builders in Monmouth and Ocean counties, might be close to seeking protection from creditors under Chapter 11 of the bankruptcy law.”
“The news has left people who have houses in the pipeline with Kara Homes anxious and uncertain. Middletown resident Gina Haspilaire and her husband, Richard, have been waiting to move into their home at Cottage Gate at Navesink in Middletown since March 2005.”
“Now the couple want Kara to return their deposit, which is about $125,000, she said. The couple used money saved for their son’s college education to pay for the downpayment, figuring they would replace it with money from the sale of their existing home. ‘When we did this, my son had two more years to finish high school,’ Haspilaire said. ‘Now we can’t sell our house, and they won’t give us back the money.’”
“They don’t want the house, which is completed but without a certificate of occupancy. She said she believes the contract was voided because the home wasn’t delivered on time.”
“Frederick Young said he had a contract for a condominium at another Kara development in Morris County. After he and his wife became ill over the summer, he wanted to cancel the contract and get his $19,000 deposit back but hasn’t been able to get in touch with Kara.”
“‘This is the beginning of a very difficult market for builders and resellers alike,’ said Patrick J. O’Keefe, chief executive officer of the New Jersey Builders Association.”
The Home News Tribune. “‘Every builder I know..is in an aggressive inventory-control posture,’ O’Keefe said. ‘They are not starting projects; they are deferring projects.’”
“Earlier this week, at least some Kara Homes employees received a letter from the company notifying them that they were being laid off and stating that Kara ‘anticipates filing Chapter 11.’ Under that provision of the bankruptcy code, creditors claims are frozen by the court while the company can continue to operate as it attempts to reorganize.”
“Richard King gave a $46,000 down payment on a $461,000 three-story town house at Horizons at Birch Hill, Old Bridge last year. ‘Everybody at Kara Homes is stalling for time,’ he said. ‘Kara Homes reps have said I would get the money back, and I have gotten nothing.’”
“Another problem home builders face is land bought in 2004 and 2005 that is worth less now, said James Hughes, dean at Rutgers University. ‘That could hurt their balance sheets very significantly, if they have land that’s a lot less value than what they purchased it for,’ said Hughes, speaking about home builders in general.”
“‘The economic wild parties are often followed by prolonged hangovers,’ Hughes said. ‘Kara Homes may be having a real hangover; other private home builders may be waking up a little groggy.’”
The Star Ledger. “Not long ago, Kara Homes was riding high, scrambling to build more and more homes to meet the seemingly insatiable demand for $1 million estates and townhomes, single-family homes and adult communities. Then the housing market crashed, taking Kara along with it.”
“Industry observers said the company, one of the biggest home builders in New Jersey, was competing against even larger rivals to develop in a state where land is at a premium. Therefore, Kara was forced to pay top dollar for acreage. The company may have lost its way as it became too focused on growing bigger and bigger so quickly, industry observers said.”
“After the housing market crashed, Kara, the company was putting finishing touches on houses before buyers were found. The company attempted to move sales by dangling lucrative incentives, a recent trend in the business.”
“Despite the efforts, Kara had to lay off employees, and bills from contractors started to stack up. At one development in Edison, a carpenter who arrived to repair a bay window in a $1.25 million home got a call on his cell phone and was laid off before he could finish the job, the homeowner said.”
“There doesn’t appear to be an end in sight. ‘The big picture is the housing market continues to be oversupplied,’ said appraiser Jeffrey Otteau. ‘Unsold inventory is up by 60 percent year-to-date versus last year.’”
“Last year in New Jersey, 42,644 homes were on the market, Otteau said. Today, there are 68,281. ‘The delta there is about 26,000 additional homes unsold offered for sale,’ he said. ‘It’s a big number.’”
“‘Clearly this is a weakened real estate market,’ Otteau said. ‘It’s fair to say the entire home-building industry is feeling the strain of all this. And at this point, homebuyers are a bit apprehensive about moving forward.’”
don’t buildeers contracts basically say” you pay us when we finish and we finish when we want”
The Kara fiasco is starting to look ugly. I’ve received a number of emails already from concerned parties, relatives, and friends of people that have recently gone under contract with Kara. I really hope this doesn’t cause any real hardship, it would be a terrible blow to many of these families. The same goes for the contractors and vendors that worked with Kara, many are probably facing a serious financial blow.
I personally hope the owners and managers of this company are held accountable. I don’t want to see these folks walk away scott-free and have the public and workers take the brunt of this.
jb
New Jersey Real Estate Report
I really hope this doesn’t cause any real hardship
_______________________________________________________
Are you serious? IMO there will be some serious pain from this. I consider this area to be a much smaller bubble. Wait until this happens in Ca, Az and Fl.
Let me clarify, hardship towards those who have purchased or currently hold contracts on Kara homes. Imagine the financial impact of the loss of a deposit, it would be financially devastating to most. I don’t mind the schadenfreud towards the builders and the industry, but these are just folks who wanted homes.
Alot of what I’ve heard is unsubstantiated rumor, but when you hear that workers, subs, and vendors have gone unpaid, while the upper management and owners are living in multi-million dollar homes in some of the most expensive communities in NJ, it’s a bit upsetting.
The last thing I want to see is to have these folks walk away unscathed while a totally unsuspecting customer loses their nest-egg.
jb
My bad. I re-read your original post and see what you were referring to.
Yes, the builder better not walk and hide under the “corporate veil” crap. Hopefully they had some PG’s on their loans.
but when you hear that workers, subs, and vendors have gone unpaid,
In CA, I was told that BoD are personally liable for unpaid worker salaries, so we make sure to lay off before payroll money runs out.
Ho hum. Saw this kind of stuff in so many bankruptcies in the bad old days . . .
Anybody owed money by this company better have a contingency ’cause they won’t get it all back and what they do get back will be years away. The Chapter 11 process is a long drawn out feeding frenzy for attorneys and other bankruptcy professionals. The new law did shorten the exclusivity period for the debtor to file a plan but you’re looking at 2 years at least before any prepetition creditors see a dime, IMO.
how about the bond ?
any quick relief there
BTW any info on Corpus Chrisit would help-trying to stop an inlaw from buying there- told her wait for xmas eve 07
Never give advice to Inlaws! That’s my advice.
how about the bond ?
any quick relief there
BTW any info on Corpus Chrisit would help-trying to stop an inlaw from buying there- told her wait for xmas eve 07
Spent last weekend down in Port Aransas. Cover of the Sunday business section of the Corpus Christi paper said that real estate sales for August are down 50% from August 2005.
I feel so bad for the people whose deposits are being held hostage. Losing a downpayment could not only be financially devestating, but also potentially destroy marriages and cause physical and mental health problems due to the stress.
Once again the no money down crowd risks nothing while savers and those who heloc to get the down payment are penalized.
If the deposits are held in bond are the buyers guaranteed to get 100% of their money back if the builder goes bankrupt? And if the money is fully recoverable, how many months or years would it take to get it returned?
Don’t worry, the prices of housing will fall far more than their 10%-20% deposits. They can still get the same size house for less than the loss of their deposits. I’m just wondering if they HELOC’s their deposits from their existing homes. In which case, I’ve got zero symphathy again. I mean, it’s a game of risks, they can’t all get rich. Someone has to lose. That’s the nature of risk and profit.
What? Where have you been? You must be new. This whole Country is in for one rather super large hardship. Not just a few morons that over extended themselves while buying million dollar homes. Who are you? WTF Someone back me up here.
Foose, it appears to me that you would be unhappy if the damage and hardship were relatively contained. Are you actually hoping for widespread tragedy?
I am. It’s the only way I’ll ever be able to afford a house. A “soft landing” doesn’t work for me.
Prices have to come down more than 50% here in LA before I’ll even have a prayer. I expect them to fall even farther, but that’s neither here nor there.
But I want a catastrophic crash very badly. And I have no sympathy for anyone who will be hurt. People who paid the prices that were being asked during the last few years were imbiciles. I
‘m sorry they will lose their homes, but not sorry enough that I don’t want it to happen. In fact, I will probably end up buying one of thier homes.
So yes, there are some of us who want to see a huge crash. Huge. Earth-shattering. Cataclysmic. It’s our only hope.
You better hope you still have a job as well. It’s not just the real estate sector that will be affected. The ramifications are far-reaching.
I’m the same way. I live in NoVa and am hoping for the barnburner of all crashes so I can afford to get something.
But I also recognize that a disaster will affect everyone. I am willing to take a risk on that, even if it affects my job (and tangentially, it could).
I believe Joe is a lawyer. As long as he’s not a real estate lawyer, he’ll be fine.
Another piece on Kara, from the Asbury Park Press:
Residents of Kara development lack COs, can’t move in
Nick Spaltro bought a new two-story, four-bedroom house with a gas fireplace. He has painted a few rooms. Utilities were turned on weeks ago.
The only problem is, he can’t move in.
…
But for residents who have already signed a contract — many of whom hoped to move in months ago — this is not a satisfying answer. They do not understand why landscaping problems are keeping them from moving into their houses.
And now, they are increasingly apprehensive about their future given Kara Homes’ shaky financial status.
“The problem is that I’ve got a home that’s been built, is fully inspected, and the township is holding me and 20 other homeowners hostage,” Spaltro, 53, said. “We’re all caught in the middle.”
…
Dominick Cerchio, 59, sold his home off Nut Swamp Road, where he had lived for 20 years, to move into a new house with his wife at Cottage Gate. But his home has been finished for three months, he said, and he can’t move in because a certificate of occupancy has not been issued.
“It’s very difficult to get a month-to-month rental, but I have to because I don’t know when the house is going to be ready,” said Cerchio, who has bounced around from rentals in Sea Bright to Shadow Lake Village in Middletown and back to a rental in Sea Bright.
“There were times when we were sleeping on blow-up beds and eating off card tables,” he said. “I don’t know how much longer we can live like this. It doesn’t seem like there is an end to the fight.”
Spaltro’s $70,000 deposit also is being held hostage. He said Kara has the deposit, which is bonded, and he has no idea how long it will take to get his money back.
JB, are you afraid Kara’s downfall might play-out like Jade did down here in FL, where buyers are left in the lurch?
Thanks! I was trying to remember the name of the FL company with the same demise. That 2 that went down the same way. I would bet there are hundreds that will follow suit.
*That is 2… (must read post, ugh)
I believe the company is Jade Homes, Florida west coast; Or Barrington Homes, Orlando area.
Wasn’t there also a something-Dunn homes in AZ that bailed on speculators with partially finished lots?
Turner-Dunn is the Arizona builder you’re thinking of.
thats the story from jade in august
http://immobilienblasen.blogspot.com/2006/08/jade-homes-shut-down-operations.html
“There were times when we were sleeping on blow-up beds and eating off card tables,” he said. “I don’t know how much longer we can live like this….
At least you’re not living in your car, wondering what you’re going to eat, never mind where. Although this is not a pleasant situation, it could be far, far worse.
“$125,000 kiss it goodbye….”
In the days of irrational exhuberance… most likely the builder sqeeze the buyers into putting bigger deposits to get ahead on the waiting list. The higher the deposit the higher you go on the list.
Oh course, since real estate only goes up its like making 10%-20% in a year while your house is being built. It all sounded really good…. back when. Now its a nightmare… I dont feel sorry for these buyers. They are the same who didnt heed the warnings. Laughed the the bears and now lost $125K …. I say GOOD FOR YOU BUYERS, YOU LEARNED SOMETHING AFTER ALL.
anyone have a mean number on homes for sale vs population or total number of homes ?
might be a useful metric
tia
Buyers are not holding back. Buyers are priced out and nobody can afford it.
- The Home News Tribune. “‘Every builder I know..is in an aggressive inventory-control posture,’ O’Keefe said. ‘They are not starting projects; they are deferring projects.’
- This is not true here in So Cal. In the High Desert, Palmdale, Lancaster and Inland Empire area there are thousands of homes being built.
- We’re different!
they were planned and permited years ago
yes, they were. it takes about two to three years from time of tentative map submittal to obtaining building permits - at least here in Lancaster
“After the housing market crashed”
______________________________________
Did I miss the memo? I think they meant “as the housing market CONTINUES to crash…”
“One is a poor observer of life who has not noticed the hand which kills — gently.”
– Friederich Nietzsche –
a good example of what will be happening in Clowniforia, FloriDUH, etc.
Like T
My family has lived in Jersey for a few hundred years, but the high cost of living, especially housing and property taxes, have driven out virtually all of us over the last 20 years, with the trend greatly accellerating since 2001. Many of my friends have fled also.
Everyone of us who has left is happy where they moved to and says the same thing. I can’t believe I stayed in Jersey so long. What was I thinking?”. Jersey is overcrowded, too expensive, very congested, most housing stock is old and ugly, and you are never more then 7 miles from a superfund site.
You got it. Horrible place.
Didn’t George Carlin refer to it as “The Garbage State” instead of “The Garden State”?
LOL..j/k actually many nice parts of Jersey
We lived in Montville NJ when I was a kid and my dad commuted to Manhattan. Our house, which he built for around 30K is now over a million.
Wow. You must be old. [He typed while ducking and covering.]
No, why do you think that? And what is the definition of old?
Let see, the last time houses within commuting distance to The City were 30K was approx 1963. The fact that I knew that + juxtaposed in my post was “duck and cover”, indicating my advanced age. Thus we have a form of humor of the pot-calling-the-kettle-black variety.
Well, it looks like my career as a comedian has come to a quick and ignominious end. Back to our regular scheduled steady diet of schadenfraude and financial observation.
Right. And if one were born in 1966, are they “old?”
But I do get your drift.
The comment by Txchick57 hits the nail on the head when it comes to the size and complexity of homebuilder bankruptcies. In these cases you deal with a variety of issues that relate specifically to the varied classes of creditors. Subcontractors and material suppliers should be scrambling right not to perfect their mechanic’ lien, stop notice, and reclamation rights. Buyers should be searching high and low to determine where their earnest money deposits are held. All of course face the effects of the automatic stay, which restrains the ability to take aggressive creditor action. Sad thing about these cases is that it pits one creditor against another as they fight over the meager scraps left behind by a debtor who obviously couldn’t manage their own financial affairs. Lots of people and companies are going to be hurt on this one as the negative trickle down effects take hold.
How can an unsuspecting home buyer protect himself from such an unimaginable scenario?
Don’t buy preconstruction.
It’s unbelievable when you share your experience about previous housing bubbles and advise against buying pre-construction more than 60 days out, and the advise is scoffed at and unheeded, because this time it’s different.
No Sympathy Here. NSH
Can’t the funds be placed in escrow?
Funds can be placed in escrow, or a lien can be created in favor of the buyer by agreement, which is usually (but not always) done in the NE where attorneys either draft or review the RE contract & where you are not dealing with national builders.
You can’t. This is the reason why preconstruction is usually priced lower than the finished project. The lower price reflects the buyer’s additional risk that he may lose his deposit.
There is actually a legitimate role that investors play in preconstruction, and this is it. Of course, the speculative bubble distorted this role.
The other reason, of course, is that a precontruction sale is actually a short sale by the builder. The buyer is assuming the risk of a falling price from the seller.
Are you a college professor? I am nosy and always try to get an insight from the posters. Thanks
Yes. Spent a number of years as in-house counsel for a lender and then a title company. Managed foreclosure operations for a title company during the last go around (’90-’94). This time around, rather than being on the firing line, I’ll be watching from the safety of my office (although I’m on sabbatical this year).
“Sad thing about these cases is that it pits one creditor against another as they fight over the meager scraps left behind by a debtor who obviously couldn’t manage their own financial affairs.”
Sad, yes, but also a telltale sign that the music has stopped and everyone is looking for a chair to sit in at the end of this game of musical chairs known as a credit bubble.
That’s right. Without reading the filings and seeing if the company has post-petition financing lined up and on what terms, etc., I’d WAG that the deposits are history unless the housing market makes a fast U-turn. And we haven’t even yet delved into who inside the company was ripping it off, diverting funds, etc. You know that’s coming at some point. Then the various insurers will deny coverage and that will have to be litigated . . . great work if you’re a bankruptcy attorney or accountant, nasty if you’re a creditor with a low priority, non-administrative claim.
At one development in Edison, a carpenter who arrived to repair a bay window in a $1.25 million home got a call on his cell phone and was laid off before he could finish the job, the homeowner said.
… and the bloodbath starts. So much for strong employment.
‘‘We’re not getting any pressure whatsoever,’ Smithtown Planning Director Frank DeRubeis said. ‘It’s sort of like standing around in the room – everybody’s looking at each other.’’
It sounds like Manhattan’s market has gone from liquid to frozen. I am wondering if the prices are in a free fall as a consequence of frozen liquidity, and if so, whether there is any way for the government to intervene in that case the way they did in the stock market on Oct 19, 1987?
Manhattan is NOT Smithtown Long Island.
true - I think things are quite a bit worse for would-be sellers here on long island than in manhattan. 35k homes for sale on long island (not counting FSBO’s - probably more like 50k) and still rising. that said it still seems like this crash is happening in slow motion here - there are plento of homes on the mlsli that have been up there for over a year with little or no price reductions. stubborn sellers, get a clue!
Hot off the rumor mill, this is unsubstantiated..
———————————-
Sent: Tuesday, October 03, 2006 10:02 AM
To: DL HOV Associates
Subject: TO ALL HOVNANIAN ASSOCIATES
Importance: High
PLEASE DISTRIBUTE TO THOSE ASSOCIATES WHO DO NOT HAVE ACCESS TO EMAIL.
MEMORANDUM TO: All Associates
FROM: Ara K. Hovnanian
DATE: October 3, 2006
Fellow Associates,
A few months ago I wrote to you about the changing market conditions in our industry and our concerns about how long the downturn in homebuilding may last. Since that time, the market has slowed further still, representing one of the steepest declines in new home sales in our memory. Most of our markets have been affected, some severely. At this point, we are preparing for a long period of slower sales, at least through 2007 and perhaps beyond.
What does this mean for you and for our Company? These new market conditions have affected us in many ways and will continue to affect us in the months ahead. In the area of land acquisition we have been re-evaluating our current land positions and the contracts for new land in the light of these new conditions. Many of those contracts no longer make good financial sense when you factor in lower prices and a slower sales pace. In cases where we have been unable to renegotiate these contracts with more favorable terms, we are canceling them, at times forfeiting our deposit monies. It is important to state that in all cases where we have canceled contracts, we have acted legally and with integrity, adhering to the very specific terms of those contracts and exercising previously agreed-upon terms of cancellation. We continue to have an ample supply of land for our future growth, but we need to be sure that the communities we develop can be profitable.
Our local and national Purchasing teams have been pro-actively working with our service providers, material suppliers and trade partners to find ways to reduce our costs, through better pricing, defect reduction and product specification changes. We have been successful in many of our Business Units in finding significant cost reductions through cooperation with our business partners. We continue to work on ways to reduce costs.
We have also had to make adjustments to our pricing in order to make sales, either through added features, free options, waived premiums or outright base price reductions. In a market where our competitors are making dramatic pricing concessions, we must make similar adjustments in order to remain competitive. Obviously, this has a significant impact on our profits on those homes that we sell at a discount.
The most difficult adjustment we have had to make to the changing market is in the area of staffing. In many locations, including corporate headquarters, we have been forced to face the fact that we no longer have enough work for all of our Associates. We were hoping that normal attrition and a reduction in new hires would prevent us from needing to take further action. Those steps helped, but did not solve the problem of having too little work for our entire team. As a result, we have had to make staff reductions.
We consider this action to be a last resort, but business realities demand action in order for our Company to remain healthy and to maximize our performance in a difficult market environment. We know that this causes pain not only for the families of displaced Associates, but for our remaining Associates as well. In all cases, we are treating our displaced Associates fairly and with dignity. We are providing severance and outplacement services where they are available. There may need to be more adjustments if the market continues to slow. We will make those decisions with great care and sensitivity and we will try to keep you well informed of any changes.
What can you do to help us continue to prosper during these challenging times? First and foremost, you can continue to focus on delighting our customers. Companies with “raving fans” prosper during good times and bad. We have made great improvements in this area, but we have much room for continued improvement. Regardless of the market conditions, we will continue to invest resources and support to further our goal of being an industry leader in customer satisfaction. Don’t let a soft market deter you from doing everything you can to create a great customer experience.
Second, you can help us to eliminate waste and rework, which costs our Company literally millions of dollars each year, by focusing on process improvement and defect and error reduction. Help us to eliminate unnecessary costs by spending our money wisely. Here at Corporate headquarters, we launched a “great idea” program where Associates submitted nearly 200 ideas for cost savings, generating the potential for huge savings. In just one example, our new contract for overnight shipping services in switching to DHL will save us up to a million dollars annually! There are many such opportunities all around our Company and we need you to help us identify them.
Finally, you can continue to do the great work you do for our Company every day. Challenging times allow the best and the brightest to truly shine. We have a lot of work to do and thousands of homes to sell, build, close and service. We all need to keep our heads down and get the job done, every day.
As always, and for good reason, I remain highly optimistic about the future. Our Company is very strong financially. With $1.5 billion in our credit facility, a strong cash position and $2 billion in shareholder equity, we have the capital resources needed to weather the storm and to position ourselves to take full advantage of the opportunities that markets like these always present. The market will gain strength eventually, and we will be poised and ready to take full advantage of it. We will emerge from this market stronger and better.
Thanks to each and every one of you for all you do to help us become THE BEST homebuilder in the nation.
There is so much information here. Wow! First, this quote indicates we are in the cusp of an all out price war, “We have also had to make adjustments to our pricing in order to make sales, either through added features, free options, waived premiums or outright base price reductions. In a market where our competitors are making dramatic pricing concessions, we must make similar adjustments in order to remain competitive.”
Dr. Horton 3 weeks ago; Lennar last night; and now Hovnanian.
Elaine Garzarelli had Hovnanian as one of her market picks on the PBS Nightly Business Report today.
The ’savings’, the ‘great ideas’, the ‘defect reductions’: all of these cost savings measures have been available for many years. Another consequence of this bubble is shoddy management practices, covered up by run away prices. Sad. I’m so reminded here of Warren Buffet’s ’swimming naked when the tide goes out’.
I used to work for a hot-n-heavy optical telecoms company. If you’ll recall, telecoms networks got severely overbuilt, and this led to a dramatic downsizing of the industry. (Dramatic is probably an understatement.)
During the bust in telecoms, I remember getting messages like this letter above, though I don’t know if the letter from Hovnavian is real or not. But we regularly got the “We have to lay people off again, we are a strong company, and we’ll be poised to take advantage of the opportunities that shall arise in a couple of years. Focus for now on meeting the customers’ needs.” spiel for a while.
Those opportunities never materialised. After several of these rounds, our unit was closed, too. My guess is the sector lost 80-90% of its jobs, and years later it still hasn’t recovered. Well that’s history anyway.
I have to wonder about the parallels between residential housing and the optical networking telecoms of yesteryear. A period of significant overbuilding, driven by overly optimistic demand projections, leading to a final earth-shaking crash, with a few debt-ridden companies left to pick up the pieces. That’s what happened in optical networking, anyway, and I got to see it firsthand.
That’s exactly how these things play-out. At differing phases of the cycle of expansion and contraction businesses need to adjust their strategies, manage cash etc.; Kara and Jade did’nt; hence, BK. This memo is further evidence of the ongoing contraction. Sit tight; it’s going to get worse; I promise. There is way too much inventory coming online for this market to absorb.
I guess you could draw the second parallel of the Telecom Act of 1996 and the tax breaks given to house buyers for artificially stimulating these two bubbles.
BTW, I now have pretty good sized op-networking positions but man, that sector is a minefield.
I was in the same line of work. Got there in 1999 and was on pins and needles as my one year anniversary approached, when I could cash the first 12 months of my relatively small number of options. I knew the NASDAQ was way overpriced and was about to crash. Fortunately the market held, and I was also able to cash in some monthly amounts before things tanked and I got laid off.
It was amazing how many of my co-workers never cashed in any of their options. The early employees could have retired on the spot. It was like we came to work every morning and had to step over an ever-growing pile of cash just lying there in the gutter. Then one day a rainstorm came along and washed the cash down the sewer. Gone forever.
All the pieces are adding up: stock repurchases, increasing inventory, cost-cutting tactics, lay-offs, record low NAHB sentiment index, price-cutting incentives, lower YOY prices, credit rating watches, bankruptcies, falling cash balances, credit line extensions, and an impending price war! All of this and we are merely at the end of the first year of the downturn. It’s going to get worse, a lot worse. RIP unprepared HBs. RIP!
That’s a pretty detailed and carefully-worded “rumor” there…
Just received confirmation, this is true.
jb
Read like it was; assumed it was; gotta give Ari credit; he’s preparing his troops for the worse and giving them opportunity to bail; most CEOs would sugar coat the bad news and then hammer the unsusptecting employee. Just hope they can accurately interpret the memo.
I agree completely–I thought it was a well written and surprisingly honest memo. Raised my opinion of them by a notch. Won’t affect my holding put options on HOV though! In fact, I should probably buy some more.
Jon
WOW!
“Finally, you can continue to do the great work you do for our Company every day. Challenging times allow the best and the brightest to truly shine. We have a lot of work to do and thousands of homes to sell, build, close and service. We all need to keep our heads down and get the job done, every day.”
Any employee in this situation needs to work hard to save money and look for a new job. In a severe downturn, probably over 50% will be left go. This memo is telling those that are smart to get a new job.
Memo is no surprise… K.Hov, which runs Forecast Homes in the Antelope Valley has been struggling with sales… just like any other builder here. And yet… there are still 16,000 approved lots yet to be built on. At the density that’s usually built here, that’s about 8 to 10 square miles worth of residential supply.
What affect will wage deflation in the construction trades have on the economy?
(Our local and national Purchasing teams have been pro-actively working with our service providers, material suppliers and trade partners to find ways to reduce our costs, through better pricing, defect reduction and product specification changes…you can help us to eliminate waste and rework, which costs our Company literally millions of dollars each year, by focusing on process improvement and defect and error reduction.)
Like my housing professor told me 20 years ago, you don’t want to buy a house built at a peak year for construction. There isn’t going to be much built in 2008, but whatever it is will be quality.
Perhaps it’s time to start thinking more about the home improvement project I’ve been putting off for years.
“Like my housing professor told me 20 years ago, you don’t want to buy a house built at a peak year for construction. There isn’t going to be much built in 2008, but whatever it is will be quality.”
That is excellent advice. I wonder if there will be a time in a few years when it would make more sense to tear down a McMansion and build a normal-sized, high quality home in its place?
AP
Homeowners buy teardown Mcmansion
July 15, 2018
Betty and Mike Homeowner are the proud owner of a new mcmansion. the house is less than 20 years old and 8,000 square feet, but they’re tearing it down. “my god, the house is too big and the people renting it damaged it,” said mike. it was subdivided into 4 apartments after the real estate bubble. peak oil has made the home too expensive to heat. “my gosh, we couldn’t afford the heating bills,” said betty. the couple plan to teardown the mcmansion and build a totally off-grid 1,500 home. “the home will practically pay for itself,” said mike. bettty wants more room to garden and mike plans to play catch with their two young kids.
mike says “the old house was built covering almost the whole lot.”
And by the way, with so much market concentration in the hands of the building industry leaders, they have every reason to scrimp on quality, as there is a lack of choice in the market. This is similar to the situation with the Big Three automakers in the 1960s, when building crappy cars resulted in a higher rate of new car purchases when Americans everywhere who could afford it traded in their three-year-old junkers. Maybe we will get lucky and the Japanese will enter our building industry over the next twenty years. In the mean time, there will be plenty of repair work to go around for the contract workers who no longer have any new home construction work.
1993 Lexus SC300 with 119,000 miles. Perfect and averages over 20 mpg. All the bells and whistles still ring and hoot. Why should I consider buying a new Ford or Chevy?
“Now the couple want Kara to return their deposit, which is about $125,000, she said. The couple used money saved for their son’s college education to pay for the downpayment.”
“Mom and Dad, why can’t I go to college like all the rest of the kids?”
“Sorry son, we used your college savings to gamble on a pre-construction home during the housing bubble. By doing so and losing, we’ve basically screwed you big time. But who could have known that the bubble would burst.”
Son,
skip college and go into RE after it bottoms out. It is better than college.
Skip college and go into R/E. We’ll pay for the $300 two-week course!
“Now the couple want Kara to return their deposit, which is about $125,000, she said. The couple used money saved for their son’s college education to pay for the downpayment, figuring they would replace it with money from the sale of their existing home. ‘When we did this, my son had two more years to finish high school,’ Haspilaire said. ‘Now we can’t sell our house, and they won’t give us back the money.’”
If the son inherited his parents IQ, college would be a waste of time.
maybe a repost but this is fantastic
i´m not sure if this was postet before.
but this is the best i have ever seen.
a comiplation from the tapes with lereah, shiller bernanke, etc
over 70 minutes of superb bubblehistoy video´s alle the famous quotes “not a bubble, a baloon” call to arms at lows etc.
spread this one around. this is a must see!!!!!!!!
http://www.paperdinero.com/BNN.aspx?id=20
Sweeeeeet!
Yes, I GREATLY enjoyed some of these videos. I had heard many Lereah quotes, but it was nice to hear them first-hand.
In fact, I was AMAZED by the smirk Lereah was trying to hide while trying to finesse away the term bubble into a balloon. Priceless.
Jon
“The couple used money saved for their son’s college education to pay for the downpayment, ”
Good thing the School of Hard Knocks has open enrollment. Unfortunately they don’t make sweatshirts or car decals. And you don’t want to know what you have to do to pledge a frat.
Seriously, I do feel kind of bad for them. At least it wasn’t their retirement savings. There are worse things to suffer than student loans or working their way through community college.
This is from a real estate mailer in Concord, CA, about a house on the market for $1.4+ mil: “Guess the price? $500 prize to a non-agent (plus $1,000 prize to Realtor) who views the property and comes closest to guessing our final net selling price. One guess per visit. You don’t have to be the home’s buyer or selling agent to win.”