February 5, 2006

A ‘Rash Of Cancellations’ In Fresno

The Fresno Bee has the latest on that bursting housing bubble. “Some home builders, trying to keep home prices down and responding to a possibly slower and highly competitive market in 2006, are planning to unveil new, more affordable designs. ‘If [builders] see things taper off, they could shift the product a couple price points to midmarket or entry-market homes,’ said John Karevoll.”

“Lower-priced offerings would be welcome in Fresno County, where the percentage of families that could afford a median-priced home sank to record lows in 2005, the pinnacle of a five-year real estate boom in the central San Joaquin Valley.”

“Rich Wathen expects more competition this year among builders, and without the escalating prices that frustrated many home buyers the last few years. ‘Air is coming out of the bubble,’ he said. ‘There will be a lot of competition, and more as the year goes on. That will definitely have an impact on sales and prices.’”

“How much of an impact? Wathen thinks sales in the central San Joaquin Valley could fall 10% to 15%. Developers say the long waiting lists and campouts at model home sites that characterized the past few years have mostly evaporated. ‘We were allowing contingency buyers over the last three years, but in October, November and December we got a rash of cancellations as homes were getting completed,’ said Steve Lutton, division president of Lennar Homes.”

“The greatest increase was in Fresno County, where cancellations doubled. Karevoll acknowledged the dangers of trying to assess this real estate market. ‘2006 will be an interesting year for the number crunchers,’ he said. ‘The arrows in the grass are pointing in all different directions. I’ve never seen the measures of uncertainty so high,’ he said.”




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2 Comments »

Comment by Ben Jones
2006-02-05 12:34:50

said…

The great thing about speculative markets (or terrible, depending upon your perspective) is that people just have to believe that the market will drop 10-15% and it will. Such are the dangers of a market where value is based on preception.

I think at this point it would just take one major media outlet - like a newsweek cover story - predicting a significant decline in housing prices to start a selling panic.

2/05/2006 07:41:14 AM
Lidsville said…

If people *think* the RE market is going to drop 10-15% it *will* drop 20-30%, especially in sh*tholes like Fresno, Modesto, Bakersfield etc..

2/05/2006 07:46:15 AM
Ben Jones said…

eastofwest,
What is interesting about that statement is that previously, builders insisted that the land cost so much that they couldn’t afford to build cheaper houses on it.

2/05/2006 07:47:22 AM
Eastofwest said…

‘If [builders] see things taper off, they could shift the product a couple price points to midmarket or entry-market homes,’

As the entry level home now is a 900sqft. for $450K in Fresno I guess they will build $350k 10×10 living cubicles….
Now , I never wish ill on anyone, the idiots that paid these prices in fresno ,and Bakersfield deserve all the pain they are about to recieve

2/05/2006 07:47:40 AM
dawnal said…

“”Rich Wathen expects more competition this year among builders, and without the escalating prices that frustrated many home buyers the last few years. ‘Air is coming out of the bubble,’ he said. ‘There will be a lot of competition, and more as the year goes on. That will definitely have an impact on sales and prices.’”

“How much of an impact? Wathen thinks sales in the central San Joaquin Valley could fall 10% to 15%. Developers say the long waiting lists and campouts at model home sites that characterized the past few years have mostly evaporated. ‘We were allowing contingency buyers over the last three years, but in October, November and December we got a rash of cancellations as homes were getting completed,’ said Steve Lutton, division president of Lennar Homes.”

“The greatest increase was in Fresno County, where cancellations doubled….”
***********************

One would think that the stocks of homebuilders would be falling with this kind of information coming out. And they did fall sharply on Friday….until about 10:40am. Then they all turned up and moved higher until about 3:05pm. Then whatever angel gave them the boost disappeared and prices drifted down until the close.

Take a look at the charts on 10 of the big home builders on Friday. Such coordinated directional changes… Makes one think of the Plunge Protection Team.

http://www.marketwatch.com/tools/quotes/quotes.asp?addsymb=kbh&symb=bzh+ctx+dhi+hov+len+phm+ryl+spf+tol+fnm&siteid=mktw&vc=1&x=8&y=12

Of particular interest was SPF. It was down 6.55% just before 10:00am but ended up for the day after the “angel” visited.

2/05/2006 07:50:00 AM
Mole Man said…

The desert is an indiscriminate executioner.

2/05/2006 07:51:14 AM
David said…

The central valley in California is one of the most bubbilicious areas in the whole country.

David
Bubble Meter Blog

2/05/2006 08:03:07 AM
Lou Minatti said…

Another dark side of the bubble: In Bakersfield, low-income workers who used to live there can no longer afford to even rent, so they are living in shacks with no utilities and peeing in open ditches.

http://www.centralvalleybusinesstimes.com/stories/001/?ID=1234

These are workers. Not unemployed bumbs panhandling for booze money.

2/05/2006 08:08:10 AM
GetStucco said…

Good luck to anyone hoping to sell a McMansion over the next thirty years if this move towards construction of affordable housing proves contagious!

Even though they may be bankrupt, I still have to acknowledge that Fannie Mae will probably succeed in their mission to create affordable housing, though not exactly in the manner they intended.

2/05/2006 08:11:16 AM
rms said…

In the mid ’90s some CalTrans work took me to a place called Oildale, CA outside of Bakersfield, CA. I didn’t know before that visit that such widespread low IQ poverty existed in California.

2/05/2006 08:20:20 AM
goleta said…

It shows the market is still working. Builders have to follow buyers. If only 2% of the population can afford McMansions and McCondos and more likely than not, the rich don’t need an extra home. Why would builders build homes no one needs or affords?

Builders simply have to follow where 90+% of willing buyers are and build affordable homes.

2/05/2006 08:24:20 AM
rms said…

freeloading roomate said…”I think at this point it would just take one major media outlet - like a newsweek cover story - predicting a significant decline in housing prices to start a selling panic.”

I’ve been wondering when PBS Frontline is going to do a story on the mortgage lending industry; they did a nice piece on the credit card industry a few years ago.

2/05/2006 08:25:02 AM
arizonadude said…

Expect more cancellations as speculators bail.

Just how great is the economy anyway? The bush administration keeps touting the great economy but there are a lot of skeptics. Everyone on this site knows the economy has been held up by the housing atm. If the economy is so great why doesn’t everyone sell their bonds and move into the great stock market?
The new jobs created are mostly related to the housing industry and service.Bottom line there are a lot of people very unconfident in this economy. If they were more confident they would sell bonds and yields would increase. Until we can have a strong economy not dependant on artificial asset prices we will continue people keeping their money in safe havens.

2/05/2006 08:25:15 AM
The Economist said…

Lou Minatti said…
Another dark side of the bubble: In Bakersfield, low-income workers who used to live there can no longer afford to even rent, so they are living in shacks with no utilities and peeing in open ditches.

http://www.centralvalleybusinesstimes.com/stories/001/?ID=1234

These are workers. Not unemployed bumbs panhandling for booze money.

Lou, The article said these people are from Mexico, not people that used to live there…And they have the option to return if they wish.
I guess our ditches are nicer to pee in then there old ones in Mexico.

2/05/2006 08:25:57 AM
GetStucco said…

freeloading roomate said…

The great thing about speculative markets (or terrible, depending upon your perspective) is that people just have to believe that the market will drop 10-15% and it will.

—————————————-

You are right to a point. There is also the issue of fundamental supply and demand balance on the ground — how does the current supply of homes line up with current demand, given the price level.

Here is an exercise to help you understand this (assuming you have taken an intro econ course in college):

1) Draw the basic Marshallian supply-demand graph from Econ 101 (price on vertical axis, quantity on horizontal axis, demand slopes down to the right, supply slopes up to the right, supply and demand form a big X)

2) The point where the branches of the X cross defines the equilibrium price and quantity (drop an altitude from the crossing point to the quantity axis to find equilibrium quantity, and draw a horizontal segment from the crossing point to the vertical axis to find the equilibrium price)

3) Now draw a horizontal line across the top of the X (above the crossing point) to describe the current mania-psychology price level. Mania psychology has led supply to reach a level where sellers believe they can extract a price which the market will no longer bear. Hence there is excess supply (represented by tripling of used home inventories over a short period of time, rapid condo conversions, and a rush to build high rise condos and McMansions) which can only be corrected by prices falling back to the equilibrium level (where the legs of the X cross).

4) Of course, this is a bit of a simplification. Once the mania psychology ends, the demand curve will shift to the left, reflecting the evaporation of the speculative premium. Also supply will shift to the right, to reflect speculative demand morphing into speculative supply (flippers racing to the exit). So prices will fall by even more than the my illustration suggests. It will be like water going over the lip of the waterfall, while the lip of the fall gives way in a landslide.

2/05/2006 08:28:15 AM
GetStucco said…

Mole Man said…

The desert is an indiscriminate executioner.

7:51 AM

I have already said this, but the 1920s land boom drowned in a Florida swamp. I predict the current bubble will die of thirst in the middle of the desert.

2/05/2006 08:30:30 AM
Robert Coté said…

The people peeing itn the ditches in Kern county will be headed to LA by summer. These people are not the long time farm workers these are the roofers and drywall installers fueling the housing boom.

Wait til you see what is “planned” for Bakersfield:

http://www.cityinthehills.com/

This is the most most outrageous over the top marketing blitz I’ve ever ever seen. The plat for the development is laser flat desert scrub NE of Bakersfield.

2/05/2006 08:33:11 AM
GetStucco said…

goleta said…

It shows the market is still working. Builders have to follow buyers. If only 2% of the population can afford McMansions and McCondos and more likely than not, the rich don’t need an extra home. Why would builders build homes no one needs or affords?

—————————————-

No matter how many market distortions govt social engineers can cook up, the invisible hand eventually finds a way. It brings to mind the sad tale of the NO levee system …

2/05/2006 08:33:17 AM
nhz said…

Ben Jones said…
What is interesting about that statement is that previously, builders insisted that the land cost so much that they couldn’t afford to build cheaper houses on it.

yes, interesting … it’s the same argument we keep hearing in the Netherlands. US homebuilders seem to be more responsive to market forces than our European builders though.

Building smaller and cheaper homes could also help to keep the US energy situation under control.

In my country the widely held opinion (both with builders and goverment) is that you have to build more expensive homes to make housing affordable. They claim that part of the cheapest homes are rented by wealthy people, who will be happy to move to a much more expensive home if it is luxurious enough - so more of the low-end housing becomes available for low-income people.

Some of the cities in my neighborhood subsidize the building of expensive luxury homes with the argument that this is good for low-income families (this policy is especially in favour with the labour party…).

2/05/2006 08:33:29 AM
Eastofwest said…

Stucco, Re: Mcmansions.
Although the the expected utility bill surge never really materialized due to unseasonably warm temps. you have to know going foward that the era of 5000sgft houses for 2 ,and SUV’s will be coming to an end. We are still living on borrowed insanity ,but should the Mid-east, Venezuela, really reduce our supply, $3 gas is going to look like almost free…Just like this Current housing bubble. It’s not a matter of if ,but when.

2/05/2006 08:35:41 AM
poguemahone said…

Fresno HPI

2/05/2006 08:43:24 AM
elzocalo said…

to The Economist regarding the article referenced by Lou:

Whether these WORKERS are from Mexico (or their American born descendants) is highly irrelevant to the point that Lou is trying to make regarding a neglected casualty of the bubble. All over (in urban as well as rural areas) working people of modest means have been displaced due to the bubble. Gentrification is an OLD example - ready about neighborhoods in LA/SD that used to house the blue collar -and increasingly, white collar WORKERS where the most modest of homes and apts (converted to condos) were/are selling for 300-500k. WORKERS pushed farther out (spending more time and money in transportation to get to ther $6/hour jobs) and into poorer living conditions.

Until you (or anyone else for that matter) demonstrates the role you played in choosing country of birth and/or social strata in which you were born, i suggest you keep the nasty and depreciating comments to self

2/05/2006 09:04:37 AM
GetStucco said…

nhz said…

yes, interesting … it’s the same argument we keep hearing in the Netherlands. US homebuilders seem to be more responsive to market forces than our European builders though.

————————————–

“Easy to explain this is. We far more unbuilt land than you do have.”

Yoda

2/05/2006 09:04:37 AM
GetStucco said…

Eastofwest said…

Stucco, Re: Mcmansions.

It’s not a matter of if ,but when.

8:35 AM

You remind me of a memorable conversation I enjoyed with my head grauate advisor during the previous century. The short version: If China’s economy ever starts becoming a serious source of oil demand, the US is screwed.

2/05/2006 09:07:37 AM

 
Comment by Mafia Blocks
2018-04-17 11:47:14

CRATER

 
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