“Demand For Unreasonably Priced Homes Abysmal”
The New York Times reports on Arizona. “The number of unsold homes in the Phoenix area has soared to almost 46,000 from just a few thousand in early 2005. And builders are pulling back as fast as they can. They have little choice. Sales cancellations among big builders, not just here but around the country, are running as high as 40 percent, double the rate a year ago.”
“Across the nation, new-home sales are down by more than 20 percent from their peak last year. Prices fell almost 10 percent in September from a year ago. And that reported drop does not take into account the extras that builders are throwing in free or at steep discounts to lure buyers, which means that effective prices are even lower.”
“Local officials issued 60,000 single-family permits in the metropolitan area in 2005, twice the number issued in 2000. But in the first nine months of this year, permits fell by 27 percent from the same period last year. And builders are suddenly refusing to pay the asking prices for developable land.”
“The influx of buyers from California, many of them individual speculators, was so strong that builders overestimated demand and constructed a lot more homes than there were people wanting to live in them, said John Burns, a real estate consultant in Irvine, Calif. He noted that investors bought roughly a third of homes sold in the Phoenix area last year, according to mortgage application data.”
“Perhaps an early indication of things to come can be found in what has happened with land sales. In September, the Arizona State Land Department postponed the auction of two parcels of prime residential land north of downtown Phoenix after builders said the starting levels were too high.”
“Thomas Caldwell and his partner now own about 30 homes each and manage a total of 2,200 properties for clients, many in California. Asked what he thought of the contention that investors were to blame for the glut of homes on the market, Mr. Caldwell acknowledges ‘there was some fluff.’”
“But smart investors, he argued, were absorbing the surplus by buying up homes that builders were now unloading at bargain prices, some for as little as $60 to $80 a square foot, which local experts say is barely enough to cover construction costs let alone land expenses.”
The Arizona Republic. “The number of Valley homes for sale, breaks down to 12 homes for every home buyer in the market now, according to research from (realtor) Jay Haugen. At the end of September, the number of homes for sale was hovering near an all-time high of about 55,300.”
“Pinal County has been the hot spot for home-building in the Valley this year. Through September, 13,000 houses were started in the southeastern Valley suburb, according to Metrostudy. But resales in Pinal fell to 850 during the third quarter, according to ASU. More than 1,100 existing homes changed hands in the area during both the first and second quarters of 2006.”
“More than 4,500 new homes, complete or nearly finished, sit unsold in Valley subdivisions, Belfiore Real Estate Consulting says. Demand for unreasonably priced homes or homes far from jobs is ‘abysmal’ now, analyst John Burns writes.”
“Arizona housing analyst RL Brown still has a ‘code red’ on his monthly report and says, ‘The end (of the housing market’s slowdown) is not yet in sight, and the market is still seeking the bottom.’”
The Review Journal from Las Vegas. “The number of homes sold in October dropped 34.4 percent from a year ago to 1,689, the 13th straight month of declining year-over-year sales, the Greater Las Vegas Association of Realtors reported Monday.”
“Inventory of homes for sale continues to climb at 23,474, a 53.8 percent increase from October 2005. More than 5,000 homes were added to the MLS during the month.”
“Association President Linda Rheinberger said she sees positive signs in the emerging housing categories of mid-rise and mixed-use developments. ‘For those who want that lifestyle, they’re buying them, but not at a frenetic pace,’ she said.”
“Real estate investors have backed off from buying commercial property in Las Vegas because prices are generally perceived as being overvalued, an investment executive said. Investment broker Charles Moore said he had twice as many buyers looking at the market in May and June of 2005 than he has today.”
“‘Landlords and investors should be aware of their exposure to housing-related tenants in their properties and their submarkets and adjust their management and leasing plans accordingly,’ said Joseph Kupiec, managing director for Grubb & Ellis in Las Vegas.”
“Las Vegas Sands Corp. is the latest player in the Strip’s growing high-rise condominium market. The casino operator will ask the Clark County Commission for approval to build a 632-foot tower that would allow for 849 condominiums. Each unit would include a kitchen area.”
“Las Vegas Sands Executive Vice President Brad Stone said the condominium tower would have 370 ‘ultra-luxury’ units and the building would be at least ‘50 stories.’”
“Deutsche Bank gaming analyst Bill Lerner said Monday the planned Las Vegas Sands project can’t be viewed as part of a potentially oversaturated Las Vegas high-rise residential market.”
In Business Las Vegas. “Larry Murphy of SalesTraq and Steve Bottfeld, who monitor housing trends in the Las Vegas Valley, handed out their latest predictions at their quarterly Crystal Ball seminar. Bottfeld and Murphy used the presentation to debunk what they said are myths about the Las Vegas housing industry.”
“One of those myths is that there is no affordable housing, Bottfeld said. He said 1,800 homes listed for sale are priced at $200,000 or less, which he said falls in the affordable category.”
“Bottfeld criticized national media publications for its portrayal of the Las Vegas housing industry as having falling prices and resembling a ghost town. He said there’s nothing wrong with having so many homes vacant.”
“‘Investors are testing to market to see if they will get their price, and if not, they will rent it,’ Bottfeld said.”
“Bottfeld said he doesn’t believe the increasing number of homes entering foreclosure signifies a problem. He said a change in laws that makes it more difficult to declare bankruptcy is the likely reason for more foreclosures.”
“Bottfeld predicted the housing market will be ready for another boom by the end of 2007. ‘We have the same conditions that formed before the previous boom,’ Bottfeld said.”
“Michael DeLew, a senior VP of the industrial division of Colliers said that a slowdown is evident by builders pulling out of land deals, leaving millions of dollars on the table. Why should builders carry the interest on the land when they can get it in a year or longer at the same price and maybe lower? he asked.”
‘Bottfeld criticized national media publications for its portrayal of the Las Vegas housing industry as having falling prices and resembling a ghost town. He said there’s nothing wrong with having so many homes vacant.’
It was a homebuilding executive who told a Fed president about the ‘ghost towns.’ Nothing wrong with 14,000 empty homes?
‘One of those myths is that there is no affordable housing, Bottfeld said. He said 1,800 homes listed for sale are priced at $200,000 or less, which he said falls in the affordable category.’
It was only about a month ago that these guys announced that the under $200k market was ‘extinct’ in Las Vegas. IMO $200k is still too high for the Vegas workforce.
Yeah, those were some sweet comments. I’d like to see the one about no problem with so many vacant homes backed up by some historical data.
The question is, did they outbuild the market, or just outprice it. In NYC, they have just outpriced it. In Phoenix, Las Vegas, and Florida, there may be too many homes at fair prices too.
What is Steve Bottfeld’s problem? This guy is definitely a dinosaur. I realize that Vegas is still a “back scratch” town but this guy seems to TOTALLY discount the presence of the internet and the MSM for that matter. Anytime I’ve stayed in Vegas there’s a channel devoted just for that particular hotel. You know, their dining facilities, bars, shops, gaming, entertainment etc? Steve is stuck on “that” channel. It’s as if he’s totally oblivious that more/many/most of us have alternatives from which to gather our information. If I were part of that organization I’d be calling for his ouster. He’s doing more harm than good.
The homes are still overpriced in Phoenix. $200+ sq foot for shit boxes. Too many homes. Too high prices.
good point wt
there are no “fair prices” in Florida.
Any house that was under 100k was bought up by investors and “flipped” with an asking price of 200k.
When they ran out of 100k homes here, the seminar stooges headed off to Texas, Idaho, Wyoming and anywhere else they could find homes for 75k-85k.
These were considered “undervalued”.
That’s the equity game. Find the lowest price, buy it, and bid it up.
No cheap houses here. None.
Both overbuilt and overpriced — no question about it.
“In Phoenix, Las Vegas, and Florida, there may be too many homes at fair prices too.”
Not. There are too many homes at inflated bubble prices.
How is 200K affordable when you’re making $12 an hour at a casino? Never mind the electric, insurance, etc.
Oh, I forgot, there are “financing options” for these people aren’t there?
Casino jobs pay that much? I thought it was min wage + tips. Maybe $12 if you’re a particularly good dealer.
My husband is a craps dealer at the Luxor and averages about $17 to $18 an hour with his hourly (which is a little more than minimum wage) and tokes. He used to work on Fremont Street, which paid less, but never as low as $12 an hour. Dealers at casinos like Wynn Las Vegas,the Hard Rock and the Belagio for example make as much as $80,000 a year.
OK, that sounds like an above-average dealer job. A household with two typical casino employees might be expected to make $25-30/hr combined. Thus an affordable 3br house in Vegas should go for about $160-170K.
I’m with you bubbly,
$200k is not chump change for most working folks. Somebody posted some great data a few days back laying out wages by percentile in the U.S. population. I think only about 10% of folks could easily afford houses over $300k, and certainly no more than 25-30% could afford > $200k. $160-170k sounds much more in line.
Dear Mr. Bottfeld — huh! Have you lost your mind? Must be the Kool-Aid.
In the coming recession LV is going to take a big hit. All the easy money will have dried up and all the fun trips to LV will be a fond memory.
Or perhaps I overestimate the average FB/GF. Maybe they will get so far under water that they will see LV as their only solution and give their last pennies to Steve Wynn.
Double or nothin’
I was just saying this to my wife a few days ago. There is a Vegas gambling bubble. The casino operators began to think that everyone is rich, all of these young people with money throwing it down on the blackjack tables. They will soon find out that the well is drying up…fast. It will force them to adjust their marketing efforts to bring the average and slightly above average Joe back to Vegas.
The casino make less than 55% of their revenues from gambling…and headed down. The margins on the $12 cocktails are better than the margins on the tables. Slot machines and video poker are the crack cocaine of casinos, and the wait line for 1 cent the new Wheel of Forturne was long and real in July. Do not have to pay over-time or vacation pay for a video machine. Las Vegas casinos look @ themselves as cruise ships without the disease and water problems. The average Joe can “gamble” anytime at their local riverboat or Indian casino, going to Vegas is an event… they take their money roll accordingly. The sites, shows, and the vibe is the best vacaction or business trip one can ask for. Housing costs are now out of the price for working Vegas residents…maybe flat in the near term, but not experiencing the rapid price deflation of Pheniox. I wish I had bought in 1999.
It’s all the media’s fault!!! I keep telling you guys that. There’s no problem anywhere that the media is not causing. Just ask any real estate guru…
“It was only about a month ago that these guys announced that the under $200k market was ‘extinct’ in Las Vegas. IMO $200k is still too high for the Vegas workforce.”
You are exactly right. $200k is too much money for Vegas type jobs. And it is even worse in Reno. Aside from condos, there is nothing for under $200k. Reno is not only the most overpriced bubble city in Nevada, but the entire nation.
Topic Posted ““Demand For Unreasonably Priced Homes Abysmal”
Gee, you could say the same for alot of things! Like getting a set of black eyes, your toe stubed, stepping in doggie doddie etc, etc…..
$60-80/square foot buys nothing but absolute disposable junk in Houston and Dallas. I can only imagine what you get for that in Phoenix. “Smart” investors are buying these up? Is their business plan to be manage Section 8 ghettos?
Has anyone seen these homes?
The problem with the $60/ sq ft homes is they are probably huge, and you can only rent to one family at a time (HOA). So the rents may still not work.
txchick57,
Well it’s all junk, then isn’t it! I haven’t been to Houston or Dallas in years but I think I get your point. If I were being truthful though I’d have to say that these numbers do kind of turn me on. After years of looking at $200-$500 sq. ft. this is closer to what I’m realistically willing to pay. It barely covers the construction costs and totally negates the fluff and hot air pricing in the land! Here in OR it’s not uncommon to pay 120K for the stupid lot! I attribute that to the fact that the builders have bought them all up and are now “mouse housing” (meaning they’re sticking together). It’s yet another form of price control that can’t broken until someone gets desperate. Evidently we’ve reached that threshold in Phoenix.
You would not want one of those houses. Trust me. You could put your hand through the walls if you hit them the wrong way.
And you’d be hitting those walls for sure, after you saw what you bought! The houses built in Phx 2003/04/05 are already falling apart…cracked stucco, foundations, etc.
Nothing but crap built in a hurry with the cheapest stuff available.
O.K ladies, you don’t have to beat me to death about it. I SAID I was in love w/the “numbers” alright? I’ve already committed to not buying anything that was built, bought or re-fi’d during the bubble! Only “pre-bubble” properties need apply!
At the end of the last CA bubble a friend told me there were entire subdivisions more or less abandoned in what is now Moreno Valley. He refers to it as “The Meth Country”!
There were in Collin County north of Dallas too. Some of them STILL haven’t recovered.
you mean the moreno valley that takes only 30 minutes to drive to on a sunday when you bought the house
and 2 hours each way on monday when it’s time to work?
Every time I hear about abandoned subdivisions, I think about the end of “Lethal Weapon 3,” shot in 1991 or so, for which they burned down an abandoned subdivision in Lancaster. I’ll bet the developer made a killing on that one.
txchick57 said: $60-80/square foot buys nothing but absolute disposable junk in Houston and Dallas. I can only imagine what you get for that in Phoenix.
$60-$80/sqft (including materials and labor) is the builder’s COST (not including land). A builder will typically mark up the cost of the completed house and land around 15 to 20% although home builders have marked them up substantially higher in the last couple of years in some markets. A mass tract home builder (1,700 sqft home on 60×120′ lot) could build
a QUALITY tract home around $60/sqft. A custom home builder (3,000 sqft home on a quarter acre or bigger lot) could build a QUALITY custom home around $80/sqft. These are NOT “junk” homes. Most homes must go through a local inspection and must pass building codes through each step of the building phase.
When there are problems with construction it is generally due to poor labor practices than poor materials. In that regard, IMO, much of problem construction can be attributed to the employment of illegal laborers who have little expertise in US building standards.
To suggest that all or most of these newly-built houses (in Phoenix or elsewhere) are junk is unfair. Nearly every modern-built house is a wood frame house with drywall on the inside and some masonry product like stucco or brick/stone on the exterior. You can’t just push your hand through drywall, stucco or brick/stone.
You must be a builder. Sorry, have to disagree with you. I don’t disagree that it is possible to build something “quality” at 80/square foot, but I do disagree that it is being done. It’s junk and I doubt you would personally live in one of them, sir.
I am not a builder, but I do have contacts in the construction industry and it has interested me to watch what is going on in R/E.
I strongly disagree with you that quality custom homes are not built at an average cost to the builder of $80/sqft. To say or believe otherwise shows little insight into the construction industry. Yes, I do live in house that was probably built at around $80/sqft and it is a beautiful, well built house in a nice part of DFW. Further, I doubt that your own home (inflation-adjusted) was built for anything more than $80sqft. Is your home junk then too?
To add to what I’ve stated above, consider what new homes should cost to a new home buyer:
A builder would charge about $96/sqft for a NICE (NOT LAVISH) custom home. So a 3,000sqft (living area) would run $288,000. Throw in a half acre lot for $70,000 for a total of $358,000. That equates to almost $120/sqft. Even if the lot is smaller/bigger the price could be substantially increased for a lot in a location with high demand. So even a 80×160 lot might be $300,000, and then the value of the developed property has more to do with the land than the development.
A builder would charge about $70/sqft for a quality tract home. So a 1,700sqft (living area) would run $119,000. Throw in a 60×120 lot for $20,000 for a total of $139,000. That equates to almost $82/sqft. Again even if the lot is smaller/bigger the price could be substantially increased for a lot in a location with high demand so that the value of the developed property has more to do with the land than the development.
Now take this information for what a new home should be selling for in a normal market and compare that versus what is going on with prices now, and that should give you an idea of how much further prices will probably need to fall in local R/E markets to come back to the norm.
Well, you’re right about the illegal labor being untrained to build to code…however, here in AZ, the so-called building inspectors must have overlooked a lot of issues…I walked thru many half-built homes during the frenzy, and even I, a neophyte, could see totally slip shod construction…and my husband who isn’t a neophyte, was completely floored by the level of incompetence.
$70 a foot, or $250 a foot, most of what was built in the last 3-4 years is crap.
Inspectors do sometimes/rarely miss things, but generally they would take offense to the allegation that they intentionally/recklessly/negligently miss things. Thier livelihood depends on doing well at their job just like everyone else. And as said below, what may be a code violation as you see it at that time is not necessarily unfixed in the end. Illegals may make more mistakes and the punch list may be longer than in prior times, but it doesn’t mean that they are not corrected before moving on to the next construction phase.
My sister is going to school to be an interior designer. As part of one class, they all drove to a new subdivision under construction and had to each make a list of all of the code violations and bad building practices they could see. The instructor then pointed out all of the ones they had missed.
His advice on buying a new house is to high your own building inspector to visit your site several times while your house is under contruction.
That is good advice to have an independent inspector throughout the building process, but you also need to make sure that the inspector is qualified for all the different stages of construction: foundation, framing, electical, HVAC, etc. That may mean hiring more than one inspector, but it is a marginal expense for avoiding a larger mistake.
To be sure, the anecdote about the student-interior-designers doesn’t indicate the quality of finished homes generally. NO HOME is built perfectly; and EVERY home has code violations that must be corrected before a city inspector will pass the construction project to move on to the next phase.
A buddy of mine works for a major builder and his sole job is to go around and fix all the screwups after completion. He is not the only one and he is always busy. He said they build houses in 45 days now and it is impossible not to screw them up when you build that fast.
Great thread. More useful notes for that great day when I move back into the market. Thanks, DFW and others.
In Phoenix, for about $60-80 per sq ft, you probably get inner city homes, about 30 years old, with evaporative cooling that doesn’t work too well in the summer months.
BUT, for about double the price per sq ft you could buy my home here in Anthem.
http://www.realtor.com/FindHome/HomeListing.asp?snum=14&frm=bymap&st=AZ&typ=1&typ=2&typ=3&typ=4&typ=5&typ=6&typ=7&gate=msn&source=a2mszh1t042&poe=realtor&js=off&pgnum=2&fid=so&mnsqft=&mls=xmls&ct=Anthem&mnprice=400000&mxprice=450000&mnbed=0&mnbath=0&areaid=48948&sid=078B0F5926CEC&snumxlid=1050767065&lnksrc=00001
This is a darn nice house, in a great HOA with health club, swimming pools, water slide park, a skateboarding park, a roller rink, a climbing wall, hiking trails, biking paths, and a few other things all for $73 a month HOA. I can go golfing, swimming, hiking, playing in the mountains on consecutive days almost all year round.
Prices might be too high, but it’s a damn nice life.
Articles like the one in the NY Times underline that it is going to take years for this bubble to play out. The amount of inventory that has been added in markets like Phoenix is absolutely enormous, completely out stripping what demand will be for the foreseeable future. Also the mentality that drove this market to its enormous highs is still out there. I still hear it from people in day to day conversations about real estate always being a good investment and you can see it in the quote at the end of the NY Times article.
“It is not a get-rich quick scheme,” he acknowledged. “But investments in real estate,” he added, “do go up over time.”
“But investments in real estate,” he added, “do go up over time.”
Yes they do…just as the carrying costs of insurance, taxes and maintaining the property. Not to mention the mortgage. The question is; between these costs and the transaction costs how much appreciation do you need just to break even over five or ten years?
I’m as much a bear as anyone right now, but it IS almost always a good investment, at least during the entire history of this country, which is a pretty good track record. If houses go up at the rate of inflation, combined with leverage, it’s a really good investment. Let’s face it, falling housing prices are a very rare occurence, and have always recovered eventually.
So. The stock market, broadly speaking, is almost always a good investment too, but not in mid 1929 or early 2000.
RE is a great way to get rich SLOWLY. Slowly means 20+ years, not 3 years or 7 months.
I agree. Not sure what the stock market has to do with my comment, though.
I just want to be careful with this stuff because the future is unpredictable, and the minute you become convinced that a certain market is going one way, it can surprise you.
I was trying to say that something that gis enerally a good investment in the long term can be a very bad investment in the short, intermediate, or even “long intermediate” term. The “So” at the start of my comment was meant to be something longer, such as “so true”.
Prices of houses in unsafe parts of any major city are still lower than 50 or even 80 years ago. These “ghettos” used to be nice townhouses in the early part of the 20th century. Looking at the demogaphics of the US in the future, I think there will be more of the same, just out in the suburbs this time.
demogaphics=demographics……sorry
You probably wouldn’t do too bad if you buy something you can afford and hold onto it for a number of years but if you need to sell in 2009 you’re screwed. Or if you overpay now and need to get 20% appreciation by next year to refinance when your teaser payment resets, you’re really screwed.
Oh, and this one is rich
“Thomas Caldwell and his partner now own about 30 homes each and manage a total of 2,200 properties for clients, many in California. Asked what he thought of the contention that investors were to blame for the glut of homes on the market, Mr. Caldwell acknowledges ‘there was some fluff.’”
of course this idiot and his partner are “smart investors,” not part of the “fluff.”
Be sure not to sit on those tail feathers, bunky!
You can bet they bought most of these houses at full price. Probably losing $1k/month on each one.
Yeah, but they make it up in volume.
$1K Loss month, doubtful. You would need to be an idiot beyond belief to do that. You would have needed to buy at the peak with no money down, and it would also need to have been a SFH that is not a typical rental home, more of a higher end home type.
I can’t imagine anyone that owns 30 homes would do such a thing. Not eveyone investor is Casey.
If only a handful of those 30 houses are vacant, it can easily average to $1k/ house or more.
“Thomas Caldwell and his partner now own about 30 homes each and manage a total of 2,200 properties for clients, many in California… Mr. Caldwell acknowledges ‘there was some fluff.’”
When I was trying to sell my personal residence in the Phoenix area in late Summer/early Fall 2005, I received 4 different contracts from 4 different agents at Brewer-Caldwell over the 20 or so days that the house was on the market. The “offers” were basically all for full list price, with a request for 3% back for “closing costs” and an extra-long inspection period of 15 days. Basically, the Buyer was always listed as the agent himself “or assignee,” so I imagine that they would market to their Californians and make some cash on the assignment, plus their commission share, plus property management fees. The offers were all rejected outright because it did not make sense to take the house off the market for 15 days while they looked for their assignee (or cancelled). I do not even think that the Brewer-Caldwell agents talked to each other about the offers, but rather just sent out hundreds or thousands of contracts to houses in certain price/size/age ranges.
Of course, some other California speculator came forward and paid peak price for the house with a more stable offer.
“He noted that investors bought roughly a third of homes sold in the Phoenix area last year, according to mortgage application data.”
If he’s going off mortgage app data, then you can probably throw another 20% on top of that number to put the investor portion over 50%. The reason being is that I’m sure 2nd homes, that are not 2nd homes but fraudulently being called a second home for better finance options, were not included in this number. Also, I’m sure many a loan deal was called a primary residence by the LO for the same reason. All the LO has to do is call the primary residence a rental, invent a dummy rental contract, and wah-lah, the investment property is now your primary residence (at least as far as the lender is concerned.) There are a lot of reasons for doing this, but the most popular are that this keeps the rate low and down-payment requirements as well.
Suffice is to say that this cat’s number is way low. I’d say true portion is way over 50% of new home purchases were speculative investment.
nnvmtgbrkr,
Yeah, that slight of hand claim jumped off the page for me too. The figure quoted would be low for a national average let alone specuvestor havens like Phoenix. I must tip my hat to Ben though. For all the time he’s been posting multiple articles this sampling has more stupid (and memorable) quotes per sq. inch of print than ever before. Many of which will haunt their owners until the end of their failing careers and beyond the grave. Outstanding Ben!
I’d agree with the 50% number.
I would also argue there is speculation going on. A friend of the family is remodeling his house (amoung other things, adding an elevator due to age) and will thus need to rent a home for a year. Even after telling me how California rents have always been cheaper than buying and always will… He’s buying a place for the year instead of renting… sigh…
Then the number of people at work who own two homes is staggering. Some own spec properties in San Diego, LA, Palcaster (yep…), New Mexico, and Idaho. Ok, the Idaho people at least seem smart. They as a group bought lots around a lake to retire in mass and are only building the homes at the last minute and their costs aren’t “bubbly”. They didn’t pay enough for the land for either them or us to worry about it.
Neil
“Then the number of people at work who own two homes is staggering.”
What makes this bubble “special” over the Dot-com bubble is the amount of people exposed. A lot stayed out of stocks, even during the mania, due to their lack of understanding the market. But everyone felt they could be a RE tycoon. The hangover from this bubble is gonna be a doozy.
Its not just the number of people that are “hooked”, but also the dot com era was investing SAVINGS. With the housing bubble, people are playing with DEBT. People can live comfortably with a little less in their retirement savings account, but they cannot ignore the bill/mortgage collectors ! They have to be paid NOW.
Furthermore, the dot com bubble didn’t create nearly as many jobs, nor spin off spending like the housing bubble did.
I find it very interesting that everyone thinks we hit bottom now. I don’t think we are anywhere near bottom.
Neil,
This is a strategy I’ve advocated for years. Some would argue (particularly builders and realtors) that there’s no worse ROI than raw land. If you’re looking to make a fast buck, they’re probably right. But this is your retirement we’re talking about. This is the ONE thing we CAN afford to be sentimental about. Still, we want to be smart about it. When you look at the cost of a “buildable lot” you could reasonably argue this has been a “land bubble”. Because the dollar amounts are much lower than say a turn-key home some folks are shy about asking for a discount. Certainly not Ben’s readers though.
Many Asians in the Bay Area own 2, 3 or more homes!
TOL and BZH reporting terrible new orders figures this morning, by the way. BZH saying new orders were just 2,064 in the September quarter vs. 4,937 a year earlier. That’s a whopping 58.2% decline. TOL says orders were down 55%. I don’t know what market forecasts called for, but these are plum ugly, no two ways about it.
TOL:
http://tinyurl.com/y6×7ld
BZH:
http://biz.yahoo.com/bw/061107/20061107005552.html?.v=1
http://interestrateroundup.blogspot.com/
I’m shocked how the market portrayed this as a 10% drop in revenue!?!
http://biz.yahoo.com/ap/061107/toll_brothers_sales.html?.v=4
from my above link:
“We continue to look for signs that a recovery is imminent but can’t yet say that one is in sight,” Chairman and Chief Executive Robert I. Toll said in a statement.
Neil
Does revenue mean ‘gross sale’ ?
Does earning mean ‘net profit’ ?
If I am wrong, someone correct me.
Off topic but just saw this and thought I’d share.
Live example of how joe sixpack gets screwed:
http://www.youtube.com/watch?v=yjm4GaP8fmU
TOL is looking to go down hard at the open. What do your charts say TXCHICK?
It’s trading down 50c. Big deal. Been trending down for a week now after a small double top at 30ish. 27.5 is one support, which is where it is now. That breaks, you’re probably looking at a double bottom with the summer lows. I might daytrade it.
Thanks.
You wanna see REAL blowups, try a biotech that loses a drug in Phase II or Phase III. I traded RNVS last week for about a 20% intraday profit. It gapped down from about 14 to 3.
Keep your eye on novc
I had a chance to go through BZH’s numbers in more details. Don’t miss the net orders figure for the FL region — down 90% YOY. Yep, looks like a soft landing to me in this fine state of mine. Ugh.
http://interestrateroundup.blogspot.com/
Where are they hiding the bodies?
Offshore corporations, perhaps?
does bzh have the highest exposure to FL of the major homebuilders?
Stock Talk Blog
Housing’s Foundations Shaken
By Frank Curzio
RealMoney.com Contributor
11/7/2006 9:10 AM EST
URL: http://www.thestreet.com/p/rmoney/stocktalkblog/10320426.html
Housing stocks have declined sharply since January, and after the latest news from Toll Brothers (TOL) , Beazer Homes (BZH) and H&R Block (HRB) , it may be premature to declare that the Fed is guiding the economy to a soft landing.
Luxury homebuilder Toll Brothers said that for fiscal 2007, it expects to deliver between 6,300 and 7,300 homes compared to previous guidance for between 7,000 to 8,000 homes, a 20% difference between the high and low ends of the forecast. The company also said a recovery isn’t in sight.
Although Beazer Homes beat fiscal fourth-quarter estimates, it said housing market fundamentals remain difficult. Management said that if it closes on 13,500 houses in 2007, it will meet its $3.65-a-share estimate for the year. However, this number will be difficult to achieve and is on the top end of its 12,000 to 13,500 estimate.
H&R Block reduced its full fiscal year profit forecast to a range of $1.20 to $1.45 from $1.60 to $1.85, “entirely,” it said, due to its Option One Mortgage unit, the fifth-largest U.S. originator of subprime residential mortgages. The company said that the unit’s underperformance was due to higher interest rates, weakened loan demand and rising past-due mortgages this year.
I’ve argued that most of the bad news is factored into the prices of housing-related stocks. I also said that the long-term outlook is positive for these stocks due to the strong possibility of the Fed easing interest rates over the next 18 months. The latest numbers, though, make me think that my theory may take a little longer to play out.
Has there ever been a soft landing? This sounds like wishful thinking at best.
I’m gonna take a little short sell here on TOL. It’s about filled the gap.
“It’s about filled the gap.”
TxChick –
Please explain for trading ingnoramuses (moi). Also, does it seem puzzling that TOL would not even wait until after election day to tank? Or that TOL would tank when the broad indexes are doing just fine (on election day!), thank you. Did the PPT decide to drop TOL’s body in the river or something?
http://tinyurl.com/leobd
Ok, short at 28, stop will probably be about 28.75 intraday.
I dunno. You could tell in the premarket it wasn’t going down much and not much volume either. I’m going on just rote daytrading priciples.
PPT to the rescue! Put out that fire before it spreads!!
http://tinyurl.com/leobd
“The influx of buyers from California, many of them individual speculators, was so strong that builders overestimated demand and constructed a lot more homes than there were people wanting to live in them, said John Burns, a real estate consultant in Irvine, Calif. He noted that investors bought roughly a third of homes sold in the Phoenix area last year, according to mortgage application data.”
Didn’t massive influxes of out-of-staters result in construction booms followed by later abandonment during the gold rush era, leaving behind ghost towns in the wake? Now I am starting to fully grasp what Janet Yellen was talking about.
“The influx of buyers from California, many of them individual speculators, was so strong that builders overestimated demand and constructed a lot more homes than there were people wanting to live in them, said John Burns, a real estate consultant in Irvine, Calif. He noted that investors bought roughly a third of homes sold in the Phoenix area last year, according to mortgage application data.”
I read 2 months ago that 1/3 of Austin’s homes were being purchased by “out of state investors”. But they won’t have a crash there because it’s “different”. I’ll be buying back into my old Austin neighborhood for alot less in two years. Didn’t realize I was “shorting” when I sold my house a few years ago.
‘Didn’t realize I was “shorting” when I sold my house a few years ago.’
Has there ever before in history been a time when shorting a house seemed like a sensible household investment strategy?
I’ll tell you what … I wish I could sell my house forward at today’s “market price”. I’d do it in a heartbeat.
Oh, sure, especially if you put the proceeds in the stock market. From 1982-99 the stock market generally kicked the crap out of RE, even accounting for housing’s “yield” (the equivalent rent).
This is interesting because here in Washington state people think that the influx of buyers from California is what will keep the market FROM falling, but personally I think it is part of what is setting us up for the fall. Lots of rain here the past couple of days, I wonder what the California transplants are going to be thinking after a couple of months of it.
How are all those colly-fawn-yuns gonna move to WA when they can’t sell their houses in CA?
Kim,
The only individual specuvestors who are buying are inexperienced, greedy, get-rich-quick knuckleheads. If that’s going to save the WA market, Godspeed.
You can have all the Casey Serin’s in CA.
Hehe - I’m a californian transplant to here in Portland - I’m loving the rain - it’s just like where I grew up in Ireland
Man I’ve missed the seasons - nothing like a big fire a good book and a hot whisky with the rain pounding on the windows
However - I’m renting and waiting on financial gravity to take it’s natural course rather than contributing to the bubble
Uncle Git –
Didn’t you used to frequently warn us here about the risk of inflation blowing priced-out renters out of the water? I am starting to believe you…
Didn’t realize I was “shorting” when I sold my house a few years ago.
now there’s the soundbite of the day. can i fit this all on a bumper sticker?
BTW, was chatting with a couple of guys who work for a home-grown variety hedge fund a couple of days ago. They seemed pretty sure the homebuilders were in for another massive down leg within the foreseeable future — in fact, one of them was telling me he just bought some puts (which resonates with TxChick’s comments above). What has changed — has the PPT decided to cut them loose or something?
“has the PPT decided to cut them loose or something?”
Once the elections are over, and most particularly if the President is a lame duck, why not? Game’s over.
Anybody contemplating Vegas ought to consider another nasty issue bearing it’s ugly head…
Water. Or the lack of it. Take a drive to Lake Mead (just an hour from the strip) and see boat launching ramps that are miles from actual water, Lake Mead is a puddle compared to what it once looked like. Vegas is trying to grab water from Az and Ut sources, but the folks and governments of both states realize that they could be just as dried out themselves, were they to let Vegas at their precious aquifiers, so there’s much resistance.
Or:
When there’s no water in vegas, there’s no vegas.
When there’s no housing bubble in southern california, there’s no vegas either. Where do you think people got the money for their $500 hotel rooms and $5k nights at the tables? From their jobs?
passthebubbly,
LOL! So true. I was heart broken when the tore down the Boardwalk at $39 a night! Yeah, it was getting on a bit but you can crawl to the Bellagio from there (oh I’ve done it) not proud of it mind you, but I’ve done it. More like using the parking meters for walking canes really.
LV will revert to type and go back to it’s roots. When the recession hits, LV will struggle. Then it the gambling town it’s always been will reappear.
Rooms at the Venetian for $49.
pass the bubbly: you’re right!
When there’s no housing bubble in california, there’s no vegas either.
God bless America!
Nevada got screwed royally when the western states were bargaining for Colorado water rights.
It’s just a matter of time, maybe not this lifetime, but those desert cities will be interesting archeological digs…imagine digging up the Bellagio!
My wife and I were on a roadtrip for a month circling the 4 Corners area and we like to read regional newspapers (85% A/P reporting, so little original content, the death of the newspaper is not far away) and nearly every day, tucked away on page 7, or 13, was a story about how the intermountain west, was going through quite the drought and the ramifications of it.
A great read is “Cadillac Desert”, written about 20 years ago by Marc Reisner, all about water in the west…
aladinsane,
Quite so. I call them “cut and paste” newspapers (much like our own Oregonian). Oh and remember, whiskey is for drinkin’, water is for fightin’.
Agreed.
Anecdotally:
..went over the Hoover Dam late last month (family holiday), the first time in three years. Noticed the marked difference in the water level from 2003 (almost lapping the bottom of the towers) and 2006 ( a good 40 ft below the towers).
I have two photos - one 2003 and one 2006 - taken from the same place and at roughly the same time of year. 2003 photo shows the ‘white line’ just above the waterline is at least 3 times smaller than the one shown in the 2006 photo.
Bear in mind that even a drop of 1″ overall is a gargantuan amount of water, if you take into account the surface area of Lake Mead.
And this was after the big rainstorm in mid-October.
Most reservoirs in western states are at their lowest levels around the beginning of October. I’m not disputing what you wrote, and I’ve heard about Lake Mead and all, but there can be a big difference between early October and a couple of months in either direction.
Also, the Sierra Nevada has had two years of epic, Donner-Party level snowfalls, but then Sierra snow doesn’t melt into the Colorado.
We go on an amazing kayak trip on the Colorado (we put in just below Hoover Dam) a couple of times a year, over the past 3 years (an amazing trip, around 20 natural hot springs in canyons, along the river and desert bighorn sheep sightings) and the 6 times i’ve seen Lake Mead driving by to get to the put in point, over those years, it’s much drier.
7,000 people a year relocate to Vegas, I think, in search of the last midddle class dream, (propelled by gambling, part and parcel, the main reason we are chatting on this blog, today) oblivious to the bigger gamble they are making.
Talking gambling, it went from being either at the horse races or vegas when I was a kid, (i’m 44) to being everywhere, all of the sudden. My wife and I were watching one of those poker competitions one night and the 24 year old winner of $725K proudly stated in his “up close and personal” segment (we’ve made heroes out of these zeros?) that he’d never read a book.
I think this visual speaks loudly to your point about the water levels at Lake Mead.
http://www.flickr.com/photos/perfesser/103384408/
The Colorado river passes thru NV before it gets to Cali, and Cali gets most of that water. If push comes to shove, NV will divert that water, prior agreement (from 50 years ago) or not.
Now that would make for an interesting water war~
In this corner, 17 million people in a place that has enough water for a few hundred thousand folks (if it weren’t for The Sierra Nevada & the Colorado and Feather River water)
In the other corner, is much the same, just fewer people than el lay, but only one water source (Colorado River) and it’s going dry.
I like the chances of the young upstart from Southern Nevada vs the So Cal’ers. Heck, el lay didn’t even care when not one, but 2 NFL teams left, folks there kind of said (in a soft voice) “don’t let the door hit you on the way out” and off the teams went off to other cities that dangled cash & stadiums in front of the owners. You could hijack one of el lay’s “triumverate of riparia” (think i’ll copywrite that one~) and they’d not even notice it missing…
How would one go about doing a waterjacking?
All the southwest is desert, and that includes southern California. In 50 years the growth areas will be around the largest concentrations of fresh water, and the largest by far is the Great Lakes area.
Look for the renaissance of the Rust Belt then, for all the reasons that people moved there in the first place: plentiful water, cheap transport of raw materials (wait until outsourcing levels global wages, and Pittsburgh, Cleveland, and Detroit are competitive again) and temperate climate.
You can live on Lake Erie but you can’t drink a California house.
“temperate climate”??? Compared to Ketchikan, I suppose.
I bought a lot of jan 25 pUts on TOl but sold them the other day because I was afraid of the Cramer Pump. I’m afraid alot of the bad news is already priced in the homebuilders. Mad money was made shorting them 1 1/2 years ago, now it’s just going to be a slow bleed not really worth playing options on. I’m now shorting the industrial sector. All these years they’ve been telling us that housing has lifted the economy and now they are telling us that housing won’t affect the economy slowing down. I’m thinking around January would be a good time. Caterpillar is one that comes to mind.
Now that’s good reasoning. The obvious targets have been milked pretty hard already. The “value” vultures are buying them now (homebuilders). Who knows if they’re right.
CAT is more a play on farming and mining than real estate. There’s going to be a tremendous farm equipment cycle next year. If the price of oil stabilizes or goes back up they will keep selling the huge earth movers in Wyoming and especially Alberta (oil shale). CAT will also benefit if the dollar weakens. CAT is a relatively cheap stock that has room for earnings and multiple growth - caution!
We need CAT’s bulldozers to shovel all those ethanol subsidies to the farmers, ADM, oil companies etc.
Paul,
True, it may have been a good short a couple of weeks ago but their bad news has been priced in and then some. See my post below as well.
NIA
dimitrius,
CAT’s growth market is really overseas (as is DE) John Deere. CAT is seasonally weakest this time of year and didn’t fail to deliver as usual. Since our infrastructure has been mature for years they have become more dependent on under developed nations to provide their heavy equipment to those mkts.
“He said there’s nothing wrong with having so many homes vacant.””
Homes are meant to be lived in you dummy.
I wonder if he sees anything wrong with having such a vacant head.
I do, but he might not.
Good point. That is a bizarre statement for sure. What, exactly is a vacant home producing? This guy must be a RE Wealth Expo graduate. Sounds sick, but I am going to enjoy watching these “investor” fools get the shaft deep and hard.
The value of a home depreciates rapidly when no owner-occupant is present with a strong vested interest in caring for it. This especially is true for vacant homes which are either vandalized or else turned into meth labs.
From the Phoenix housing market story:
“It is not a get-rich quick scheme,” [Campbell] acknowledged. “But investments in real estate,” he added, “do go up over time.”
I predict less than 12 months until we no longer hear “investments in real estate do go up over time.”
‘One of those myths is that there is no affordable housing, Bottfeld said. He said 1,800 homes listed for sale are priced at $200,000 or less, which he said falls in the affordable category.’
So where exactly would those affordable homes be? Old North Las vegas? Next to the Stratosphere? This is spin like I’ve never seen it
News flash. Here in AZ, even the cheapo manufactured homes priced at 125K and below are not selling. I think we’ve moved way beyond price point reasoning.
This HB is struggling today… Down about 25%…
Technical Olympic USA Inc (TOA)
http://www.marketwatch.com/tools/quotes/detail.asp?view=detail&symb=TOA
I guess not all the homebuilder stocks go up?
““But smart investors, he argued, were absorbing the surplus by buying up homes that builders were now unloading at bargain prices, some for as little as $60 to $80 a square foot, which local experts say is barely enough to cover construction costs let alone land expenses.””
And so I guess he thinks that there is some mysterious force that makes it impossible for housing prices to go below construction and land prices? I believe that in many areas of the country they will, and land prices will have to drop like a rock in order for there to be any sales.
Kim — “And so I guess he thinks that there is some mysterious force that makes it impossible for housing prices to go below construction and land prices? I believe that in many areas of the country they will, and land prices will have to drop like a rock in order for there to be any sales.”
Abso-posi-lutely. I am basing my entire strategy on this, that I will be able to pick up a nice new home for below cost, or a nice used home at a desperation price relative to a below-cost new one, or that I can get a desperate (but good-reputation) builder to build me a high-quality (no illegals) house for bones cost, to keep the subs fed and the company in business.
Chip, now-a-days, and into the indefinte future, I doubt you will ever be able to get a construction crew that is not at least in part populated by illegals. What is happening is that experienced, legal subcontractors are contracting jobs with general contractors, but the subs employ illegals more often than not in the crews, and the illegals are often paid under the table for the work. Unfortunately, the costs of cheaper labor doesn’t usually reduce the cost to the buyer; it often ends up in the pockets of the general or the sub.
Typically the general will oversee quality control, but If you use a builder and you want to verify the quality of the work, use an inspector or another general or whatever.
I’ll also add that you are not likely to get a desperate builder to build a house at cost for you whether they have enjoyed a good reputation or not. Personally, I would not recommend using a desperate builder because you are likely to get burned. You may do well to buy a lot at a desperation price and then hire a good builder to build on your lot. The difficulty now in most metros is finding a reasonably priced lot.
I doubt that you will be able to buy many “good” homes below cost unless it’s in a short sell on home in foreclosure. Demand will rise significantly, as prices fall nearer to cost. I’m not sure I would call a home “good” that is out in the middle of nowhere with a 3 hour drive to work. Those far-away homes could fall significantly below cost.
Reading these newspaper articles from Las Vegas back to back like this, I’m struck by the large disconnect between what I see in the printed press and what people on the street are telling me. So far I’ve met exactly one homeowner who has told me that it’s a good time to buy a home…and that was because this person has seen prices dropping in his neighborhood and therefore believes that there are “bargains” available if you shop around.
All of the other homeowners that I’ve spoken with tell me that they believe that houses are over priced and that we should wait before purchasing. Many have also volunteered that they could not afford to purchase their current home on their current salary or retirement income. Of course, none of those people are planning to move any time soon, so they don’t have a vested interest in keeping prices outrageously high and are probably being more candid than some of the industry pundits quoted in the newspaper.
Oh, and as for those 1800 homes that are priced under $200K? Try taking a look a some of them. I have, and the ones that I saw are not in neighborhoods where I would feel comfortable getting out of the car. I don’t know Bottfeld, but somehow I doubt he’d want to live in one of those homes, either.
Residential real estate in Vegas is over priced. Homeowners know it. Renters know it. Newcomers know it. Apparently the only people who don’t know it are the real estate professionals.
“He noted that investors bought roughly a third of homes sold in the Phoenix area last year, according to mortgage application data.”
If you assume that many people lied on their mortgage applications, claiming primary residence when it was not, how many homes were bought by speculators? 40%? 50%?
This had a pretty funny title. But what’s even funnier is if the title were back in 2005:
“Demand For Unreasonably Priced Homes Soaring”
Does anyone have any good debt collection service stock plays? Seems to me that if things are going the way they are, some collections companies are going to be swamped with business.
Txchick?
Check out PRGX… didn’t even realize it was up $1 today, huge % move
Wow : I just took a look at weekly chart rather than daily. This stock was ~$55 in Jan 05. It dropped to
Thanks!
They may have increased business but there’s only so much blood they can wring from a dead FB. If you are underwater 200K, but you are a marginal earner what can they do ?
Atanta is falling. Recently counted four construction sites dead in the water. The plumbing sitting out of the ground and heavy equipment sitting in the same place for over a week. Condo’s in vinings going to auction with no minimum bid on 15 of them. In the real estate guide, more builders paying ALL closing costs. Why no articles in the AJC about the sinking of the market here? Asked my realtor relative how is the market……..she said slooooooow, very sloooow. ‘You think!
Atlanta — music to my ears.
To be fair, RE is supposed to be slow in Nov-Jan. What you’re describing won’t alarm people.
If it stays like that into the spring, we may see some reporting from new markets.
Interesting notes about the water situation here in Las Vegas, Nevada, where I live now.
IMHO, there are two things that are going to, or could, kill this town: 1. sudden loss of tourism revenue and 2. restricted water rights/water shortage.
One of the big doubts that I, a Las Vegas local, have about the future housing market out here has to do with availability of water in the future. I’ve faced the fact that I probably won’t be retiring out here…there may not be any water left to support this town if it keeps growing.