Nobody Buys “Something They Think Will Cost Less Later”
Some housing bubble news from Wall Street and Washington. “Hovnanian Enterprises said it expects to recognize impairment charges and report a fourth-quarter loss. ‘Our financial results for the fourth quarter continued to be negatively impacted by high cancellation rates and increased use of concessions and incentives, particularly on the resale of those homes which experienced contract cancellations,’ said CEO Ara Hovnanian.”
“The Red Bank, N.J.-based company said it expects to take about $300 million in quarterly impairment and land-option write-off charges. ‘ Like other builders, Hovnanian’s walking away from deposits placed on options for land as the housing market pulls back. ‘Although it is painful to incur these non-cash charges, we believe it is much better than proceeding to build out these communities at very low returns or losses over the coming years,’ said CEO Hovnanian.”
“‘One reason cancellations are so high is that people think they can get the same house cheaper if they just wait a week or two,’ said M.D.C. Holdings CEO Larry Mizel.”
“Dominion Homes Inc continues to struggle amid the housing market slump, posting another quarterly loss. The company, which builds single-family units in Central Ohio, and Louisville and Lexington, Ky., lost $5.9 million in the third quarter. ‘Home sales conditions remain challenging across the country and our markets have been especially hard hit,’ CEO Douglas G. Borror said.”
“To cut costs, Borror said the company is reducing its land development and acquisition activity. Dominion also has cut its workforce so far this year by about a third.”
“A day after luxury home-builder Toll Brothers Inc. said quarterly revenue took a 10 percent hit amid a weakened housing market, Orleans Homebuilders Inc. Wednesday revised its outlook downward for its fiscal year.”
“The Bensalem, Pa., homebuilder reduced its guidance on earnings and revenue and said that it has turned to, among other initiatives, sales incentives to cut inventory levels. The company believes the ‘negative’ residential market is expected to continue.”
“The company saw new orders plunge by 55 percent, backlog drop by 56 percent and net income fall by 50 percent to $3.9 million, compared to the same period a year ago.”
“Toll Brothers chief executive said the economic trends are leading customers, even those in the high income bracket that his company serves, to take a wait-and-see approach. ‘Nobody wants to buy something that they think will cost less two weeks or two months later,’ said Toll Brothers CEO Robert Toll.”
“The ailing housing industry is beginning to infect related businesses, such as those that make and sell wallboard, carpet, paint, cabinets, faucets and tools. It also is hurting mortgage lenders.”
“‘I had someone tell me at dinner the other night that people ordering [PVC] pipe were ordering it by the hundreds of feet rather than truckloads,’ said Paul Carrico, VP at Atlanta-based Georgia Gulf Corp. ‘So whenever that sort of thing happens, everybody is really going on fumes,’ he told analysts.”
“Issuance of U.S. asset backed securities is seen declining in the year ahead, led by a drop in home equity volume, as further signs of a weaker housing market emerge, issuers and investors said during a conference in Florida.”
“Home equity has been the driver of issuance in the ABS market this year, as consumers facing higher monthly payments moved out of adjustable-rate mortgages and into fixed-rate loans as interest rates rose. ‘The home equity cycle has really played itself out and 2007 will be much different,’ said Paul Colonna, VP at GE Asset Management.”
“NovaStar Financial Inc. reported lower third-quarter earnings on Tuesday. The company attributed the slide to steps taken to prepare for a worsening credit market. The Kansas City-based company reported a 27 percent decrease from earnings (from) the same quarter last year.”
“NovaStar CEO Scott Hartman said that third-quarter earnings were impacted by increased reserves for its on-balance sheet transactions and loan repurchases. Earnings also were affected by increased loss assumptions in its mortgage securities portfolio.”
“The company recorded mortgage securities impairments for the quarter of $6 million, because of more pessimistic loan value assumptions as interest rates rise and the housing market slows.”
“Mortgage finance giant Fannie Mae said Wednesday it will not file its 2006 third-quarter report on time, due to a pending restatement of past financial statements.”
“In a filing with the Securities and Exchange Commission, Fannie Mae said it determined financial statements from January 2001 through the second quarter of 2004 should no longer be relied upon, due to issues with accounting practices and material weaknesses in internal controls over financial reporting.”
“The Federal Reserve has failed to communicate its determination to bring down inflation in a forceful enough fashion, raising the risk that price increases will become entrenched, according to Jeff Lacker, president of the Richmond Fed.”
“He added the Fed sometimes talked about pass-through ‘as if it is a force of nature rather than a product of policy expectations.’”
“His remarks are likely to be seen by some Fed watchers as critical of Ben Bernanke, the Fed chairman, even though Mr Lacker was careful not to mention him by name.”
A headline at National Mortgage News:
‘Lawyers Eyeing Option ARM Suits?
Class-action lawyers are ready to pounce on payment-option adjustable-rate mortgage lenders once resets and delinquencies start to pile up in the second quarter of next year, according to an industry litigation attorney.’
Maybe ACORN should team up with some class action lawyers and go after these new-styled predatory lenders, who have marketed Option ARMs to low-income, financially unsophisticated buyers. The lending industry would get their come-uppance, while ACORN and the class action lawyers could share in the spoils.
Yes, that is if Acorn can stay out of jail for vote fraud.
roflow- acorn is another commie FREE sht for me group
now w elevated status
Election Hands Frank Finance Chairmanship
Democrats have won control of the House, which will allow Rep. Barney Frank, D-Mass., to chair the Financial Services Committee and press for new housing production programs and predatory-lending legislation.
Wonderful ‘Ol Barney Fag(d.mass) & Co. can get in there and gum up the works even more. I love it, the next few years are going to be a sight to behold.
wmbz–
“fag”?? oh, you must be one of those evangelicals…like your pal, Haggard. Why don’t you skip the meth and the slurs and just watch the numbers.
Sorry I’m not PC like the rest of you clowns. I call a spade a spade, so get over it. BTW who’s Haggard?
wmbc, Great to know that someone calls a spade a spade anymore. Way too many PC people in this country. Good for you.
Personally, I prefer PC people to those who believe it somehow cool to be vulgar and insulting. Sometimes I think those people are simply illbred.
wmbz -
It’s not about being PC. There are plenty of political blogs where your opinion about what’s a spade might garner some interest. Take it there if you want to spin politics.
Your comment has the basis for relevance on this blog. If you carried it out with some careful thought, it might important. Instead, you just waste it by sounding thoughtless and biased.
I was not trying to “spin” politics, don’t care for it. It was part of the article if you read it. I try and find humor in just about everything and it is funny that an old Homosexual(PC) (and he calls attention to the fact) is going to be chairing this group considering he had a young man running a male prostitution ring out of his house and claimed not to know anything about it. How the heck is he going to get to the bottom of anything. Just another governmental waste of time like most of it is. Finger pointing and pulling and wasting our money . If I wrote something you didn’t like, skip it I do it all of the time, I’m sure many people here think they are contributing pearls of wisdom and many are, but I would not waste anytime on a comment that I didn’t like. I’ve been reading this blog since the very begining and enjoy it. I don’t worry if I offend someone from time to time, it’s impossible not to do. P.S. Kaylaw enjoy your life in the bubble, remember everyone is a winner!
“I’m sure many people here think they are contributing pearls of wisdom”
Imploder is sure Barney Frank would have NO PROBLEM with everyone “contributing” their “pearls of wisdom” when ever they get the urge to do so!
He’s on a jihad for hedge fund oversight and regulation.
they need to get the class action “reform” of last year rolled back for maximum impact and $$
Woohoo the feeding frenzy is just getting started.
Woohoo the feeding frenzy is just getting started.
Throw in corrupt appraiser’s steered to predatory lender’s by black-mailing, self-serving real estate agents, and what jury isn’t going to kick some rackeetering azz.
didn’t we cover this about six months ago? i’m convinced that all one needs to see into the future is read this blog once a day. good job ben.
The pain for the mtg companies has only begun! Once they receive a tabacco style class action law suit on top of financial losses the industry will accelerate on the down side.
All those 20 somethings who feasted of dumb Americans will be sinking faster than Don Rumsfeld!
The hell with class action lawsuits - most of these jokers deserve a RICOH prosecution and prison time.
Amen Brother
Just an FYI - RICOH is a copier, RICO is what you were referring to. And I fully agree with you. It may happen with the Dems making gains and Repubs wanting to distance themselves from Bush and Co.
boulderbo,
No kidding on the future predictions here! I am very impressed with the accuracy of many bloggers’ predictions. I’ve been reading these posts for over a year and a half, and they have been 99.9% spot on. As an example:
“The ailing housing industry is beginning to infect related businesses..”
The domino effect often discussed here way before the market top, is finally hitting MSM. It was painfully obvious that this would happen, but only Ben’s faithful were calling it. What industries are there to pick up all the laid-off workers? I see large jumps in unemployment ahead.
Chrisusc posts ” Repubs wanting to distance themselves from Bush and Co.”
Very little “Co” left…. The Neocons dumped him 2 weeks ago.
Ole Rummy took a powder as well! Exit stage left!
“‘Nobody wants to buy something that they think will cost less two weeks or two months later,’ said Toll Brothers CEO Robert Toll.”
Is this a thinly-veiled appeal for some more home price inflation, on top of levels that have fostered record-low affordability? Maybe new House Speaker can help Toll and friends with some kind of new housing subsidy program to help illegal immigrants to buy faux chateaus with no-doc loans…
Why are you putting this on the dems? CA under repub Schwartzenegger has already been doing this. Why not avoid ugly lies and smears?
Aren’t they able to already?
I just have to say that’s an extreemely stupid quote. The vast majority of things that people buy are worth less two weeks or months later. Cars, groceries, clothes, furniture, exercise equipment, computers etc.. ALL depreciate significantly immediately upon purchase.
Don’t forget to add houses to your list of things that depreciate significantly immediately on purchase — especially when you subtract closing costs and transfer of the risk of falling prices from seller to buyer…
Immediate 6% loss for Realtors fee. Then add closing cost, title insurance …
I don’t think his point was that they depreciate after purchase, but that their actual purchase price is deflating. So, why buy today for $500K if you can buy the same thing for $400K in a couple of months? This is the psychological effect of the bursting bubble, with people now expecting prices to be lower (so wait to buy at the lower price) versus during the run-up when people were expecting prices to appreciate (so buy now, and get all of that appreciation).
Maybe the Realtors (TM) should try out a new slogan.
Old slogan: “Buy now or get priced out forever.”
New slogan: “Sell now or face deflating market values forever.”
Nice!
Or more succinctly, “Sell now or be priced IN forever.”
so true
Sell now or GetStuck
But don’t GetStucco. He’s high-maintenance! - )
Or more succinctly, “Sell now or be priced IN forever.”
Wow, you must read Mish’s Blog. I think Crater Said that and many commented!!
Of course, the argument could also be applied to computers. I remember paying $400 for a 40 mb (that megabytes) hard drive.
The difference with houses is that the only people buying now will be the ones that _have_ to have one for whatever reason.
he was saying it would be priced lower in a few weeks (prior to the sale)… you are referring to price drop once you take it off the lot… he’s talking about it dropping while its sitting on the lot
these guys wish this was the problem. actually, the only reason people thought they could afford to buy at these prices is that they thought the prices would rise. if prices don’t rise fater than your financing payments, it isn’t possible to buy. this isn’t simple haggling or bargain shopping. people have been treating houses like they were commodities contracts. imagine a commodities contract holder waking up to delivery guy asking them where they want him to put 100,000 bushels of wheat.
that’s what these houses are.
Great analogy!
Wheat!!! Fantastic…
“Fannie Mae said Wednesday it will not file its 2006 third-quarter report on time, due to a pending restatement of past financial statements. Fannie Mae said it determined financial statements from January 2001 through the second quarter of 2004 should no longer be relied upon,”
ha. Ha. Ha! Hahah!!! LMFAO!!!!!
Fannie is literally the “eight hundred pound gorilla” that everyone ignores.
Nobody knows how much guarantee risk Fannie took on and still retains from loans it has sold.
The home equity market expanded by $5trillion in around 5 years. $3t of that and $3t derivative BS yields $6t. Across 300 million Americans debt equal to ($20,000)each will be abolished?
The pending dollar collapse/correction from stupendous debt default will be interesting to observe. Does the rest of the world really need our markets?
Yes. Today I drove down Route 13 through Delaware. I passed one “luxury” SFH community after another, all looking decidedly empty. The only highly visible “community” that looked inhabited (in fact, bursting at the seams) was a community of small modular homes. That’s what real people can afford.
Yes. Today I drove down Route 13 through Delaware. I passed one “luxury” SFH community after another, all looking decidedly empty. The only highly visible “community” that looked inhabited (in fact, bursting at the seams) was a community of small modular homes. That’s what real people can afford.
This sentiment — nobody wants to buy something that’s going to be worth less — explains buyer sentiment perfectly. Put another way: buyers are not waiting for prices to come down; they are waiting for prices to start rising again — only then will it make sense to buy houses in bubble markets. Sounds screwy, but it’s true — in bubble markets prices are so far out of touch with economic reality and fundamentals, the only way to buy a house is through aggressive financing, and the only reason to do that is because you believe the house will ultimately be worth more than you’re paying for it.
Nice observation. I concur. Speculation is a lot of emotion and little fundamentals.
exactly.
“‘Nobody wants to buy something that they think will cost less two weeks or two months later,’ said Toll Brothers CEO Robert Toll.”
Except, apparently, these GF’s in the Seattle area who keep on buying. I just read this morning, that King County median price is up 10% October 2006, vs. October 2005. I know this is due to move up buyers and the lack of first timers as sales activity has drastically decreased and inventories are up, but it still irks me. There is a seemingly endless supply of sheeple.
“‘Nobody wants to buy something that they think will cost less two weeks or two months later,’ said Toll Brothers CEO Robert Toll.”
I guess that’s why he’s dumping his TOL stock!!
Robert Toll has not sold a share of Toll Brothers stock since July 2005. Instead, he’s been increasing his holdings.
Granted, he dumped hundreds of millions of dollars worth prior to that, and his acquisitions have been mostly at $0 cost to him, but let’s call a spade a spade.
Lemmy says:
Pushing up the ante, I know you’ve got to see me,
Read ‘em and weep, the dead man’s hand again,
I see it in your eyes, take one look and die,
The only thing you see, you know it’s gonna be,
The Ace Of Spades
The Ace Of Spades
and Lemmy knows…
A Motorhead Fan!
“Robert Toll has not sold a share of Toll Brothers stock since July 2005.”
Sorry, I was referring to brother Bruce who unloaded 355,000 shares on 9/26/06 for a cool $10.29 million.
I’d like to see a list with the homebuilders and the number of times they’ve restated their financials or outlook in the past 6 months or so.
Here’s the list of those builders that haven’t had to revise downward:
.
Did someone turn off the liquidity fan that was aimed at the builder stocks? Or is it just some kind of post-election day slump?
http://tinyurl.com/fzeuw
PPT took the day off today.
They deserve a rest now that election season is behind us.
buybacks can only keep them afloat so long…eventually gravity has its way.
Looks like the two o’clock bounce!
So predictable. Can’t you imagine some hedge funds daytrading options on these builders? On plunge days like today, they could go short in the morning and long over the lunch break and make a mint.
To be honest, I really don’t get how the PPT can predictably prop up these shares every afternoon when an early morning plunge starts the day off on a bad note without some smart arbitrageurs figuring out the game and playing a counter-strategy to drive the prices back down towards fundamental value. Eventually, gravity matters.
This PPT spectre a few of you refer to is really called channel trading and swing trading. Look at how the markets unfold day to day and you will understand. There is no “propping” of the markets, it is a lot of money using similar trading strategies which traces out these “mysteriously” rythmic patterns. A day of reckoning will come, like it did in 2000. Many people were scratching their head for over a year after 1998 correction with the same thoughts…”how can this market stay going up” etc.
PHM Last: 28.86 Change: -1.11 -3.70% Volume: 6,471,300
Pulte’s Volume is almost triple its daily average. This is the beginning of the end for the Price Protection Team. There is no upside left to the HB stocks, and the bad news can not be spun.
Very good day for my Pulte Puts of Jan 2008
Me too… although I was really starting to wonder for a while there…
“The Federal Reserve has failed to communicate its determination to bring down inflation in a forceful enough fashion, raising the risk that price increases will become entrenched, according to Jeff Lacker, president of the Richmond Fed.”
How can they even suggest that inflation expectations are not entrenched when all these speculators and low-income buyers are gambling on forever-high home price inflation to justify otherwise-foolish home purchase decisions? The kind of financing that buyers have used in recent years will only make them look smart in retrospect if inflation turns out to have been much higher than officially reported. I guess if that case comes to pass, Fisher can again blaim the Fed’s expectations shock on bad inflation data.
We better pray that doesn’t really happen.
How else can this situation be resolved?
So what is it then? Are we on the verge of inflation or deflation? It seems like it has to swing one way or the other.
So is it correct to say that the two scenarios are:
1.) Massive housing price deflation. Homeowners go underwater, foreclosures skyrocket, builders fail, jobs disappear, tax revenues plummet, REIC companies and retailers stagnate.
2.) Massive general inflation. Homeowners see wage increases, prices across the board go up but housing costs stay the same or decrease, fixed income holders get soaked (this means little old ladies AND the super wealthy.)
If there is a big inflation threat, won’t that mean that interest rates will increase in response? Doesn’t that also amount to reduced affordability?
I guess my real question is: If inflation and higher rates are on the horizon, why not just buy a house now while you can still get a low interest rate?
“I guess my real question is: If inflation and higher rates are on the horizon, why not just buy a house now while you can still get a low interest rate?”
My answer is twofold:
1) It is far easier to think about creating more inflation on top of record low affordability than to actually accomplish the objective without leading to widespread suspicions that it was not just bad data that fooled you into accidently doing this.
2) The Fed must be aware by now that there is a massive oversupply of housing; the evidence is just too overwhelming. Playing the continued-high-home-price inflation card would only add to this massive imbalance.
IMHO we will live thru both. First lasting the next 2 years there will be 0 -2% inflation (aka disinflation), followed by hyperinflation (100% inflation/5 years). We are already in the stagflationary / disinflationary stage. As the economy slows the Fed will again open the flood gates but instead of the $0.25 GDP return for every $1.00 increase in debt (currently); the next wave will be $0.10 increase in GDP/ dollar of increase in debt. Who will buy our debt? The current account deficit will soon hit 3 trillion. That is a lot of pent up inflation sitting on the sidelines.
Disinflation??? Try grocery shopping today, especially fruits and vegetables. Higher minimum wages are coming sooner rather than later. If the members of congress don’t have a problem with their mortgages, they will have no vested interest in getting involved
Sadly, you may well be right.
David Cee, you are probably correct. As I was switching channels last night, I came upon C-Span. And guess what was on - a panel of economists already planning on raising the minimum wage (now that Dems are going to be winning all of the house seast). The way they spoke was like they had already raised the minimum wage, and taxes.
Personally, I’m hoping for credit destruction and deflation. It really depends on whether the Fed wants to really defend reserve currency status or not and bail out the FBs and Banks (FB enablers).
posted this above, but relevant here..
“Fannie Mae said Wednesday it will not file its 2006 third-quarter report on time, due to a pending restatement of past financial statements. Fannie Mae said it determined financial statements from January 2001 through the second quarter of 2004 should no longer be relied upon,”
ha. Ha. Ha! Hahah!!! LMFAO!!!!!
Fannie is literally the “eight hundred pound gorilla” that everyone ignores.
Nobody knows how much guarantee risk Fannie took on and still retains from loans it has sold.
The home equity market expanded by $5trillion in around 5 years. $3t of that and $3t derivative BS yields $6t. Across 300 million Americans debt equal to ($20,000)each will be abolished?
The pending dollar collapse/correction from stupendous debt default will be interesting to observe. Does the rest of the world really need our markets?
Not when all the dollars that we paid them in start rapidly loosing value.
“But he said bringing inflation back to below 2 per cent in an acceptable time frame would involve not just “better communication” but “likely require actions as well”.”
Lacker appreciates the inflation threat although I believe he underappreciates the spillover effect of the housing bust. Lacker has been gunning for a rate increase however the poor guy can’t get the rest of the voting members to pull their hands out of their pants.
Exactamundo. Some of the non-voting members are on his side, but obviously they don’t count. Yet. (When do they shuffle around the voters/non-voters at the Fed?) Not that there are enough of them anyway to get a rate hike through, but sooner or later, their hand will be forced.
“…can’t get the rest of the voting members to pull their hands out of their pants.”
“…but sooner or later, their hand will be forced.”
sounds like there’s a lot of pocket polo enthusiasts at the Fed. No wonder they keep screwing things up. Too busy with “more important matters”
It seems to me that the market tests every new FED chairman to see if they will take action against inflation (and not just try to talk tough). Lacker seems to understand this and wants the FED to take action now to prove its inflation-fighting resolve to the market, so that they can lower rates later when the data shows the economy is truly in a nose-dive. BB and the other voting members, OTOH, seem to want to avoid taking these steps in the misguided belief that they can simply talk the economy into a soft landing. But, the longer they delay, the tougher spot they will be in as they see data showing stagflation. In which case, they will have to choose between raising rates to stop inflation (which will further weaken the economy but support the US$) or lower rates to prop up the economy (which will lead to higher, more entrenched inflation and inflation expectations, a loss of value for the US$, declining enthusiasm for US bonds, and a risk that the US$ loses its position as the world’s reserve currency).
Better to raise rates now to prove to the market that you will fight inflation, then deal with the weakening economy later.
The dollar is already on shaky ground as the world’s reserve currency. UAE, Russia, Australia already are divesting away from the dollar. Who knows what China is planning with all the dollars they hold - but they won’t want to stay in anything dollar-denominated if the dollar falls more. OPEC countries already sell in euros as well.
IMO it is only a matter of time before the dollar falls enough to spook investors and central banks enough to withdraw. Then we will have to print lots of paper.
fed clowns are using the same playbook for the housing crash as they did for stock crash.
1) pretend there is no problem
2) marginally address the problem while continuing to pretend it does not exist (i.e. raise o/n rates while simultaneously pour liquidity on the mkt and looking the other way on questionable lending)
3) utilize open mouth policy to obfuscate: “inflation well contained”, “inflation must not get out of control”, “Fed well ahead of the curve on inflation”, “pelosi’s eyes look like they could sling shot out of her head if she smiles”
4) when the inevitable crash spirals out of control start a chain of panic interest rate cuts
5) implement cya program
“pelosi’s eyes look like they could sling shot out of her head if she smiles”
All was going well till this non sequitur? How does she fit in with description of fed behavior?
This is related to the “spillover” part…
Yesterday, a mom at our daughter’s school was talking to my husband about the slow economy and how they used to own multiple spa stores (don’t know if it was baths or outdoor or both). They’ve had to shut down every single store they owned.
As many have mentioned here before, the effects of the housing bubble will be felt far and wide, IMHO.
While I thoroughly enjoy watching housing prices drop to normal levels so that regular folks can buy truly affordable housing, I do not like to see decent, hard-working people get hit by this.
Not to be too tough CA renter, but if these were outdoor spas, PULEASE! Just more crap that Americans don’t need, especially those that need HELOCS to purchase them! Now, if these were indoor, that’s a different story.
They open up multiple stores then shut them all down? Sounds more like ignorance and naive ambition than decent and hard-working. I think of “decent, hard-working” people as ones who don’t get rich in a boom but don’t go broke in a bust either. And we’re a long way from a full-on bust. People who go ramp up in a big way and then shut down are generally bad decision-makers who don’t properly assess risks - not attributes which would automatically qualify one for being either decent or hard-working, in my lexicon.
I don’t know if you can really use those attributes (decent and hardworking) properly in these scenarios. I get your jist on this, but I would say they just have lousy business judgement. Retail luxury item stores are notoriously difficult to succeed with . This is why I’ve steered clear of the plethora of stupid franchise opportunities that seem to abound during booms/manias since there is so much liquidity seeking returns.
This development is right across from my home. they have been pushing dirt for a year now. I doubt this ever gets fully developed.
sorry, didn’t post the link correctly…
http://www.khov.com/Home/CA/20160/_Properties_AUTH.htm?Region=CASCRM&Brand=KHV&Search_Type=Communities&State=CA&PerPage=25
“Class-action lawyers are ready to pounce on payment-option adjustable-rate mortgage lenders once resets and delinquencies start to pile up in the second quarter of next year, according to an industry litigation attorney.’
——————————————————————————
What a country! I never thought I’d be rooting for the lawyers.
Why root for them? They are representing a group of people that should have known better but were too greedy to see past their nose. Here’s a case where you root for this to happen, hope both parties spend millions in court, then the defendants win.
i agree… unless there was out and out fraud id say you found your way to the lender and you signed on the dotted line, now deal with it.
Even though I have friends who I know are going to be hurt from this, I also agree that it is their fault. If they didn’t know what they were getting into, then they should have read what they were signing or hired a lawyer to explain it to them.
People make mistakes, especially if there is a chance to “get rich quick” - but they have to be prepared to pay the consequences if they mess up.
What a conundrum…root for the greedy/sleezy mortgage providers against the greedy/sleezy and/or greedy/clueless borrowers and their sleezy/greedy lawyers and their Real Estate Mortgage Class Action Full-Employment Act of 2007. How about what’s behind door number two: Tort Reform/Conservative Lending Standards/Banks Retain Loan Portfolio. Nah…that would make too much damned sense.
Lennar says Chairman Robert Strudler has died
By Gabriel Madway
Last Update: 12:57 PM ET Nov 8, 2006
SAN FRANCISCO (MarketWatch) — Lennar Corp.
LEN ) said Wednesday that Chairman Robert Strudler died yesterday in Houston. The cause of death was not disclosed. Strudler had served as Lennar’s chairman since December of 2004, after having previously served as the Miami-based homebuilder’s vice chairman and chief operating officer. “Bob Strudler will be deeply missed by the many thousands of Lennar Associates who knew him personally,” said Stuart Miller, Lennar’s president and chief executive, in a statement. “He was simply one of the most inspirational men I have ever met, and Lennar has been graced by his presence.”
Maybe he is on the “island” with Kenny Boy!
LOL
Are you suggesting that Kenny was Layed to rest somewhere in the tropics
No, not “layed,” LAY. As in Leslie Appleton-Young.
What’s really stunning is the magnitude of the year-over-year declines in new orders that we’re seeing. I mean, TOL yesterday said Q4 orders were down roughly 57% YOY, net of cancellations. That compares with 48% in Q3 and 34% the quarter before that. BZH went from -16% YOY to -58%. Then you’ve got smaller builders like Orleans saying orders are down 58%.
What I REALLY want to highlight, however, is how my state of FL is absolutely ground zero of this bust. BZH broke out FL orders only in its report — they plunged 90 freaking percent YOY. Orleans says it generated 100 new orders in Florida in the September quarter. Do you know how many FL orders it had in this most recent quarter? 2. Yes, that’s a 98% decline. WCI reported net NEGATIVE condo/tower orders (its operations are mostly in FL).
Things are truly, truly a mess here.
http://interestrateroundup.blogspot.com/
So are you saying that you are expecting the builder share prices to rally after today’s blip? There has never been a better time to buy these stocks…
That should have read:
Orleans says it generated 100 new orders in Florida in the September quarter LAST YEAR.
Ouch, I was just looking at the Beazer numbers, specifically their SEC Filings on their corporate website. Worrisome, to say the least. As pointed out above, FL was the worst, total disaster ahead; but other regions were also getting hit hard.
Interestingly, the Beazer numbers ould still at first glance seem to be holding up well:
Region 2006Q3Closings 2005Q3Closings
West region 1,741 1,714
Mid-Atlantic region 654 695
Florida region 899 1,002
Southeast region 1,471 1,382
Other homebuilding 1,646 1,546
Total closings 6,411 6,339
Deson’t look disastrous at all, does it? But that’s the closings they are working off now. When it comes to future work, the picture changes drastically:
Region 2006Q3NewOrders 2005Q3NewOrders
West region 417 1,200
Mid-Atlantic region 209 434
Florida region 70 696
Southeast region 541 1,313
Other homebuilding 827 1,294
Total new orders 2,064 4,937
That’s not looking too good at all (as an understatement!), and for investors that’s probably the forward-looking numbers you’re interested in. Oh my gosh, we haven’t even mentioned profit margins. Aiiiiiiieeee!
On my way to Fla. Let’s see what I can rent cheap. WHOOPEE
Homebuilders becoming the new airline industry?
“What I REALLY want to highlight, however, is how my state of FL is absolutely ground zero of this bust.”
Don’t sugarcoat it Mike. You know the party just kicked-off. The Grim Reaper is enthusiastically preparing to feast on FB souls. Before this is all over Florida will be declared a disaster zone.
From the ABS article:
“Cash issuance is becoming less relevant to the overall business as we see synthetic volume reaching an average $1.0 billion a day,” said Colonna. “The market has certainly changed. You may have a down year for cash issuance but a very vibrant year for synthetic trade,” said Colonna.”
Can someone please read through the article and give a simple explanation of what the above means. I have an idea or two however the above passage is beyond my comprehension. Thanks.
The stock bubble burst, it was replaced by the housing bubble. Housing has burst, and the new bubble is…………………
……………………….
…………………………..
The class action suit bubble… get your lawyer now before you are priced out forever. With the Repubs out, the War bubble will end .. sell your Haliburton stock now.as well as your funeraql home stock
(What’s really stunning is the magnitude of the year-over-year declines in new orders that we’re seeing. I mean, TOL yesterday said Q4 orders were down roughly 57% YOY)
I’m amazed they are getting any orders.
(BZH broke out FL orders only in its report — they plunged 90 freaking percent YOY. Orleans says it generated 100 new orders in Florida in the September quarter. Do you know how many FL orders it had in this most recent quarter? 2. Yes, that’s a 98% decline. WCI reported net NEGATIVE condo/tower orders (its operations are mostly in FL).
That’s more in line with my expectations.
Not to be outdone by Toll, Beazer, KB, etc. Centex has come out with its own announcement!
Centex CEO says housing downturn to play out more
By John Spence
Last Update: 2:22 PM ET Nov 8, 2006
BOSTON (MarketWatch) — Centex Corp. CTX ) Chief Executive Tim Eller speaking at a UBS-sponsored investor conference Wednesday said judging by previous housing downturns, it normally takes about two and a half years from the peak to the trough. “So we still have further to go” since most experts place the top of the housing boom in July 2005, the CEO said. He called the decline “supply-driven” because speculative investors, who were most active in coastal markets, tried to take profits when home affordability became squeezed. Also, potential buyers are having trouble selling their existing homes and are canceling, which is creating more inventory and drove price declines, Eller said. “In hindsight, we didn’t take our foot off the gas pedal soon enough,” he added.
Evidently there is a big HB industry conference in Boston today. Based on the press releases looks like those guys are crying in their beers!!
how can the stock market ignore or discount these numbers ?
are we wrong?
The HB stocks are getting punched out today, right after the election. Very curious, how this Wall Street gang works.
Will Crammer take credit for calling this plunge?
Now that there is no hiding the bad news, look for the HBs to continue to outdo each other with bigger and greater write-offs. The classic accounting technique now is take all the markdowns, non-recurring expenses, and write-offs as quickly as possible to bundle all the bad news into a short a period as possible - I’m thinking the HBs are hoping two or at the most three quarters. A few will fall by the wayside but the better-managed will emerge - smaller and bloodied, yes, but leaner and still fighting.
I don’t follow the group, but this is the point in the cycle where the management team makes all the difference. Other things equal, buy the ones in which senior management has a big stake in the company and sell the opposite.
Addendum to above (deleted 1st sentence paragraph 2):
Wall Street understands this, so don’t expect shockingly bad financial results to be followed by equally shocking (or even shocking at all) drops in the stocks.
Paul in Jax,
Were you offering the same sage advice on the tech stocks back in early 2000? Or is it “different” this time?
Oh, I get it, GS. Anybody who doesn’t think all HBs are going bankrupt or going to zero is a troll. Also, don’t dare suggest that all HBs aren’t exactly the same.
I guarantee you I was more bearish and more correct than you on tech stocks in 2000.
The bubbles (1) tech stocks & (2) residential housing PRICES. This “advice” has nothing to do with the comparison of the bubbles. Do you even know what the pricer pattern of housing stocks is over the past couple years, what the balance sheets look like, or how incredible the earnings have been relative to how high they got (I’ll clue you in - think OPPOSITE of tech stocks)?
You’ve seen me on here enough to know the gist of my posts. I bring more ammo to the table than most.
Very lame, GS, very lame.
I agree. I love Fannie and Freddie Mac since they are money making machines. The tech stocks did nothing but burn cash. These co’s generate buckets of profit.
“Very lame, GS, very lame.”
Thanks so much for enlightening me, sensei.
GS - You’ve got a quiver full of arrows and nothing else. You come back at me with your analysis or I’ll fire at you everytime you respond to me.
Here, I’ll say what I said in a slightly different way:
You can wipe out 50% of the net worth of a TOL or LEN in the next 3 months and the stocks wouldn’t fall but a fraction of that, maybe 10%. Some HBs will go bankrupt. Others (like JOE) have already made their move and are already out of the woods.
Stocks ain’t the housing market. I’ve just done a comparison of inventory to net worth ratios to see which home builders are in the position of having to be most aggressive with pricing. Things like that can make for an interesting discussion, but you could care less - you just want to run around firing off your cannon.
Of course, for great seers like yourself, who know nothing about financial or stock analysis and who thinks there is some magic Wall-Street-puppet-in-the-sky who sets the daily prices, nothing but a 100% wipeout of all the HBs is acceptable, and anybody who thinks any housing-related entity can survive through superior management is just an idiot.
To paraphrase John McEnroe taling about Ivan Lendl, I’ve got more understanding of markets in my little finger than you have in your whole body - and that ain’t saying much.
Paul in Jax –
I have something else which you and many other data grubbers seem to lack, which is the ability to see the big picture. For builders, the big picture is that nobody in their right mind would buy a McMansion when prices are falling. What else is there to say?
“Housing price collapse in two years”
http://bakersfieldbubble.blogspot.com
Enjoyed the post although I couldn’t get my “(TM)” going on over at your blog. LOL (TM)
My low-budget blog does not offer the (TM) service
Crispy (TM)
“http://www.centralvalleybusinesstimes.com/stories/001/?ID=3501″
Check out this new article-it is exactly how I feel. It says that we have not even seen the bubble probles yet-wait 2 years.
Totally agree. I find it sort of hilarious when Realtors(tm) call this the bottom of the market. They’ve got to be kidding. It hasn’t even *started* to go down yet. Apparently we live in a world where people think bull markets last years and years, and bear markets are a matter of months. Real estate has a long, and terrifying fall in front of it. Things are going to get worse. And then they’re going to get worse. And then they’re going to get worse. A return to a climbing market won’t happen for several years.
I am very interested in the inflation/deflation debate. I mean, really, your financial planning is going to be quite different for these two conditions! It is pretty easy for me to see how deflation could occur via popping of the credit bubble. However, I find the inflation scenario more confusing. There’s lot’s of talk about lower rates (although it is not clear to me this would help after the bubble has already burst) and “helicopter Ben.” But, as a central banker, how do you make sure inflation gets to wages? So you can print money or expand credit, but how do you get that money to wages given other forces pushing wages down. After all, many people have been talking about all the liquidity sloshing around and ending up in bubbles. It didn’t end up in wages then. I don’t have a business training and this really confuses me. Is this straightforward or is this a point of uncertainty even for economists?
“your financial planning is going to be quite different for these two conditions!”
This is true, my own speculative portfolio includes 5% physical gold, another 10% GLD as a hedge against uber inflation, but I also have 50% essencially at cash in money market for deflationary case. My point is that one can defend against the various possibilities, it’s just not possible to win at all of them simultaneously.
So it is financial survival then.:) Last year I took it upon myself to start selfeducating about economics. Earlier this year I became interested in buying a house for the first time (one of those elusive first time buyers) and so started educating myself about the housing market and loan industry. I am generally curious about things. Wow, what a dispiriting eye-opener! Irrationality, corruption, greed, and general mismanagement of the economy. Talk about losing faith in the system! That was when I first bought some gold and started holding cash in addition to the more standard investments; but I felt a little silly about it, like some kind of conspiracy theorist. It is comforting to see people as concerned. Then you read some history:
“All safe deposit boxes in banks or financial institutions have been sealed… and may only be opened in the presence of an agent of the I.R.S.”
- President F.D. Roosevelt, 1933
Doh!
That was when I first bought some gold and started holding cash in addition to the more standard investments; but I felt a little silly about it, like some kind of conspiracy theorist.
Better hit a couple gun shows and pick up some wares.
First thing in a civil upheaval will be the suspension of firearm sales.
Alarmist?
Go ask the denizens of LA after the Compton riots started.
Unfortunately, the really good stuff isn’t legal in CA.
Gold took it on the chin yet again today. I’m waiting to see when the support level of $560 will be breached.
Or $1,000, since inflation is the way to go.
It is a point of uncertainty. What you just said is about as good as any economist explanation I have seen.
Your best source on this subject IMHO is Paul Kasriel at Northern Trust. He’s not part of Team Wall Street’s pump and dump mafia, and his presentation on housing is one the most cogent and persuasive I’ve seen anywhere. The link below will take you to a PDF archive of his research; the March 30, 2006 piece on “Targeting Inflation” will give you a perspective on the prospects for deflation vs. inflation. Also be sure to read last Friday’s missive on housing: it is the quantitive counterpart to the story that Ben Jones has been tracking anecdotally here.
http://www.ntrs.com/pws/jsp/display2.jsp?XML=http://web-xp2a-pws/content/pages/nt/0601/1138283681241_6.xml&TYPE=http://web-xp2b-pws//xsl/interior.xsl&dc=250
Thanks.
Personally, I lean toward massive inflation (after a brief period of deflation), due mainly to a domino effect of investors/central banks losing faith in our economy. I see the dollar as losing its prestige as the reserve currency of the world. Admittedly, I am from the “gloom and doom” camp with regard to the economy.
Roubini has some interesting ideas, as do the guys at itulip.com and the daily reckoning.
I don’t think that we are going to stay status quo, with very slow, manageable inflation. I’d bet that we will see either deflation or big inflation. Personally, my portfolio is betting on inflation.
The question comes down to banks. I don’t mean federal reserve banks, I mean local banks. When you look at cash reserve levels, even after the recent policy requirements of higher holding levels - banks are still incredibly unprepared for a wave of loan defaults or worse: for a run on the banks. Inflation is the only thing that will save them in those circumstances. Its definitely a tough call — but my feeling (and the historical scenario) is that the Fed preserves the banking system at all costs. And that means inflation.
Furthermore — Bernanke is a student of the Great Depression. He knows better than anyone that deflation is the worst thing of all.
Inflation won’t mean didly for the amount of reserves. Banks will still not want to hold one cent more than the required reserve amount. They are not making money/losing money when they have money sitting around above the required reserve (that established by law or what they have run statistics on to figure out the demand for cash during certain times of the year or week).
Inflation of the money supply is done to a large extent by banks. That is actually one of their purposes. However, they were supposed to have checks and balances against running amok. 20% down would add protection from a run on the bank. At least if the owner defaults, the bank can sell and the loss is the 20% down part.
Yeah, all that has gone out the window. Same thing has happened during massive busts in the past. History repeats because people forget. If they didn’t forget, history wouldn’t repeat. Fractional reserve lending is great in theory. Hell, socialism is great in theory. It only gets totally out of whack when humans get involved. Greed and fear will nail ya every time.
It only gets totally out of whack when humans get involved.
Quote of the day!
Any thoughts on home furnishings? I am in the process of a redecoration and am buying new furniture. Would it be prudent to wait? The stores all seem to have the usual amount of traffic. I could probably get a great deal on a used bedroom set from a FB.
Check out Craigslist. Furniture is like cars, you pay a lot and sell for little.
Ditto. Make a list of all the things you want, and then hover like a vulture over the craiglist listings. We bought a $2000 solid cherry sleigh bed for $150 last year.
http://www.craigslist.com There are a ton of FB’s leaving their homes behind and dumping furniture.
“Any thoughts on home furnishings? I am in the process of a redecoration and am buying new furniture. Would it be prudent to wait? The stores all seem to have the usual amount of traffic.”
Furniture has the worst resale value and the highest markup. Be patient and look for deals. If you’ve got cash, you position to get a great deal will increase rapidly as the bubble continues to deflate. If you can wait awhile, you’ll get an incredible deal.
DOC
Hey everyone. I live in Sarasota Florida, which is one of the epicenters of bubblemania in Florida. For those who may not be aware Sarasota is just south of Tampa/ St. Petersburg. Sarasota is showing signs of buyers being at a standoff with sellers. Builders are still building here. Some builders are failing as have been noted before in articles posted here.
I liken the situation in Sarasota to the Titanic after it was hit by the iceberg. Initially, for a while, the ship did not sink. Many on the ship believed that it would not sink. I dont think that we have reached the point in Sarasota where the sellers realize that the ship is going down. I believe that the buyers still think that they will “somehow” be saved from the fate that obviously awaits them.
The phrase is they are “still arguing over the deck chairs on the Titanic”
I thought it was “rearranging the deck chairs”?
T.J. Yes. “rearranging the deck chairs” is the adage I was searching for. Thanks!
And the first boats weren’t full, because they couldn’t get enough passengers to abandon the imagined safety of the ship for a small boat in the cold, dark North Atlantic.