“Conditions Not Seen In Many Years”: CEO
Some housing bubble reports from Wall Street. “D.R. Horton, the largest U.S. homebuilder, said Tuesday that quarterly profit fell 51 percent as orders declined, but results topped forecasts. Net sales orders for new homes fell 25 percent to 10,430 from 13,950, while the dollar amount of these orders fell 33 percent.”
From MarketWatch.”The latest quarter included charges of $142 million, or 28 cents a share, covering inventory impairments as well as $57.2 million, or 11 cents a share, covering write-offs of deposits and pre-acquisition costs related to land-option contracts that the builder doesn’t intend to pursue.”
“During the conference call Tuesday, D.R. Horton’s management said the company’s cancellation rate rose to 40% from 29% in the third quarter, underscoring the pullback in the housing market. Gross profit margin on home-sales revenue in the fourth quarter before inventory impairments and land-option write-offs fell to 20.9% from 25.4% a year earlier.”
“‘This decline was due primarily to core margin deterioration resulting from a lack of pricing power and increased use of sales incentives relative to last year,’ said CFO Bill Wheat. The company is focusing on further scaling back its inventory, the CFO added.”
“Fellow builder Technical Olympic USA Inc., meanwhile, said it swung to a third-quarter loss of $80 million, from the profit of $70.3 million it generated in the same period a year earlier. The Hollywood, Fla.-based company said the results included $203.9 million in charges resulting from the write-down of assets including investments in joint ventures, write-off of deposits and abandonment costs, and inventory and goodwill impairments.”
“The company said its gross profit margin as a percentage of home sales dropped to 17.3% in the third quarter from 27.6% a year earlier. Technical Olympic revised its 2006 profit outlook to a range of $62 million to $72 million on the expectation of ‘continued difficult market conditions.’ CEO Antonio Mon said the forecast does not include additional impairment charges or deposit write-offs.”
“Land sales gains (excluding $20.0 million of write-offs of deposits, abandonment and impairment costs) recorded during the third quarter 2006 were $1.1 million compared to $29.9 million in the prior period.”
“‘These results reflect the continued deterioration of conditions in most of our markets throughout the third quarter,’ said Mon. ‘The record level of inventories of new and existing homes combined with diminished buyer confidence has created housing conditions not seen in many years. Our weaker markets continue to experience similar patterns of lower traffic, increased cancellations, higher incentives, and lower margins.’”
“Home sales gross profit was impacted by higher incentives and $29.8 million (or 500 basis points) of asset impairments recorded in cost of sales for homes. Incentives per delivery increased 180% to $22,400 in the third quarter of 2006 from $8,000 in the third quarter of 2005.”
“The Company’s unconsolidated joint ventures reported a loss of $119.4 million for the three months ended September 30, 2006 primarily due to impairment losses of $143.6 million related to the Company’s investment in the Transeastern joint venture and $4.8 million relating to the Company’s investment in a Southwest Florida Joint Venture.”
“Home Depot Inc. on Tuesday reported a 3 percent drop in third-quarter profit, and sharply cut its forecast for earnings growth this year as the U.S. housing slowdown crimps spending on big-ticket projects.”
“‘I don’t think we’ve seen the bottom yet,’ Home Depot Chairman Robert Nardelli said. ‘I don’t see anything that suggests it’s going to get significantly better in ‘07.’”
From Origination News. “Fieldstone Investment Corp., Columbia, Md., has reported a loss of $45.0 million for the third quarter, compared with net income of $23.0 million a year earlier. The company, structured as a real estate investment trust, is the parent of nonconforming lender Fieldstone Mortgage Co.”
“Michael J. Sonnenfeld, CEO, said the loss resulted from increased reserves needed to cover delinquencies of the newer loans in its portfolio and continued market pressures on sale margins.”
“Servicing initiatives include accelerated intervention on delinquent loans, engagement of a delinquency- and loss-mitigation monitor for 2006 production, and elimination of high-delinquency products. ‘We have not reduced our credit quality nor changed our pricing discipline to increase originations, and we have eliminated the lowest-credit, highest-risk loans from our guidelines,’ Mr. Sonnenfeld said.”
Countrywide Financial has this quarterly report which shows a decline in net income, even though gross revenue rose more than $2 billion! And what is that ‘other’ expense of $2.8 billion?
‘Homeowners have been tapping into their home equity to get the cash needed to pay down credit card debt incurred not for luxury expenses, but for basic needs. Households cashed out $715 billion worth of home equity between 2001 and 2005. In the three years between 2003 and 2005, owners extracted $150 million more in equity from their homes than they did in the previous eight. Between 1973 and 2004, average home equity actually fell — from 68.3 percent to 55 percent. In other words, Americans own less of their homes today than they did in the 1970s and early 1980s.’
‘Retail sales fell 0.2 percent after a revised 0.8 percent decline in September that was larger than originally reported, the Commerce Department said today. ‘It confirms the fear the slowdown in the housing sector is filtering through the retail sector,’ said Matthew Strauss, senior currency strategist at a unit of Canada’s biggest bank by assets.’
So lets see what the markets do on all this cheery HB news. Who’s up for a bounce?
Well, the markets overall are down, but Horton is up. Odd. I wonder if it is the company buying back shares. What I don’t understand is the positive spin put on the higher than expected closings last quarter. Okay, good for D.R. Horton, but that is in the past. At the same time they were closing, another one or two buyers was cancelling. This cancellation trend seems to be on a roll, and the future is what counts, right? Incentives are increasing as well. This is driving through the rear view mirror.
If I was a company about to release bad news I would start buying right after the press release and force anybody with weak nerves who was short to start covering. Then you sell back into their shortcovering and your stock looks like it bottomed on the news. Repeat as necessary.
“Well, the markets overall are down, but Horton is up. Odd.”
Some homebuilding investors are giddy by the prospect of rate cuts as as a result of today’s PPI reflected in treasuries. Check back in a year when write-downs subtract a substantial portion of homebuilder book-value and sales are still declining or at best stabalizing.
P.S.,
I neglected to add by then the economy will be in full recession.
Moreover, if DL thinks the 24 pct ‘hot boom’ housing markets are not going to have a marked effect on GDP, he is out of his mind and should stop calling himself an economist. The mid-west is already in recession as a result of the auto industry and the ‘hot markets’ contribute a substantial portion of GDP. If they go, so will the rest of the economy. Remember, Florida is slipping; likewise, California will too.
Lastly, this ‘write-down environment’ further demonstrates the problem with homebuilder acquisitions at this juncture: If you acquire today, you will be acquring assets that are falling in price. Similar to GFs, you will be catching a falling knife.
Maven,
“I neglected to add by then the economy will be in full recession.”
I agree fully. I hope that those who post here will come through this mostly unharmed.
As for the GFs who propogated this, tough luck.
I’m glad I stuck to my plan and did not buy more Puts. I am waiting a little bit longer. Maybe before Thanksgiving and maybe after. Soon, but not now.
WCI up 10%!!
Ryland Group is up 5.7% but get this
WASHINGTON (AP) - Icahn Management LP on Tuesday disclosed new holdings in Hilton Hotels Corp., Cyberonics Inc. and WCI Communities Inc.
In a report for the quarter ended Sept. 30, billionaire Carl Icahn’s money management firm also reported eliminating holdings in Transocean Inc., BJ’s Wholesale Club Inc., BKF Capital Group Inc., Cimarex Energy Co., Symantec Corp., Pioneer Natural Resources Co. and Ryland Group Inc.
Well, now………all the HB’s are up.
Horton which announced a 51% decline in profits is UP almost 10% because they beat forecasts.
People are incredibly stupid. So what………they “beat the number”. The number was terrible.
Anyone can play this game……..a 5 cent earning on a $25 stock is nothing…..but Oh! they made 6 cents…all hail Caesar!
I hear heavenly choirs !! Stop the presses !
Better jump in on this one or………..be priced out forever!!!
Don’t you know anything. The traders are all snorting crystal meth. The second the least bit of good news comes out, they all act in unison and bid the price up on everything. A drug induced spending spree.
This is only the beginning of the pain for REITS, homebuilders, and the mortgage companies.
Lots of bad loans made that are going to work their way through the system the next few years…a LOT of those starting in 2007.
SoCalMtgGuy
http://www.housingbubblecasualty.com
No matter how they spin the news, or manipulate the stock price, Joe 6-pack with $12.00/hr wage, together with the realtors, flippers, dreamers, they are all heading toward foreclosure.
It may not be quick, but it is certain.
“Retail sales fell 0.2 percent after a revised 0.8 percent decline in September that was larger than originally reported….”
Here we go again with the opportunistic revisions.
You can fool some of the people…
ben, you hit the nail on the head. I imagine that there are a large number of FBs who use the house ATM for day-to-day needs. how else can the US have a NEGATIVE savings rate (-0.2%). Last time there was a negative savings rate was during the Great Depression…
sobering thought abolut how this may end up….
“Between 1973 and 2004, average home equity actually fell — from 68.3 percent to 55 percent.”
I recited these #’s to a housing cheerleader and he said it’s because of all the first time homebuyers that entered the market over the last few years. I countered with the fact that there are ten of millions of boomers who are coming into the home stretch of retirement that should have complete or near complete ownership of their home that should negate those first time buyers. He stammered for a bit and then went away.
What happens to the percentages of home equity when the prices come down?
Try 10 years of pain.
“Homeowners have been tapping into their home equity to get the cash needed to pay down credit card debt incurred not for luxury expenses, but for basic needs. ”
There’s a reason for that “old-fashioned” advice of keeping your morgage to 2.5 times income. How can you fund retirement and keep a savings cushion if your housing payments eat up most of your money?
20% percent down loan vs 5% would be a change of 15% so no surprise there.
“D.R. Horton, the largest U.S. homebuilder, said Tuesday that quarterly profit fell 51 percent as orders declined, but results topped forecasts. Net sales orders for new homes fell 25 percent to 10,430 from 13,950, while the dollar amount of these orders fell 33 percent.”
So…naturally…DHI is up 7.3% ?
“‘I don’t think we’ve seen the bottom yet,’ Home Depot Chairman Robert Nardelli said. ‘I don’t see anything that suggests it’s going to get significantly better in ‘07.’”
Someone needs to tell DL this !
Do you think he will still claim ‘it’s a good time to buy’ when we are in recession?
Do you think he will still claim ‘it’s a good time to buy’ when we are in a depression?
Curiosity has got the best of me…
What has attracted you to this blog and the housing bubble, in general?
For my wife and I, we bailed out in aug 05′ and are just watching from the sidelines, as it all falls apart. We aren’t fence sitters, bought a house in a great area, far away from the maddening crowd and the bubble did us good, having bought our house in RPV in apr 01′… (timing was of utmost importance compared to location, in this giddy runup, we got lucky)
What’s your story?
This thread was earlier this week. Scroll down and you’ll find all our stories.
aladinsane,
We just did this one on saturday or I think it was sunday. Everyone shared their stories.
I’m sitting on the sidelines in California’s south bay. I looked at the market when I got here in 2000 and said “WTF?”. Since then things took off and I told people in 05 we were at the peak and it would be all down from here. I tried to get everone I knew with a house to sell to no avail. I’m trying to decide at what point to step back in and find a place I want to live in. Considering what I’ve read in C.H. Smiths site and here it might be never. Right after this all begins to wind down the baby boomers might begin to flood the market with their houses. So, I’m sitting tight and investing elsewhere.
Renting 2/1 house in harbor gateway (old torrance) for 1300 per month. Solid positive savings every month. Trying to reign in the wifes spending though.
Trying to reign in the wifes spending though.
Cry me a river. We could start a whole nother blog on that topic. You sir, are not alone.
Question. I am tracking an area north of Tucson & I go to the Pinal County’s site to see what owners & flippers paid for their homes. Is there anyway to find out what kind of suicide loans are on these propertys? Yesterday someone from New York posted a service that gives some of this information. Is there some way either free or paid to get the info?
Thanks for any help.
Chris
Mortgages on all property here in FL are recorded at the County Courthouse and are readily available online.
I was recently forced to move from an apartment complex ( outtastate flippers bought it and then ransomed the rent up 20% to make their “fortune” as the leases expired…) Anyhow, I came to find out that they bought the complex ( 12 units ) WITH NO MONEY DOWN. Used a bridge laon to get the 20% down on an ADJUSTABLE RATE COMMERCIAL LOAN. Never heard of such a thing….but when I pencilled out the carrying costs they will have to double current rents when the rate adjusts in 2009.
So….I found the County Courthouse online to be very heplful when “choosing my new landlord”.
Found a sweet triplex within 1000ft of an elementary school on a cul-de-sac next to the lake. Owners are long time pro landlords who bought the place in 1975 and hold the title free and clear. My rent subsidizes their retirement and I am happy to do so for such responsible investors and nice people. My rent is $ 600.00 a month for a 950ft2 2bdr/1-1/2 bath with a nice shady backyard and a place for my boat within 50 yds of the lake.
It was hard to find, but I did my homework and waited for the right opportunity to break my lease on the old flippered ARM apartment ( they were starting to let Sec. 8’s in ) and move into a nice, comfy stable place in a decent neighborhood.
There are some GREAT rental deals here in Central FL, but you better do your homework and be sure the place you want hasn’t been flippered, ARM’ed, and is ready to foreclose….else you may end up on the street when the greedy flipper landlord’s dreams come crashin’ down.
BTW…at the old Flippered apartment my Moment of Ephiphany came when the little Indian guy that “owns” the place drove his 1992 Nissan all the way down from Upstate NY to do a cleanup and re-tile the kitchen floor when some old tenants moved out.
Turns out that he didn’t want to pay the price for having the property management company have their handyman do simple clean-up and a small tile job.
“THIN MARGINS”
Les Pendens,
I have started checking sarasota county properties on the county courthouse site. Im not so savvy as you are though. I can find appraised prices, and sale prices. But I dont know how to determine if they are flipper owned or by legit people. I also dont know how to tell what kind of financing they have like you know how to do. PLease educate me with how you are able to figure this out. Since I live in your state i should have access to the same property appraisers websites that you do. Thanks. You may be able to help me when I move to another rental to wait the crash out. My lease is coming due where I presently rent now. I would love to have the knowledge that you explained in your post. Thanks again.
Go to : http://www.polkcountyclerk.net/
Click on “Official Records”. Enter the name of the property “owner”.
Up pops a list of Judgements, Liens, Divorce Decrees….and yes….Mortgages Filed.
Easy
BTW…also helps when you can see if your future landlord to be has a propensity for evicting people. That shows up as well.
Anybody know of a Philadelphia site with that same info?
Example of a Mortgage form Sarasota:
http://www.clerk.co.sarasota.fl.us/oprapp/cache/90041945.pdf
Go and get it Cap’n !!!:
http://www.sarasotaclerk.com/default.asp?Page=97
Oh my gosh. Thank you Les Pendens. I ‘m up tp speed now. Im like a kid with a new toy. This is great. Thank you.
http://www.sarasotaclerk.com/default.asp?Page=97
A Mortgage:
http://www.clerk.co.sarasota.fl.us/oprapp/cache/90041945.pdf
How do you find what someone ows or what type of mortage they have? what kind of information do you need to have?
1) Owners name.
2) County that property is situate in.
3) Web address of the Clerk of Courts for your county.
4) See my example above.
And go lookin’………..
I think all this stuff is available for most of the Florida counties online. I know it is for Orange, Polk, Hillsborough, Pinellas, Sarasota, etc…you know, the bubbly Florida counties
Also try netronline.com you can lookup a lot of real estate information by the State, but you will need to know the county. It also has a county lookup zip city name and zip code.
OT:
The End of Education Arbitrage
“I am often writing about endings, because I love beginings. One of the endings is a system whereby houses were used as retirement investments, and education arbitrage used to artificially drive housing prices. when 25,000 of property taxes don’t get you a quality school it is handwriting on the wall time for a system that has been in place for 30 years, and which gave us a large portion of the Reagan Revolution.
“Or as we used to say at Currier House: “You know you have it made when you have a house in the suburbs, so why don’t I feel so good?”
“Here is how the system worked. Buy into a new community with low property taxes byt good growth potential. Stay as the schools improve, driven by the success of a large wave of upper middle class students being infused into an exurban environment.
“Schools “improve” in outcomes, because the input students are now professional scions who are less likely to be allowed to fail. Housing values go up, development expands, jobs are created. Sell house. Often get a divorce at the same time, but either way, the cash out means a big advantage in moving to a place which has lower taxes, no educational system to speak of, and therefore much lower property values. It is education arbitrage.
“Unrealized by many there were hidden assymetrical incentive - where players had the ability to, unilaterally, degrade the position of others and profit there by.[...]“
Since access to higher education is the pay off, remove the pay off, or radically reduce its value.
So what would you replace it with? Access to higher education is the payoff in our system. Removing that payoff doesn’t solve the underlying problem, too many people not enough resources. This article is an attempt to solve the problem only insomuch as it is shifting the problem. You won’t remove competition for limited resources, you will just shift it. If its not educational achievement (which is a proxy for earning power) what will it be? In summary if you make education no longer a marker of success, it will just mean that those markers shift to something else. The real question is how do we enable more people to have success?
Josh
All kids should have an equal chance to succeed in life.
Through hard work, parents should be able to provide their kids with better opportunities.
Most people believe in both of those statements. They are mutually exclusive. Tough problem to solve- I don’t have a good answer.
A bit OT, but I had an interesting chat with my realtor (and old friend) yesterday. He’s somewhat realistic about the market and advises patience before we leap into another house. However, he and I argued about whether or not LA would see price declines like the early 1990s again.
His point is that LA is full of rich entertainment industry types who have endless supplies of cash to pay their mortgages.
My point is that LA is full of rich entertainment industry types who SPEND endless supplies of cash to keep up the appearance of having a luxurious lifestyle. I mean, next time you’re stuck in traffic, take a peek at all the luxury automobiles idling along with you. I probably see $10 million worth of BMWs, Mercedes, Lexii, Audis, etc, on my morning commute. And very few of them look paid-for (of course, I’m not sure I can describe what a “paid-for” car looks like — it’s more of a gut feeling).
Anecdotally, I’ve been in the entertainment industry for 15 years, and I can name DOZENS of people who have spent more big bucks than they’ve earned. I know a director who worked nonstop in the 1970s and 1980s, directed and produced probably 25 movies in that period, made millions of dollars in fees, residuals, and points, but two alimonies, a cocaine addiction, and a half dozen lawsuits bankrupted him. He lives in Wisconsin now and married a rich widow who takes care of him in his retirement. In my first year in LA, I encountered a tv showrunner with 20 years under his belt. Started out on the Rockford Files. Probably earned easily $5-$10 million in his career. When I met him, he was in foreclosure with a $30K a month mortgage payment, a $5K/month payment for a Ferrari, and $10K a month in alimony. He went to state prison a year later for laundering $2 million for his drug dealer.
LA is full of very rich people. That is true. But some of those people are too dumb to breathe, much less hold on to their millions. For every sensible millionaire who invests wisely and spends frugally, there’s a dozen MC Hammers blowing big bucks on bling, beemers, and babes.
Anyway, that’s my observation.
“His point is that LA is full of rich entertainment industry types who have endless supplies of cash to pay their mortgages.”
Seems to me as though your conversation could have ended with one simple question: “Didn’t LA have lots of rich entertainment industry types in the early 90s?”
When you’re arguing with a realtor, it shouldn’t take much work to win.
Arguing with a realtor is like arguing with an overly emotional person. They wont let the facts get in the way of their story, and you just cant win the argument even if you are right.
Emotional persons and realtors dont do too good with logic and facts.
Obviously the realtor would not concede victory, but one should be able to very quickly get the realtor to say something along the lines of “Well, maybe so, but it’s different this time”, at which point you know you’ve won.
Was cruzin through el lay a few weeks ago and picked up a real estate mag for the san gab valley and when houses in azusa are worth $500k, something’s definitely wrong in the state of denmark
Where have you been? Go another 30 miles EAST and take a look at Rancho Cucamonga and Fontana. Houses as high as 1.2M and 750k respectively. Drove by some model homes on Sunday in Rancho for homes pre-priced over $1M and there were tons of looky-loos. Not sure what the hell they are thinking.
A friend of mine said last year, that he’d never live in an el lay neighborhood where the houses were worth less than 1/2 a million, because they’d be a bit dodgy.
A few months ago a friend had saved some newspapers from important events and he had the whole L.A. Times from the day after MLK was shot in 1968, and I made a beeline for the real estate section and houses were $10 to $75k, with the odd palace breaking the $100k mark, in bel air or beverly hills.
Interesting reading…
They are thinking when can i get this place for 50% or more off guess what, ain’t going to happen, the banks rather board them up and wait then have a land office sale?
In Simi Valley Cal in a area called Wood Ranch (Regan Library)the same thing happen in 1991 all the homes 500k to 600k no takers, people camp out when the banks put wire around them and thought we are going to steal these places last i heard these people are still waiting. The banks sat on the property for two years and then took the wire down and sold them for 800k and up.
vioviv,
When I get time to “write my book” this is probably my subject matter right here baby! How is it that “successful” actors that had long running and popular TV series get cancelled and 6 months later they’re living in their van? I’ve never believed for a minute that these salaries that are touted to the public are “real”. My guess is everything these stars “own” is property of the studios. It’s bad enough this practice happens in LA but the housing bubble promised we could all become rock stars!
DinOR,
Exactly! You know how the phrase “party like a rock star” has now becaome part of popular culture? It is another way of saying that people have the entitlement mentality.
People are dressing like rock stars, paying high clothing fees, driving high priced luxury vehicles like rock stars, and buying homes like rock stars featured on shows like MTV Cribs.
It has gone so far that now you even see commercials for baseball players like David Ortiz and Albert Pujols inviting you to come watch their show “See How They LIve” and look inside their “Cribs.”
Just 10 years ago only rock stars lived this lifestyle. And from watching the VH1 behind the music TV series It ended badly for just about every single band with a very small exception of bands who are iconic (think rolling stones, led zepplin). It even ended badly for most Rappers as well, again with the exception of a very small handful of iconic groups.
The bands that escaped financial ruin are very small , maybe like 1%. Yet popular culture and the media and advertisers still tells us to consume and party like rock stars. Popular culture is still leading the partying rock star lemmings ( both real and imagined) over the cliff. And the lemmings are gleefully out trying to buy 350 dollar blue jeans, 800 dollar shoes, 500 dollar KIPPY belts, Hummer’s and McMansions. The lemmings will consume till the music stops and the easy credit is done.
“It ended badly for just about every single band with a very small exception of bands who are iconic (think rolling stones, led zepplin)”
It ended badly for John Bonham & Brian Jones.
I happen to work in a government job in LA County that involves looking at a lot of people’s complete financial pictures (no not the IRS). I have encountered quite a few “celebs” and “mega-athletes” whose finances were surprisingly marginal or even decimated. We had a former baywatch babe in our offices the other week and she is not doing well at all. And then there are the Hollywood movie and TV working stiffs, half of whom are unemployed half the year. It is not as lucrative in LA as people think. The stratosphere is very small.
IEfencesitter,
Excellent post. At the same time not all that surprising. You can’t help but read about knuckleheads like Britney’s ex and how he’s already sucking. With the intro of the internet H’Wood has had to drop a lot of the facade but does damage control where it can. I mean for a while there they had so many staged and planted stories for Tom Cruise you’d think the guy needed a cape for crissakes! Saving babies from burning buildings, women from muggers etc. WTF? Why is it within months of these clowns careers “peaking” we find their Bel Air mansion on the market? It’s nothing short of fraud. I realize this is a little off thread but I sense a lot of us here are tired of it too.
In 2007 we’re going to see wave after wave of rock star lifestyles come to an end. Suburban rock stars. Sheesh!
Allow me to shine a light on a little-known facet of the entertainment industry: even the richest of the rich engage heavily in real estate buying and selling as a side trade to their more visible work. A close friend of mine over the years has worked at four or five West Side real estate firms (Coldwell, Keller-Williams, Sothebys, etc.), and he courts athletes and celebrities because they provide a lot of lucrative business. If you read the LA Times Real Estate section on Sunday they have a column on celebrity real estate deals. They often buy for “X” amount and sell 2-3 years later for quadruple the original amount because it has the cachet of having been lived in by someone famous (I know, like any of us here would care but some GFs out there do).
Too true!!! Years ago (pre-boom) the L.A. Times documented how most of the behind-the-scenes types live on the financial edge just to maintain the facade that they’re part of the Hollywood “in” crowd.
you are spot on. 100 % correct. Great post.
LA is full of rich people, but it’s not much fuller of rich people than it was five years ago. It may be true that for the relatively small (even in LA) number of people at the pinnacle of wealth, it wouldn’t matter if Bel-Air mansions cost $3 million, $10 million, or $50 million. Demand at that end of the scale is relatively inelastic.
But that’s certainly not true farther down the scale. Watch the credits roll at the end of a movie. There are a lot more grips, gaffers, assistants-to-Mr.-Crowe, production technicians, etc. than there are stars or producers. Those are the guys who’ve been buying more house than they can afford via exotic mortgages.
And the demarcations among LA’s classes aren’t necessarily bright lines. A B-list actor makes a bit more than a journeyman character actor, who makes a bit more than a middle-of-the-pack writer, who makes a bit more than a production guy, who makes a little more than, say, an accountant, who makes a little more than the next guy — and so on down the line to owners of small landscaping companies, car salesmen, waiters, etc.
Even assuming inelasticity of demand rises with each step up the scale (it doesn’t — professionals often have *less* disposable income than many blue-collar workers, thanks to student debt and the need to keep up appearances by living in the “right” neighborhoods, etc.), the increases of inelasticity are marginal. When rot sets in in the housing market at the bottom of the scale — where people are truly sinking under the weight of unaffordable mortgages — it creeps upwards. A person looking at an overpriced West LA house notices that prices a few blocks south on Overland have fallen quite a bit, and starts wondering whether the difference in what he’ll be getting is worth it. That, in turn, puts downward pressure on the demand for the first house. Rinse and repeat. Slowly, the flood of downward price pressure creeps upwards towards the hills, until even the top properties start feeling the effect.
Thomas,
Thanks for the insider’s view. Much as I suspected and then some. You make a good point with the credits rolling too. All of those people need to be paid. With bootleg movies (and a lot of really bad movies) over the last several years the industry has just now gotten it’s feet back under them.
When some production company has a press release saying they spent a 100, no 200 mil on a picture and the leads all got paid 25 mil I just laugh! You mean these guys that work for publicly traded companies are going to give some kid 25 mil without being guaranteed the movie will gross DIME ONE? I don’t think so. So many flops over the last several years and they kept insisting they were spending major bucks? Please.
I don’t know if anyone’s noticed but a lot of TV shows are starting to have big name people that left sit-coms etc. to make “big budget” movies (that flopped btw) return to the “small screen”. Tells you were the money is doesn’t it?
Reminds me of that Discover commercial - with the 80’s big-hair band “Danger Kitty” playing the Smukler’s Bah Mitzvah to make ends meet. Too funny.
“His point is that LA is full of rich entertainment industry types who have endless supplies of cash to pay their mortgages.”
This is the point so many sorely miss, this statement is just not true and any L.A. native should know this. Very few industry folks are “rich”. Most of them don’t have a pot to piss in. have the collective credit score of a roach and the attention span of a gnat. During the last downturn there were people getting foreclosed on with brand new mercedes in the driveway. I’ve been on listing and loan appt’s in some of those houses in the hollywood hills, studio city, etc etc. Nice house, expensive car and flopping on sparse furniture scavenged from goodwill. It’s all a scam.
“‘This decline was due primarily to core margin deterioration resulting from a lack of pricing power and increased use of sales incentives relative to last year,’ said CFO Bill Wheat. The company is focusing on further scaling back its inventory, the CFO added.”
Sounds like more layoffs are in the works!
O.C. home prices down for 4th straight month
Final October home-selling stats from DataQuick shows the O.C. median price for all residences falling for the fourth straight month, though the drop from September was only $1,000. Still, this marks the longest month-to-month losing streak in DataQuick’s 19 years tracking the market. Selling activity remained sluggish. Sales counts failed to keep pace with last year’s for the 12th consecutive month. The last time a sales slump this long occurred was 1994-95. Here’s a recap by key market slices:
Median price Change vs. ‘05 Volume Change vs. ‘05
Resale houses $665,000 +0.0% 1,685 -22.8%
Resale condos $440,000 +0.0% 655 -34.6%
New residences* $772,000 +10.9% 375 -12.6%
All homes $625,000 +3.1% 2,715 -24.9%
* Includes single-family homes, condos and converted apartments
Here’s the full story…
Housing market leveling off
Median price slips for 4th month in a row but annual appreciation rate notches up slightly.
http://tinyurl.com/ymrm3t
http://money.cnn.com/2006/11/13/real_estate/the_buy_down/index.htm?postversion=2006111315
“People think that the price is what sells,” says Earl Niemoth, founder of Real Estate on the Internet, a Web-based broker in Florida. “But reducing the price won’t help very much. Terms are what sells.”
Email from an IT guy in India. My friend works with this guy in Chennai.
45rs (rupees) = 1 US $
It seems like, they are beginning to see the realestate craziness.
Email Message:
FYI, for all you Chennai folks!
No Sathyam Cinemas, No coffee day, No Barista, No Anjepar hotel, No Ponnusamy hotel, No Mayajaal… (You know where to go and where not to go after reading this mail…) between 16-Nov-2006 and 15-Dec-2006.
Its not just a forward. How many of you are ready to follow this?
Hi,
(below email “Save the IT People from Debts” was wonderful and we should go through it and also forward to all our friends)
Real Estate price hike is known open robbery from IT guys by brokers / whoever it is and it’s not only Flats / Real Estate, IT guys undergo open robbery from all rich shop owners / a person who wanted to become rich as fast as possible…
The salary whatever we get, it’s our hard-earned money, most of the times sitting in the night, away from family functions, friends, etc…but all our money or most of the money are going to someone who just takes advantage of our stressful life (both mentally and physically) and our new western life style.
I do not find anything wrong in having a US / UK life style, but many open thieves (starting from Ministers to our local Restaurant owner) just swindling all our “legal money” and as we do not have any other choice becoming poor / debtor day by day.
Well most of the price hikes are just unbelievable and there is absolutely no justification (few examples given below).
Chicken Biriyani (Karaikudi 3 weeks back) - Rs. 65
Today (since last 2 weeks) same Karaikudi Chicken Biriyani (believe me, there is absolutely no change) - Rs. 78, there is no justification for such a big increase.
Pop Corn (Sathyam Complex) previously (month and half back) - Rs. 20
Today (almost the same quantity) - Rs. 30 (again, i do not find any justification)
Corn in Garuda Mall previously (month back) - Rs20 Small, Rs 30 Medium and Rs 40 High
Now, No “actual” small and real small has become 35 now and 45 for high… [Are they the farmers who have given their blood to grow this ]
(In Sathyam complex, many price hikes are really too much for no reason…)
Chips packet (Gangotree) previously (three months back) - Rs. 15
Since last two Months the same packet costs - Rs. 20 (again, I do not find any justification)
Room Clean (just once) - Rs. 200, that’s bcos they cleaned IT guys room.
(The moment you say that you are from Software company, the price automatically increases…)
We guys already pays big taxes from our salaries and goes on paying other taxes too (starting from Hotel Sangeetha “Vadai” to Scotch in a bar), it’s time to think and pledge ourselves that we stop spending just for one month…
Reason(s) why we should stop spending alteast for a month:
1. 70% of the IT guys occupies the restaurants.
2. 80-90% of the IT guys goes to coffee shop, hang around places, bakeries, etc.
3. Most of the IT guys goes to Sathyam complex, Movies
If we stop going / spending just for a month, their business automatically goes down and they would have no other choice except to bring down the price, that’s what happened when IT industry was down three years back.
Somehow directly or indirectly we are responsible for this unjust price hike and now, only we could prevent this open robberies, please add your comments or experiences and keep forwarding this email to all your known people, I am sure even if 25% of us realizes and acts accordingly, it could and would make lot of difference to us.
(let’s try and prevent unjust price hike)
Save the IT People from Debts
* Property market in Year 2001 -2004 was quiet Ok , People were able to buy Flats in reasonable rates .
*Year 2005 -2006 , Some of the well known builders started the rates boom , flat which was at the cost of Rs.900 Sq Ft now became 2200 to 2800
Q: Are there any additional facilities ?
–> No Same Scheme/Area , Flat sold at 10 Lacks Now selling at 25 Lacks .
Q: Why Property increased so High ?
–> IT people competition to buy sweet home ..
Q: Who is going to Benfit from this Property Boom ?
–> Only Builders and some of the Politicians
Q: How is the Bank’s support on Home Loans ?
–> Last Year , Bank gave the loan’s at flexible mimimum rate,Now Banks has sufficient number of customers ,
(Trap) Slowly Banker’s increasing interst at % 0.5 every month .
IT People Who bought house for 22 Lacks for 20 Yrs , Now became 23 Yrs with raise of 0.5 %
Q. How some IT people can face the problems in Future ?
–> Companies are Project Based , If Projects are not there then People will not be there .
Q. IT salaries are high in Market , How much actually IT-people getting in Hand ?
–> People, Who bought house of 22 Lacks to 40 Lacks They need to pay EMI
15,000 to 35,000 for 20 Yrs. If Bank keeps same interst rates .
Suppose Salary is 35- 40 K Per Month, 20K will be the EmI
Q. Is there any “Terms & Condition or Processes to increase rates” ?
–> No , Depends on Buiders Greediness . Every builder follows the different strategies
Builder sold one flat 1500 Per Sqft in Morning and 1800 Per Sqft in the Evening ,
There are no records maitained ..
Q. Who made builders smart & greedy ?
–> Greedy IT people ..
No body is asking , Flat was sold at 12 Lacks , Why now 24 Lacks ?
Q. Is Corporation water & MESB available to all schemes ?
–> Some of the area don’t have the Corporation water at all , People surviving on Water Tankers.
** MESB .. Under Table ,can be managed easily .
Q. What will be the condition If We are not able to Clear the Loan ?
–> Depends on individual capabilities
Q. What wiil be the actual ‘area of living’ or carpet area if the builder proposes 1000 sft?
….> The actual carpet area will be 800-850 sft only. The common area is also included in the proposal.
If two flats are in the same floor, then the builder cheats both the residents by collecting
How do Builders cheat buyers? … Let us see with a simple example
Builder XXXX proposes a flat in a decent residential area.
Rate ( Unit Price ) - Rs. 3500 sft.
Registration - Rs. 40 per sft.
EB and drainage - Rs. 50,000
Covered Car park - Rs. 1,25,000
Corpus fund - Rs. 50000.
For a 1000 sft flat ( 850 sft carpet area ), the approximate cost will be Rs.37,65,000. In the same plot area ( measuring 2 grounds) the builder would have constructed 8 or 10 flats.
Let us see how a builder earns his profit
Total sales for the builder - 37, 65,000 *10 = 3, 76, 50000 ( 3.76 crores)
Cost of the land - Rs. 40 laks per ground
1) Total cost of the land - 80 lakhs for two ground ——- A
Total builtup area for 10 flats - 10*1000 sft = 10,000 sft
Construction cost per sft ( for normal specification) = Rs. 900 per sft
2) Total construction cost - 10,000 * 900 = Rs. 90,00,000 ————– B
3) Other expenses for the builder - Rs. 20 per sft = Rs. 2,00,000 …………….. C
Total expenses for the builder = A+ B+C
= Rs. 80,00,000 + Rs.90,00,000 + Rs. 2,00,00
= Rs. 1,72,00,000 ( 1.72 crores approx)
Total Sales = Rs. 3.76 crores - Rs. 1.72 crores
Total profit of the builder = Rs. 2.04 crores.
Let us see the share of each resident
1. Cost of land = Divided share among the other 10 residents
= Rs. 80,00,000 / 10
= Rs. 8,00,000
2. Construction cost = Rs. 900 * 1000
= Rs. 9,00,000
3. Other expenses = Rs. 2,00,000 ( approx)
Total = Rs. 19,00,000 ( Nineteen lakhs)
The total share for each resident is Rs. 19,00,000 ( Nineteen lakhs only )
but he pays Rs. 37.5 laks for the flat.
Q. How We can stop Builders -Property Boom ?
1) IT People should think about buying flats for atleast next 1-2 Yrs .
2) Onces rates are reasonable , With some legal process get the Booking .
3) Check Facilities, Convince, Road Approach, schools & Mainly co-operation water
4) Ask Questions If I buy 1/2 BHK at 12 to 30 Lacks , Do I get reasale value in future?
5) Today you are capable for paying 1000 -3000 maintains per month ? Will will be the same case
after 20-30yrs after retirement .
6) In All, Don’t stretch more to get the more & more loans other wise it will create unnecessary
pressure and tension .
7) Read the above mentioned calculation carefully, when you are about to buy a flat pls keep this in mind.
Please read this carefully
Send it to all you know
Act quickly
Save them from debts
We can stop the inflation
That was two minutes I wasted of my life reading that rambling, incoherent collection of math conversions, run on sentences and bad english.
Two minutes that I can never, ever get back…:)
I got it in less than 10 seconds.
I didnt bother wasting 2 sec, saw immediately that it was a waste….but did take the 30 sec to post this
ditto
fyi, a lak is 100K — so a 40 Lak house would be $90K - $100K in the US. seems like the typical salary is around 45000 rupees \ mo or around $1000 US / mo or $12K annually, so the income to house price ratio is around 7 - 8.
I have friends with relatives in india who mention the prices in the IT cities have gotten out of hand.
That was about as intelligent as one of those “don’t buy gas on Tuesdays” email.
“Net sales orders for new homes fell 25 percent to 10,430 from 13,950, while the dollar amount of these orders fell 33 percent.”
Total sales = 75%
Total sales price = 67%
Price reduction = 100- 67/0.75 = 11%. In 3 months???? Not to count the granite counters and the pools.
“‘This decline was due primarily to core margin deterioration resulting from a lack of pricing power and increased use of sales incentives relative to last year,’ said CFO Bill Wheat. The company is focusing on further scaling back its inventory, the CFO added.”
What B school taught him how to make a convoluted and stupid comment like this???
That would be Baylor, where he got his BA. Frankly, I would expect better from a private school. No grad school listed.
http://www.treasuryandrisk.com/issues/2005_09/careers/454-1.html
core margin?
As far as L.A. it is what it is both good and bad. I tried a bad experiment this past year. I left a steady job of six years and took a higher paying job in the south. Housing afordabilty was the main decisive factor. I’ve been here almost a year in S.C. and I will be coming back hopely next year. It is very slow and behind the times culturally with few lifestyle amenities. I use to bitch for years about high cost of living, traffic, illegals, housing never again… It may take me years to wait for housing to correct in So Cal but at least I won’t be in the sticks. I have cash, great credit I can enjoy the diverse lifestyle in the meantime. Wall Street can change the data all they want and paint a rosy economic picture recession next year I’m certain. Added bonus I’ll be closer to my friends and family again.
Where in S.C.?
Sylvie
Yep! Once you have lived in LA or NYC it is tough to go to the farm…. unless you are old and want to croak.
“I tried a bad experiment this past year. I left a steady job of six years and took a higher paying job in the south”- The reason that you’re coming back is because you made 2 mistakes: A- you left for an area you know nothing about, and B: you chose what sounds like a bad area within an area that you- again no nothing about. I’ve done the opposite: I am from ” the South” and have lived in Cali for 8 years.
People in Cali and NY seem to generically lump the south into one giant state. Just like Cali, the south has really crappy areas that aren’t as developed culturally, right along with areas that are the opposite, like Atlanta, Asheville, Nashville, etc etc.
Most people I know who are from Ca and think about moving to th south make one big mistake: They don’t educate themselves about the region and choose the right area that fits their idea of living. All they see are cheap prices and cheaper real estate.If I knew nothing about California and chose only by price, hell- I’d be in Redding, which might as well be the armpit of America.
I also dislike ignorant statements that the south is somehow inferior in terms of culture and progressive ideals. But in the end, if you’re too ignorant to make the effort to find that out yourself, basing your entire decision on one area in a huge region you know nothing about, then feel free to come running back with your tail between your legs.
Prima facie evidence of stock market intervention seems to be growing by leaps and bounds. Can intervention drive an infinitely wide gap between fundamentals and prices? Or will Malkiel’s and Galbraith’s assertions that markets eventually revert to fundamental value ultimately prove true yet again this time around?
A more ominous concern is whether the shock which leads to reversion has to come from the rest of the world when the domestic markets are so heavily manipulated? Sorry to pose such a politically incorrect question…
http://tinyurl.com/y5jc4v
P.S. Before everyone jumps in to accuse me of tinfoil hat fantasizing, let me mention that intervention is only one possible explanation for the bizarre negative correlation between bad news and anti-gravity action in share prices. It could be due to many other temporary factors, including the distortions caused by the hedge fund bubble.