Builder Incentives Cause ‘Entrepreneurial Discontent’
The press is turning its focus to the homebuilders. “Countrywide Mortgage CEO Angelo Mozilo believes that the ‘housing market officially turned south in January,’ according to Banc Investment Daily, and that some overheated markets may see prices plunge by up to 40 percent. Mozilo mentioned Las Vegas as one of those risky markets.”
“But nary a discouraging word was spoken at the Las Vegas Annual Housing Outlook hosted by local title company sales representative Richard Lee and Dennis Smith. But builders I talked to at the Outlook don’t believe Smith’s numbers. They say their traffic numbers are half what they were last year and cancellations are soaring, with the primary reason being potential homebuyers can’t qualify with the higher mortgage rates.”
“Buyers who can qualify are able to play competing homebuilders against each other for free options and upgrades. Builders who have completed houses to unload and the clock ticking on fully disbursed construction loans are evidently bothered. According to one commercial appraiser I spoke with, there is at least one Las Vegas builder with standing inventory that is offering eight per cent commissions to outside realtors who bring buyers to their project.”
“One builder with a project in the busy southwest confided that he dropped his prices $20,000 per unit to compete with the handful of large publicly traded builders that have projects surrounding his. Unfortunately, that move just prompted the big builders to drop prices more. He described competing in that market area as a ‘bloodbath.’”
From Realty Times. “If the full-page ads in my local paper are to be believed, new home demand has begun to flag. The issue is not how many units will be sold, rather it’s the way they’ll be priced. Recent ads have offered new home discounts ranging from $70,000 to as much as $100,000.”
“These new homes are being sold by major builders in one of the best markets in the U.S. The Washington, DC region includes some of the richest areas in the nation by income: Fairfax County, VA (#2), Loudoun County, VA (#3), Falls Church, VA (#8), Howard County, MD (#10) and Montgomery County, MD (#13). If builders are cutting prices in a region known for high household incomes, you have to wonder what’s happening in other population centers.”
“If builders are openly discounting prices, it means they’re competing with recent buyers who now wish to sell. While most owner-occupants tend to hold homes for a number of years, short-term owners include a large percentage of investors hoping to buy-and-sell as soon as possible. The growing number of new-home contract cancellations may well be evidence of entrepreneurial discontent. Speculators may prefer to lose a deposit than to close on a home that costs money to hold each month.”
“Speculators in the past few years have routinely thought of new homes as sure-fire investments. If discounts mean the flames have gone out, then a lot of builders, and a lot of speculators, will have a tough time ahead.”
“Dustin and Rebecca Snook believe they could have listed their North Las Vegas home for more, but considering softening conditions, were prepared to compromise. The decision appears to be paying off. ‘We thought we should probably go for $75,000 more, but we bargained out what could be accomplished with the listing price. We had to go with a price that was reasonable for the time,’ said Dustin Snook.”
“For their own good, Dustin Snook and his wife knew they had to consider the big picture. ‘I guarantee, if we listed for $75,000 more, we probably would have sat quite some time.’”
“He described competing in that market area as a ‘bloodbath.’”
Ben–maybe you should snap up the url “realestatebloodbath.com” if the price hasn’t already skyrocketed.
The first article actually argues against a crash in LV, if you read it to the end.
Here’s the last paragraph:
“Billions of dollars are being invested in Las Vegas to provide aging Baby Boomers and Gen-Xer’s a place to go and gamble away their retirement money. Gaming executives know that Americans love to drink, gamble and party when times are good, and especially when times are bad. Wagering on a housing crash in Las Vegas is likely a bad bet.”
I’m a Gen-X’er, and I think that if I can afford to keep a roof over my head when I retire (if I’m able to retire) I’ll be lucky. Forget about living the high life in an overpriced McMansion in Vegas. My generation is the first one that’s mostly given up hope of every seeing our SS dollars coming back to us, after all.
“Countrywide Mortgage CEO Angelo Mozilo believes that the ‘housing market officially turned south in January,’ according to Banc Investment Daily, and that some overheated markets may see prices plunge by up to 40 percent.
CFC DOWN >14% FROM JUNE
NEW DOWN >2% TODAY
Couldn’t agree more. It’s bloodbath time. Look out below…
realestatebloodbath.net is available
I’m noticing the same conditions as far as sales volume in the OC. According to the OC Register, sales volume on resale homes is down over 30%, but volume on new homes is more than 50%. People are eschewing used homes for new ones at the same price.
However, we are still no where near the price plunge of October 04-Feb 05, When 3/2 townhomes in Ladera Ranch could be had for 425-450K, and there were even some 3/2’s in RSM and Lake Forest for 380K-420K. I need to see us back at those numbers before we can say prices have begun to cool in the OC.
I think bloggers are the only ones that ever put these two statistics together:
From the Realty Times piece: ‘There’s little doubt that 2005 was a banner year for new home construction. According to the National Association of Home Builders, single-family home sales reached a record 1.282 million units last year, up 6.6 percent from the record set in 2004.’
From Inman: ‘At the same time, Yun said the NAR expects new-home construction to drive downward – by roughly 10 percent in 2006 to around 1.9 million, compared with 2.1 million housing starts in 2005′
The Fed’s say about 300,000 dwellings become obsolete each year in the US. Hmmm
I THINK MOST OF THOSE HAPPENED IN NEW ORLEANS
For some reason I think these slimeballs will find a way to keep prices inflated.
“Mortgage fraud is likely to increase as the mortgage market continues to shrink, according to The Prieston Group, which provides lender quality certification to hundreds of lenders for fraud insurance coverage approval.
Additionally, some lenders have reported a 10 percent drop in volume during January over the previous six months. FICO scores have also dropped, averaging 610 in January compared with 649 for the six months ending January 31.”
http://originatortimes.com/content/templates/standard.aspx?articleid=1730&zo
We might see a chain gang of lenders on an issue of Time here soon
Over half of the buyers in the past 6 years shouldn’t have bought homes to begin with. The excessive buying created excessive demand for over-priced homes and HB were all lured to build more. Now not only have HB over-built to meet the fake demand, the past fake demand has become supply too. The real demand is still there but only at less than 1/4 of the supply, and the smart ones in them are not going to pay $1M for a home that should have been $300K or less. It’s a lot of money to throw away if you buy now.
Good point. I think they have exhuasted the demand. Kind of like gm did with the car incentives. Everybody bought and now your demand pool is real low. Kind of like borrowing demand from the future. When the future catches up you are in trouble.
You can sell to all the people who’s jobs were created by the boom from borrowing from future demand.
Wait, I think that makes sense. Hold on a second… divide by 2, carry the 1, subtract 3.
Oh. Crap.
DC where no one ever gets fired- gov workers go high cause there is no disruption in their income stream- ever
home up the street just dropped price 5%
Sounds so much like a communist government.
actually the commies purged once in a while- FEDs never do since Regan
always more
it is a pseudo communist goverment. the only keep the flag to make idiots enlist to go steal oil. i am a far righty type… an honest one. i know the founders of this nation roll many times a day in their graves. … so sad.
The General Services Administration (GSA) is laying off 400 workers in DC:
http://www.washingtonpost.com/wp-dyn/content/article/2006/03/05/AR2006030500768.html
Bravo… they should ad a ‘0′ to that number
speaking of home builders, check out HB stocks today. Getting whacked almost across the board …
SPF - 52 week low. They do a lot of business in my town, or at least they were!??!?!?
CTX DOWN 5.18%
TOL DOWN 4.55%
KBH DOWN 3.19%
Yahoo! It’s happening— Look out below!!
I wish I had shorted 6 months ago
http://financialsense.com/fsu/editorials/yu/2006/0307.html
Good read…….
That’s a good point. Productivity is accelerating which is widening the wealth divide so even if GDP goes up median demand drops.
Maybe it’s a good time to invest in property management companies because average joe home fixer upper guy is going to be renting in the near future and the wealthy “vultures” that buy up these distressed homes aren’t going to be fixing toilets.
I just hope people realize that trusting politicians with a dollar printing press is not a good idea. Ron Paul is about to get famous.
Yes, good read. Thank you for the link!
The health of the economy is not so much about GDP, IMHO, but how well the middle class is doing. Are their incomes keeping up with the cost of living? Are they looking at better wages and benefits or worse? The wealthy are able to hoard their cash while the lower/middle class are the ones who keep money circulating throught the economy. The more money the rich hoard, the more power they have to create systems to direct even more money and resources toward themselves. Enter the depression…
CARenter
‘how well the middle class is doing. Are their incomes keeping up with the cost of living?’
No the middle class in disappearing
You may want to read this:
http://globaleconomicanalysis.blogspot.com/2006/03/falling-family-incomes.html
dutchie,
Thank your for your link. I agree completely. I can see it in our peers’ financial situation (we are middle-class Gen-Xers). Almost all of our friends make less today than they did in 2000. They are living “off the house”.
I’m one of the doom and gloomers here…think we’re going to be in a world of hurt. Really hope I’m wrong.
I really get a kick out of some of these total garbage comments from Realtors. Like some couple is touring a open house and says, “While I do enjoy the open floorplan and subzero fridge, Greenspans recent retirement has me worried about the state of the economy.”
Give me a break.
For real. LMAO!
“I don’t think sellers have gone away; they’ve just gotten a kick of reality.”
THis should have read: “sellers have gotten kicked in the balls”.
Sorry for the FRENCH interpretation….
I was just on the elevator and overheard a conversation between a recent buyer and a friend. The buyer sounded like he made a sound decision, good, fixed interest rate, good amount based on their income etc. But, the interesting bit was the buyer saying, “Yeah, these people were desperate to get out, they dropped their price by $90,000.”
This in the DC/NoVa market.
Hmmmm.
The key point here is that a market adjustment may occur more quickly than at the end of the 1980s bi-coastal bubble, because there are more people who will not be able to simply hold units off the market until inflation brings real housing prices back in line with income:
1) Banks dumping foreclousres due to option-ARMs.
2) Builders, in markets where low interest rates encouraged over-building.
3) Speculators hoping to flip units or go into business by buying them up and renting them out.
All will be forced to sell at market, re-establishing the comparables at an affordable level that much more quickly. Better for the economy in the long run, but a wild ride.
Heh, look at this:
http://www.brookfieldwashington.com/bday.pdf
Your 850k McMansion in middle of nowhere NoVA loses almost 20% of its value overnight.
http://washingtondc.craigslist.org/rfs/138805722.html
some arlington yuppy got silver spooned 72k.
$520000 - OPEN SUNDAY: Buy This Brand New Ballston Condo. W/ $72000 Of Equity
Because some schmuck overpaid by $72,000 it is now your equity? In a falling market?
Realtors are morons.
Youch!
Plus the commission! 6% 30K, 3% 15K
Oh deeeer….
Nice!!!!!!!!
and one whole day later the ad has changed. now no mention of instant 72k equity or the seller’s plight… perhaps the seller visits this blog…
http://washingtondc.craigslist.org/rfs/140081614.html
that realty times piece is pretty good.
which realty times article do you mean?
Referenced to in the posting by Ben…
From Realty Times. “If the full-page ads in my local paper are to be believed, new home demand has begun to flag. The issue is not how many units will be sold, rather it’s the way they’ll be priced. Recent ads have offered new home discounts ranging from $70,000 to as much as $100,000.”
oops… here’s the link.
http://realtytimes.com/rtcpages/20060307_discounts.htm
Amazing how quickly the tone of the media about a subject can change…
Bankrate.com
Ballooning equity doesn’t mean you’re rich
Tuesday March 7, 6:00 am ET
Dana Dratch
http://biz.yahoo.com/brn/060307/18284.html
This article doesn’t even mention the best way to tap into housing equity: RENT.
In my view, Bankrate.com has always been pretty objective. In fact, one of the senior people at Bankrate.com came out to speak at my company in early 2005 to warn people about the dangers of I/O mortgages, and were telling people to refinance to fixed. I spoke with the guy personally, and we had a pretty straight-up conversation about the state of everything.
Not to mention Holden Lewis (writes about mortgage products/yields for Bankrate.com) used to (still does??) post here quite some time ago.
This realtor disconnect-babble reminds me of years ago when I looked at some land I was thinking of buying. I met not one, but two agents at the site and wondered why two of them had to come out — some 75 miles from their office.
I quickly learned why. They started walking a few feet ahead of me across the property and struck up a conversation I was sure to hear:
Agent 1: “Wow, I can’t believe we listed this piece for only $495 an acre!
Agent 2: “Yea, look at all these big trees. This chunk should’ve been priced at least $695.”
Etc., etc.
It worked. I bought it.
Maybe they should try this tactic with today’s overpriced shacks.
Hucksters, all of them.
I’ve experienced this bogus technique more than once in my lifetime, as well. If a realtor can make you think you’re about to lose it to someone else… it accelerates action. Gonna be tougher to pull this one off as the next few quarters unfold.
One realtor is the Roper one is the Shill and you are the mark or pigeon.
LMAO on the two bedroom condo. Sounds like a flipper caught with their pants down. Loved the mental image of the wind blowing the directional signs to the open house down. Gee, only a $72,000 reduction in equity. Somewhere between the hardwood floors, granite counter tops the prospective buyer is supposed to forget the association fees, etc….
Evidently the Seattle metro area is the “Island of Real Estate Solace.”
Everything going on outside our state lines doesn’t influence our local economy. People should move here because real estate is solid and prices won’t go down.
“Jill Jacoby, President of Windermere Real Estate Co, says, “If you look at the West Coast, with the median prices in say, San Francisco or San Diego, they’re over $500,000. Here, (Seattle) appreciation is high, I think (prices) have been undervalued here, and I think they’re starting to catch up.” – Seattle Post Intelligencer, March 7th, 2006.
http://seattlepi.nwsource.com/local/261951_housing07.html
From the Everett Herald (http://www.heraldnet.com/stories/06/03/07/100bus_a4homes001.cfm)
“The locomotive is finally up to full speed. We’re back.” – Dick Fulton, Broker at Coldwell Banker Bain in Seattle and Northwest Multiple Listing Service Director.
I’m really fortunate to have an escrow firm that will continue onward and none of our allied real estate professionals business will fall off.
“One builder with a project in the busy southwest confided that he dropped his prices $20,000 per unit to compete with the handful of large publicly traded builders that have projects surrounding his. Unfortunately, that move just prompted the big builders to drop prices more. He described competing in that market area as a ‘bloodbath.’”
As I have stated before on serveral sites….The major home builders will bury the mid level and small builders along with ANY homowner seeking to sell within its subdivision…
From the Inman article:
While Yun expects the higher volume of inventory to continue through the year, he adds: “The shift in these markets is just moving away from the frenzied pace of 2005 and into a more healthy level of activity. Home buyers now have more choices. In 2005, because of multiple bidding, people were buying homes without inspections; it was hectic. While there is an inventory rise, it’s within normal historic range.”
-Maybe on his home planet of Inventoria..
In California, while she said the market hasn’t rebounded as strongly as last year, Donna Baker, an agent with Dickson Podley Realtors in Monrovia, believes it’s gathering steam. “I saw a slow down in the market starting in late October of last year, but I think it’s starting to pick up. It happened the same way the previous year: things seemed to go to sleep in October and in January, and it picked back up. This year, that didn’t happen until now. It was a little sluggish.”
-Whew! Thank God that sluggishness is over, that was close!
Indeed, with home prices in California projected to rise about 10 percent in 2006, compared with 16 percent a year ago, Robert Kleinhenz, deputy chief economist for the California Association of Realtors, said sellers must heed the market when pricing their home. But that doesn’t mean the balance has tilted in favor of buyers, he added. “We’re in a market with a higher inventory level than a year ago and much higher than two years ago but it’s still lean enough to continue to drive price appreciation.”
-Apparently Leslie Appleton-Young has implanted microchips in her staffs’ brains to keep them on message so she can remain in the CAR Lair and stroke her white kitty.
Heh. Speculators who made a killing along with the sharks now discover that the sharks were just saving them for last.
I couldn’t resist sending an email to the realtor representing the schmuck who is offering to give away her $72K of equity due to a transfer to another bubble capital (SD). I am sure she will feel insulated. I have a sarcastic sense of humor.