Discounts, Layoffs Hit Housing Sector
Several reports on homebuilders show the housing bubble is bursting. “A survey by the National Association of Home Builders found 62 percent of 406 builders are offering buyers incentives such as televisions or free heat for six months. Thirty-three percent are paying closing costs or fees. Twenty-five percent of builders say they are cutting prices, a move area builders try to avoid because it angers previous buyers.”
“Rodney Arnold, a builder of several subdivisions in Cape Girardeau, said in the past he has offered buyers an incentive by paying part of the closing costs. ‘A builder never wants to cut the price of a home,’ Arnold said. ‘So by giving incentives, it keeps the price of the home up.’”
“Central Ohio’s housing market is going through the equivalent of a closeout sale as builders slice prices in hopes of luring back buyers. But whether a builder is cutting prices immediately or holding out until later, many observers agree the cost of a house will be dropping, discount or no discount.”
“New-home sales in the region dropped 17.8 percent last year, with a 56.7 percent drop from late 2004 to fourth-quarter 2005, the biggest drop for a quarter since the homebuilding boom began in 2002. That has led to a slowdown in jobs related to the new-home market. It’s more like a pinch than a heavy blow for the industry so far. ‘I don’t think anyone’s in a panic mode,’ said David Lucchetti.”
“The cuts went deep at air-conditioning contractor Beutler Corp., which as a result of the housing downturn has laid off or lost to attrition 250 of its 1,500 workers, said president Rick Wylie. That figure includes 175 workers in Sacramento.”
“‘January’s been pretty tough. We’re struggling to stay even with last year,’ said Harris Blickstein, COO of a furniture-store chain based in Sacramento. For years the retailer enjoyed the effects of a booming housing market, the large number of houses sold, their rising values and numerous home-equity loans being made. Now people don’t feel as rich, Blickstein said.”
“Construction is a big factor in the local economy and has been one of the strongest job sectors in the wake of the economic downturn at the start of this decade. In Yolo, Sacramento, El Dorado and Placer counties, construction accounts for 70,400 jobs, largely in homebuilding.”
“‘Sooner or later, when you keep increasing prices and land prices go up to reach the ceiling, there won’t be enough people to buy your house,’ said subcontractor Jay Fischer (who) has laid off 50 of his 150 workers.”
the other 38% are lying
discounts everywhere in every zip code in USA and maybe the world
is that free heat only good for the summer months?
“‘Sooner or later, when you keep increasing prices and land prices go up to reach the ceiling, there won’t be enough people to buy your house,’ said subcontractor Jay Fischer (who) has laid off 50 of his 150 workers.”
No sh*t, Sherlok
Hey Ben:
Here’s a story from Fort Myers, Florida concerning the fact that long-time residents in Florida have difficulty cashing in on the housing boom because if they sell and move into another home, their property taxes normally go up considerably.
http://tinyurl.com/9tkol
Thanks rudekarl
The flip side of that property tax story just adds insult to injury for those of us looking to buy. Not only are we buying at inflated prices but also we are subsidizing those owners who have enjoyed decades of appreciation by effectively paying most of their property tax for them.
Central Ohio (Columbus)’s y-o-y appreciation rates don’t even look too abnormal. Especially when comparing them to Sacramento.
Jobs slipping as home sales slow
Suppliers, contractors show concern
By Mike McCarthy and Kelly Johnson
Sacramento Business Journal
Updated: 7:00 p.m. ET Feb. 5, 2006
With the decline in new-home sales, local suppliers and subcontractors have laid off hundreds of workers in the past few months.
Two of Greater Sacramento’s largest private employers, Pacific Coast Building Products and Beutler Corp., are among those that have laid off workers or left vacant positions unfilled. It’s an unfamiliar situation after years of a hot homebuilding market that had some companies scrambling to find enough workers, and employers say it represents more than just the usual winter slowdown.
Likewise, most of the suppliers and subcontractors contacted for this story say they have laid off workers because of the housing downturn. Most say it’s the first time since the new-home boom began in 2002 that they’ve let go workers for reasons other than the change of seasons.
move along, no bubble in sacaramento, lets just shit can hundreds of workers.!??!?!?
from Realmoney
Housing ATM Slows
By Tony Crescenzi
RealMoney.com Contributor
2/6/2006 11:31 AM EST
Click here for more stories by Tony Crescenzi
HOME EQUITY LOAN WATCH: Home equity loans stood at $435.0 billion in the latest week, the Federal Reserve reported late Friday, down $200 million from the previous week and $3.9 billion below the peak of $438.9 billion last September.
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Home equity lending has moved sideways since last summer after having increased about $100 billion the previous year. The sideways movement removes a key stimulus for the economy: the so-called housing ATM.
The higher taxes that stop boomers from downsizing means the coming correction will definitely overshoot. When the prices are back to historical trends that track inflation, boomers will find it rewarding to downsize again, it will then further depress the 2000sf+ markets.
I expect to see homes to be sold at 50% or lower of their fair values.
if you don’t work for the goubermint you’re going to take a hit
mad_tiger Says:
The flip side of that property tax story just adds insult to injury for those of us looking to buy. Not only are we buying at inflated prices but also we are subsidizing those owners who have enjoyed decades of appreciation by effectively paying most of their property tax for them.
This extreme inequity is a serious issue. Add to it the economic inefficiencies because people are so loathe to move because of skyrocketing taxes, and you have a very strong argument in favor of repealing Prop 13. Repeal it now.
Have my goggles on waiting for sh+t to hit the fan housing!
All this realtor happy talk is entertaining. Who do they think they are kidding?
Ben,
I really miss the screen names being in a different color,font size, and bold.
happy renter,
I’ll see if we can’t change that.
For years the agriculture groups have been complaining of a shortage of labor, due to all the migrant farm work going into construction. No shortage this Year!
OT, but big spike in inventory in my local market (Jupiter, FL) int he past several days. We cracked the 400-unit-for-sale mark in my zip code (33458) on Realtor.com, using “at least 2 beds, 2 baths and $100,000 to $500,000 price range” as the search parameters. The 415 total is up almost 180% from last June’s start point of 150. Lots of open houses and for sale signs around town too.
“Rodney Arnold, a builder of several subdivisions in Cape Girardeau, said in the past he has offered buyers an incentive by paying part of the closing costs. ‘A builder never wants to cut the price of a home,’ Arnold said. ‘So by giving incentives, it keeps the price of the home up.’”
If incentives could have been used all along to “keep the price of the home up,” then I am really surprised these builders have waited until now to unveil this economic equivalent of a sectret weapon.
# death_spiral Says:
February 6th, 2006 at 8:03 am
is that free heat only good for the summer months?
——————————————————-
Of course. Unfortunately, the winter months supply of free heat requires that you burn the furniture (a la von Mises).
peterbob said: “…you have a very strong argument in favor of repealing Prop 13.”
Also, the inability of long-time owners to pay their share of property tax is not a wealth issue, it’s a cash issue. So allow them the option of accruing the tax and paying it when the house is sold, or even out of their estate when they die, which ever comes later. If a relative inherits the house the full rate all-cash property tax payment kicks in. This would allow overall property tax rates to come down while remaining revenue neutral.
Yes, I have heard of an organization called the AARP and I am familiar with the phrase “a snowball’s chance in hell.”
if you don’t work for the goubermint you’re going to take a hit
Guess what. Even goubermint is going to take a hit. The slowdown reduces sales tax. The slowdown will slowly reduce property taxes. The goubermint I work for has been on a feeding frenzy for several years. Now it’s time to start getting real.
the builders are tanking today…
http://tinyurl.com/aym62
No doubt the PPT (or builders buying back their own stocks) will rally briefly tomorrow, but the charts are going to continue chopping their way down. LOL.
mad_tiger Says:
Also, the inability of long-time owners to pay their share of property tax is not a wealth issue, it’s a cash issue. So allow them the option of accruing the tax and paying it when the house is sold, or even out of their estate when they die, which ever comes later. If a relative inherits the house the full rate all-cash property tax payment kicks in. This would allow overall property tax rates to come down while remaining revenue neutral.
Great idea. Instead, we have property tax relief for the (cash) poor elderly who can’t pay annual taxes and then we let their wealthy heirs inherit without paying taxes!. I remember last year sitting in front of a tax consultant who told me that beneficiaries of inherited land didn’t pay tax on the appreciated value (if the parents bought for $400K and it is worth $900K, the kids don’t pay tax on that capital gain!). Yes, I agree, that anyone who will be inheriting property is not in favor of having it taxed. But who can reasonably argue that not taxing inheritance is just or provides good incentives? This is simply a tax break for having lots of money. (by the way, I’m a card carrying free market guy!)
Goleta says –
I expect to see homes to be sold at 50% or lower of their fair values.
Of fair value? That would be a 70% hit in prices. Not gonna happen. If it did, we would all be in a depression-style world of hurt.
Maybe 50% drop as a worst case.
If you look at those 100+ years long term pricing charts (anyone still has the link?), almost every 3 years or longer boom was followed by a valley of the same magnitude.
The more it was inflated over the inflation curve, the lower it dropped below the inflation curve during the following bust.
Goleta: I agree with your assessment. My husband and I have been saying that for over a year. Just as the prices of property overshot through the roof to above 50% what should have been fair market value, it will most likely over shoot in the other direction. I predict that houses will be selling for less than 50% of what they are selling for today. For example, if there is a $1 million house that is really only fundamentally worth $500k in a “normal, non-bubble market”, I don’t think it will return to its $500k price, I think it will be selling for $450k or even less. In these bubble situations, prices overshoot up as well as down. Prices tend to overshoot worse when they go down because people get so scared and “revulsion” prevails. In other words, people look up real estate as “leprosy.” Don’t be surprised, home values went up 50% (or according to Reuters 55% national average); they could easily go down 50% or 55% or even 60%. Its happened before in other asset bubbles (remember yahoo was worth $220 a share at one point then it went down to $14 a share). Regardless of the asset bubble in question (tulips; houses; stocks), the script is always the same as they say; the fundamentals really never change…
peterbob writes:
If the parents bought for $400K and it is worth $900K, the kids don’t pay tax on that capital gain!. Yes, I agree, that anyone who will be inheriting property is not in favor of having it taxed. But who can reasonably argue that not taxing inheritance is just or provides good incentives?
What I’d be in favor of, is not having an inheritance reset the cost basis. So, in this case, the kids would pay the capital gain on the $500K gain… but not until they sell the property. I don’t think death itself should be a taxable transaction. For instance, if the kids are living in the house, they shouldn’t be forced to move out, so they can sell the property to settle with the IRS.
It think it’s a complicated issue, without easy answers.
PS: Ben- I kind of miss being able to preview and revise the comments.
CE,
I think we can fix it. Thanks for the input.
But who can reasonably argue that not taxing inheritance is just or provides good incentives?
_______________________
Guess it depends on how one thinks of taxes. Personally, once I earn money and that money is already taxed, it is mine and my heirs. This applies to estate taxes. As far as property tax rates being inherited, I do see the point of the heirs paying the stepped-up rate. However, I do NOT think heirs should have to pay capital gains until they actually sell. Family money is family money.
I’m not a fan of property taxes at all. It’s just another way for government to control private property. “Ownership” should mean that nobody can take it away or tell you what to do with it (like HOAs).
A nice, progressive, flat income tax with NO deductions (except perhaps for charitable donations) would be nice. This would ensure that taxes are matched with ability to pay. The government also needs to learn how to budget. THAT is our problem, not too little tax revenue. Notice how they almost never have a REAL surplus? They just spend what’s coming in, and then some.
crash1 Says:
February 6th, 2006 at 11:11 am
if you don’t work for the goubermint you’re going to take a hit
Guess what. Even goubermint is going to take a hit. The slowdown reduces sales tax. The slowdown will slowly reduce property taxes. The goubermint I work for has been on a feeding frenzy for several years. Now it’s time to start getting real.
Agreed. Even government and county jobs are going to get touched by this real estate bubble. I’ve seen alot of these positions hire new people over the past five years due to getting increased money from increased property taxes as housing prices have gone through the roof. What do you think is going to happen when housing prices fall again, along with their taxable value???? Less taxes=less money to pay government workers. You think these people are going to work for free??
Of fair value? That would be a 70% hit in prices. Not gonna happen. If it did, we would all be in a depression-style world of hurt.
Maybe 50% drop as a worst case.
Maybe not, but considering that very average, boring, 40year+ SFHs are going for $900K in Goleta, CA, I’m not so sure. I am not a cheapskate, but I wouldn’t pay more than about $350K for one of these things. And bear in mind, I make more than a lot of folks my age (well, unless you count some dual-income couples who work all the time while their kids are in the a day-care kennel).
A math twist: a 50% drop in prices from $1m to $500k requires a 100% rise just to get back to break even.