The Homebuilding Machine Could Not Be Sustained
A report from the Charlotte Observer. “Beazer Homes USA will delay paying subcontractors in at least one city where it builds homes, as the company struggles to ride out one of the most severe housing slumps in recent history. The Observer obtained a letter dated Nov. 5 and signed by Beazer Nashville division President David Hughes, who said ‘effective immediately’ the company would hold up payments.”
“‘It is unfortunate, but we cannot continue the prompt payments you have received in past years,’ the letter stated. It is unclear how this policy specifically differs from Beazer’s previous payment schedule, and if it extends beyond Nashville.”
“The company has reported that it is burdened with an ‘unusually high’ cancellation rate of 68 percent — 18 percentage points higher than its nearest competitor.”
“Nita Hunt, president of plumbing contractor Falapco Inc. in Charlotte, said she has been doing business with Beazer for 15 years. ‘I’ve never had a problem with them,’ she said, ‘and I can’t imagine they’d send a letter like that.’”
The Post & Courier from South Carolina. “Brad Rundbaken has had experience in real estate, the stock market and appraisals, so he has a wide scope on housing trends. In his third quarter Charleston real estate market report, Rundbaken sees some but not much uptick in the sluggish housing market.”
“‘Sales have really taken a hit here locally due to the current credit crisis and overall negative mentality of buyers and sellers,’ he says. ‘Until sellers and some Realtors get a clue how to price a home in this buyers market the trend will only get worse.’”
“He says inventories have shown short-term improvement. However, in September 2006, ‘overall inventory was 6.1 months or 8,336 properties. September 2007 shows 10.95 months of inventory with 9,742 properties for sale. YIKES!’”
The Palm Beach Post from Florida. “The 78-year-old homebuilder Levitt and Sons filed for Chapter 11 bankruptcy protection late this afternoon.”
“‘The homebuilding industry, particularly in Florida, has experienced unprecedented declines, with an oversupply of inventory and waning demand exacerbated by the recent disruptions in the credit markets,’ Levitt Corp. CEO Alan Levan said in a statement.”
“For people who signed contracts on homes in Levitt and Sons’ 12 communities in Florida, Georgia, South Carolina and Tennessee, the bankruptcy proceedings create more uncertainty.”
“Levitt Corp. reported today that it lost $169.2 million during the quarter ended Sept. 30. The huge losses included pretax charges of $163.3 million stemming from Levitt and Sons’ swollen homebuilding inventory. The builder is in default on more than $300 million in loans and had been working to restructure its debt.”
“Levitt and Sons is now the biggest builder in bankruptcy, according to Bloomberg News. Its bankruptcy is more proof that the homebuilding machine that emerged during the housing boom could not be sustained, said Brad Hunter, an analyst at MetroStudy in West Palm Beach.”
“‘Too many builders built too many homes, and obviously there had to be a day of reckoning,’ he said. ‘We’ve seen a couple of builders go bankrupt, and there will probably be more.’”
The Wall Street Journal. “Levitt Corp.’s home-building unit, Levitt & Sons LLC, filed for Chapter 11 bankruptcy protection on Friday citing ‘unprecedented conditions in the home-building industry’ that has been ‘particularly sudden and steep’ in Florida and Southeast.”
“‘The home-building industry, particularly in Florida, has experienced unprecedented declines with an over supply of inventory and waning demand exacerbated by the recent disruptions in the credit markets. Levitt Corp.’s results for the quarter are a reflection of the deeply challenging environment in the housing sector and the primary cause of recent actions taken at Levitt and Sons,’ CEO Alan B. Levan said.”
“The home-building unit’s troubles dragged on the parent company’s stock, which has plunged 84% this year.”
The St Petersburg Times. “The company filed a Chapter 11 petition in U.S. Bankruptcy Court in Fort Lauderdale. Thirty-eight Levitt Corp. affiliates also sought court protection.”
“As part of the bankruptcy process ‘we will explore the potential sale of all or some of Levitt & Sons’ assets,’ said Lawrence Young, the company’s chief restructuring officer. He said the company would ’seek a mechanism that will facilitate the completion of some unfinished homes.’”
From WESH.com in Florida. “A new national report shows Central Florida homeowners could really get nailed in the slow real estate market. According to Fortune magazine, home prices in Orlando need to drop significantly so investors will get back into the home-buying game.”
“Right now investors aren’t interested because the mortgage they would have to pay exceeds the rent most people will pay. A house in Orlando now worth $522,000 needs to drop to $343,000 in the next five years, according to Fortune magazine.”
“‘Guesses don’t work. What we can tell you is this: the fact of the matter is prices will come down a little bit more over the next year. That’s for sure. There’s no guessing about that, but five years from now, that may be accurate. It might not be. It’s kind of like throwing darts in a dark room,’ Realtor Gary Balanoff said.”
One more builder down. Many to go.
Watch TOA, 13th largest builder, stock is trading for $.30 cents, they had a multi billion dollar market cap… they will be the first top 20 builder to go under! Then watch SPF #12, they are knocking on deaths door step, mish has a great post on their bonds basically showing a BK is already priced in.
They will be the second builder to go under. The first one filed for BK this weekend in Florida.
I’m aware of 3 at least…Neumann, Dunmore and Levitt. Sounds like if Beazer isn’t on deck, they’re warming up.
I think we should have a contest to guess how low the homebuilders’ index ETF symbol XHB will go, say over the next 12 months. 52 week high is $40; it just poked below $20 the other day.
My guess is $12.31, but I am one of the more optimistic folks on this blog.
Right now investors aren’t interested because the mortgage they would have to pay exceeds the rent most people will pay
Didn’t stop them a couple of years ago. Isn’t it amazing what a difference falling prices makes?
the fact of the matter is prices will come down a little bit more over the next year. That’s for sure
Well no Gary, what’s for sure is that prices are going to go down a lot, down below rent equivalence, like the folks at Fortune said.
Balanoff said he thinks housing prices will drop another 5 percent, but nothing close to 20 percent as Fortune magazine said.
Well he would say that, wouldn’t he?
Fortune this month was saying prices would go down from something like $600k to $500k. So I don’t see any realistic ideas from them this month. Since there are houses and condos in the $400k range that have already dropped over $100k in the decent LA areas. I know I know the report about foreign investors will prop the prices back up. Silly me.
“Levitt Corp.’s home-building unit, Levitt & Sons LLC, filed for Chapter 11 bankruptcy protection on Friday citing ‘unprecedented conditions in the home-building industry’ that has been ‘particularly sudden and steep’ in Florida and Southeast.”
Malarkey. What was unprecedented was the magnitude of the bubble. What was unprecedented was the inventory that mushroomed. What was unprecedented was the scope of the greed and stupidity that entered the housing market.
What’s precedented is the crash that is now taking place. Levitt is small potatoes, really. Give me Lennar, KB, Centex, etc.
David Tice is bearish, but 50% decline in the stock market? I think we need a new animal to describe that kind of drop.
http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vHFR_WySac0Y.asf
“we need a new animal to describe that kind of drop.”
How about “ouzelish.”
The Water Ouzel, or American Dipper, is an interesting little bird in western states who actually walks on the bottom of streams, picking up insects and other goodies from the stream bed. You can’t get much lower than that.
You actually can get lower than that. At the last open house I went to, I spotted a Red-headed Double-breasted Mattress Thrasher, a bird of prey that feeds on FBs. This one was wearing a Century 21 blazer.
They’re small potatoes, but they’re old. That’s Levitt as in Levittown. They’re 78 years old.
“Lawrence Young, the company’s chief restructuring officer.”
How do I get a gig like that? I’d do some restructuring, all right. As a garbage dump.
I just read “The Forgotten Man: A New History of the Great Depression” so I’m predisposed to thinking that a Greater Depression is coming. And one of the first signs of the first Great Depression was people stopped getting paid, or were paid in scrip.
Of course, there was a lack of money in the ’system’ then, and now we’re printing too much, so it’s not exactly the same thing.
An entire society built on “just-in-time” mentality, has just so much time to figure out how to think, in terms of future day’s tense…
reporting from the front lines, pfc aladinsane
reuven,
Thanks for the book title. That’s going to be my next read, after I finish wading through my latest read, a book about String Theory.
Beazer Homes USA will delay paying subcontractors in at least one city where it builds homes
Whew…kudos to whoever leak this tidbit.
If the sub’s aren’t bein’ paid-you sure in hell aren’t goin’ to see any
repair “check-list” crews showing up in a timely manner to fix warranty defects in your “NEW” vinyl and glued together home.
I see the next new headline -
“Sub Contractors are not getting paid - it’s a great time to buy!”
It’s like pulling teeth to get your money from builders in a normal market.
From now on, Beazer will have to get its subs at SubWay .
RE: From now on, Beazer will have to get its subs at SubWay .
(I’m laughin’…)
“It’s kind of like throwing darts in a dark room”
Playing darts in the dark, you are much more concerned about one’s safety, rather than the outcome of the match…
Lot inventory is incredible. Maybe this will all be over by 2015.
http://searchchicago.suntimes.com/homes/news/641808,digest09.article
more like they’ll pick a name out of the hat and that ONE will get paid
Beazer Homes USA will delay paying subcontractors in at least one city where it builds homes,
Beazer have started a nice community in a great location in Raleigh, North Carolina. They’ve built three specs, now complete and none of them have sold, Just got an e-mail from them this morning. They are reducing prices on all of them 100K. Thats 20% Wow! Beazer are in deep $h1T.
Ward, I’m worried about the Beazer.
I’m not sure they’ll be able to squiggle out of this fiscal Haskell, Eddie?
Ward, you were awful tough on the Beazer last night.
Gee Wally,
How can they Cleaver the Beazer?
I think you’re all being too hard on the Beazer.
Leave it to Sleazer
Barclays denies bad debt rumour
http://news.bbc.co.uk/1/hi/business/7087451.stm
The views of our American cousins
http://news.bbc.co.uk/1/hi/talking_point/7062653.stm
The inhumanity of it your even snatching away the the Indian dream
http://www.thehindubusinessline.com/2007/11/08/stories/2007110852971600.htm
Ha ha.
One U.S. quote (a REALTOR, gee) puts “relieved of their prior credit damages” ahead of “given a reasonable chance to pay back their debts” to save FB from “serious trouble.”
I was at a dinner party last night and one of the other guests was a retired auto dealer in his 80’s. The conversation turned to the property market. All agreed the run up in prices was obviously nothing more than a bubble which would burst but all were surprised it lasted so long. All agreed that it was typical, now that it’s burst, that the politicians are using the disaster as phot-ops to show their fake concern because everyone with a brain knew it was a dangerous bubble but the politicians were never heard from while it was happening.
Interestingly enough, the opinions as to where this burst bubble will end up were all over the map. From “I think we are near the bottom where this area is concerned because of Amgen and CountryWide,” to “We are going back to prices before the boom,” to “At least three or four years.” Btw, none of the people there had anything to do with real estate but most are quite well off and financially secure except one couple who were very subdued having bought 2 properties in the Palm Springs area and are now well under water because prices have really dropped.
Then the subject turned to why the banks and The Wall Street Gangsters (the enablers) were so unaware about lending money to people who were such bad risks. Up piped the retired auto dealer. He said the fault lay squarely at the feet of the incompetent Fed under Mr. Magoo and that the current Fed Chairman, Bernanke, was a typical statistics manipulator no better than MaGoo. He said that any person who had worked in car sales, could have told Mr. Magoo what would happen if they let people with bad credit or a patchy credit history get approved for a loan. 90% of the time, if a car dealer couldn’t get a buyer approved and decided (a lot of used car dealers do) to finance the buyer himself, that car usually ended up being re-possessed at some point and was usually trashed which is why they want a big deposit and charge a much higher interest rate, hoping to get their money back quickly.
His opinion on when the bottom will be in, was that eventually price declines will slow but not stop as the big builders dump their inventory at bargain basement prices which will force the banks to dispose of the property on their books (REO’s) at cut rates prices which in turn will mean those who are trying to sell now but really don’t have to sell but want to cash in on what’s left of the boom will decide to stay put. He then said, “Any dealer will tell you that the worse thing they have to deal with is excess inventory on their lot and at the moment this country has masses of excess inventory where property is concerned and the only way to shift excess inventory is to cut prices.” He finished off by saying that when the bottom is reached it will take many, many years for the property market to recover and become a “normal” market.
Just to comment on the topic of where this will all end up.
Peter Schiff says on this week’s Financial Sense Newshour that we are at the beginning of the end. The end being ECONOMIC COLLAPSE. Very scary interview because he has been so right in the past and has very good arguments to support his case.
Don’t car dealers typically have much less margin than the home builders?
For the first time in my life I finally agree with the comment by an auto dealer. Experience is a good teacher and he appears to have the experience from his dealings with consumers!
You can add a furniture store to the Bankruptcy list:
“Home furnishings retailer Levitz Furniture has filed for Chapter 11 bankruptcy protection in an effort to stay in business despite a lack of cash.
The company’s request for reorganization under court protection is part of a strategic effort to evaluate its options, including a possible sale, the privately held company said. It is the third time Levitz has sought court protection in just over 10 years.”
“Along with home builders, construction suppliers and financial firms, the furniture business has been hit by the double whammy of harder-to-get mortgages and a downturn in home sales. Forecasters expect U.S. consumer spending on furniture and bedding to grow by just 1.5% this year, making it the industry’s worst showing since 2001, according to a projection compiled by the trade journal Furniture Today.”
In Orlando: there’s a piece that ran on TV news yesterday and today’s Sentinel discusses the same, that sales were way down recently but that prices held pretty steady. That’s hugely misleading. If, for example, condo sales were down by 2/3, you can bet that most of the sales of the other 1/3 were at significant discounts from “old” prices.
The key I look for is whether they ever mention “original asking price.” Of course, they never do. In the TV bit, they said that the homes that did sell brought about 96% of asking price. That tells me nothing unless they disclose the original asking price and comparable sales prices over the past year or two. It’s just the best happy-talk they can come up with.
I think a better gauge would be the price that it was sold last, and comps for new houses. Asking price is nothing more than wishing price.
“According to Fortune magazine, home prices in Orlando need to drop significantly so investors will get back into the home-buying game.”
And what about home-livers? How much do prices need to drop for human beings to live in them? You know, actual people? Yes, like people that “move-in” and “live there.” Maybe have a family and become a part of the “community.”
Fortune Magazine: so where do I find these “people?”
Chris Parnell: It’s easy! Look all around you!
Fortune Magazine: But I don’t want people, I want money
Chris Parnell: Well, maybe you should build something else, like, something people want
Fortune Magazine: But people need houses, and they aren’t making any more land!
I would think that prices low enough to tempt investors, at this point in our economic cycle, would have to be even lower — perhaps much lower — than the prices needed to convince “home-livers” to buy.
I bought some BZH puts (I forget if it was Thurs or Friday) when the POS stock was up about 4%. Nice to see this turmoil emerge — might push it down to SPF territory soon.
BZH is the stock that just won’t die—WHO keeps propping this thing up?? I’ve had January puts for about a month now—toyed with dumping them all as the premium is going to start evaporating, but maybe I’ll wait until early December. I sold enough to get my initial money off the table, so it’s all just profit now.
What, no comments on the >60% cancellation rate (or maybe I missed them in my skimming)? So sales are way down, and the cancellations take away most of the sales they do get. I wouldn’t close on a house if they were building one for me. You’d get stuck with all of those mechanic’s liens and no homebuilder to recover them from after they go BK.