Chicago Area Builders ‘Can’t Miss Starts’
The Chicago Tribune reports not all builders are pulling back. “The much-predicted cooling of the five-year housing boom appears to be under way, but Chicago-area builders aren’t feeling much of a chill. Ground was broken for 40 percent more new homes in the first quarter of this year than in the same period of 2005.”
“Analysts credited several new mega-developments that are getting started, as well as intense competition and the influence of major national builders in the area.”
“‘As you see interest rates rise, they have taken a punch out of housing,’ said Timothy Rogers, a Boston-based economist. ‘New homes sales are down 21 percent from their peak in July 2005,” he said, and the latest report ’speaks more to the pace of new home sales.’”
“Rogers noted starts are down year-over-year or flat in all regions of the country except the South, which is rebuilding after the devastation of Hurricane Katrina. ‘I don’t think I am generalizing too much that starts follow sales and sales follow demand, which is slowing,’ said Rogers. ‘The real test will be in the three months of spring when we will see how dramatic the downturn is. Our expectations are for a weaker sales pace going forward,’ he said.”
“Consultant Chris Huecksteadt said in a 14-county area from Rockford to Kenosha, Wis., and to northwestern Indiana. Regionwide, ground was broken for 8,000 new houses, duplexes and townhouses from January through March, compared with 5,500 a year ago.”
“Kendall and Kane counties, home to several of those mega-developments, had the biggest gains in first-quarter starts, Huecksteadt noted. ‘Lots of stuff that has been in the pipeline and which we have been talking about for years is on the market and selling,’ he said.”
“Another factor: fierce competition and the growing local presence of national builders loath to miss monthly goals reported to Wall Street.”
“Leigh Nevers, VP of marketing for the Chicago division of Lennar, which includes Concord Homes, noted it is company policy to meet monthly start goals whether homes are sold or not. ‘There is never a reason we wouldn’t start the number of new homes that were projected for each month,’ said Nevers. ‘We will incentivize the homes if we have to sell them. We can’t miss starts.’”
“Christopher Shaxted of Lakewood Homes in Hoffman Estates said builders ‘need to be smarter. The consumer has a little more time to look around.’ Shaxted said he doesn’t foresee a glut of new homes and ‘we certainly won’t see price decreases.’”
This is consistent with the corporate communications the public builders have with Wall Street. They are adamant that they will build and take market share all the way through any downturn.
All the big national builders are in Chicago right now. It didn’t used to be that way. The only two big builders that we have had always have been Centex and Pulte. DR Horton bought Cambridge, Lennar bought Concord, KB Home bought someone, I can’t think of their name, Richmond American just came in, HOV bought Town and Country Homes….they are all s*it. Plainfield used to be huge, now land is growing scarce overthere as well for these mega developments. Now they are in Yorkville, Oswego, Huntley, Sugar Grove, Pingree Grove.
All these banks are reporting record earnings. I guess rising rates helped them collect higher interests from the indebted. They can continue to do so until the debters go kapooot and leave them holding the bag. In other words, they are killing their goose for the golden egg for this quarter.
yeaterday i heard a cowiorker tell a potential borrower that prices never go down in sonoma county.but they sometimes flatten.median price is now down $44,000 since 10-1-05.errr,how about 1990-1996? errrr,i’m getting out of this place
“Ground was broken for 40 percent more new homes in the first quarter of this year than in the same period of 2005.”
Well, three years from now, we should be seeing some great bargains here, no?
Simmssays..
http://www.AmericanInventorSpot.com
AmericanInventorSpot.com
Too bad they’ll all be McMansions shoehorned onto 1/8 acre…
And 50 or so miles (at least) from the city.
highest fed fund rate in the last 10 yrs was 6.5 (2000)
5-5.25 is almost certain…but my bet is by yr end we may be near 5.5-6 range.
a grand buying opportunity for many assets may emerge by 2007-2008.. i keep my cash reserve for that time.
wealth redistribution: don’t get caught on the wrong side.
2001
incr fed fund rate
March 20 … 50 5.00
January 31 … 50 5.50
January 3 … 50 6.00
2000
May 16 50 … 6.50
March 21 25 … 6.00
February 2 25 … 5.75
1999
November 16 25 … 5.50
August 24 25 … 5.25
June 30 25 … 5.00
1998
November 17 … 25 4.75
October 15 … 25 5.00
September 29 … 25 5.25
1997
March 25 25 … 5.50
1996
January 31 … 25 5.25
1995
December 19 … 25 5.50
July 6 … 25 5.75
February 1 50 … 6.00
If you review the 25 year chart of the 10 year treasury you will note that the downtrend line comes through presently at the 5% level. This line has stopped every rise in interest rates for 25 years. While this area should provide resistance for perhaps several months, a break to 5.25% should indicate an advance to 6.8 to 7.% in the 10 year note. That is a rise of 2 .00% or 40% higher interest rate cost on fixed loans.
I wonder what their cost is. It may be that home prices are so high that they can put a 200K house on their 50K piece of land and still make a profit selling it at 300K (down from 400K).
More the better. I hope they build so many houses people choke on them.
“Leigh Nevers, VP of marketing for the Chicago division of Lennar, which includes Concord Homes, noted it is company policy to meet monthly start goals whether homes are sold or not. ‘There is never a reason we wouldn’t start the number of new homes that were projected for each month,’ said Nevers. ‘We will incentivize the homes if we have to sell them. We can’t miss starts.’”
Wow.. Simply Wow..
They’ll ride ‘er all the way down. Why do images of Slim Pickins riding an atomic bomb down like a bull rider pop into my mind?
grim
they may not ride the market down if they take share as prices fall. People are still buying houses and will continue to do so, but probably at a slower rate. The national HBs have the resources (and margins) to take share from smaller builders and over-levered individual homeowners as volumes drop. I’m not saying it’s not going to get messy or that this isn’t a risky strategy, but large, well-capitalized HBs can do OK in this sort of environment.
Never say never Nevers!
Grim,
I read that as well and nearly puked on my keyboard. My guess is Wall Street won’t look fondly on inventory on the balance sheet either. This statement: “We will incentivize the homes if we have to sell them. We can’t miss starts.” seems to totally contradict this one: “Shaxted said he doesn’t foresee a glut of new homes and ‘we certainly won’t see price decreases.”
My guess is both of them will be wrong. Starts will be missed, a glut will occur, and prices will decline.
Will there then be “discussions” with the auditors about inventory valuations?
This sounds just like the drivel the dot-bombs were spouting. Their losses were increasing even faster then their sales were, but they were increasing their share and look at the number of eyeballs per day they were getting.
April 19, 2006
New Gallup Poll: Seven in 10 Consumers Expect Housing Bubble to Burst
http://poll.gallup.com/content/?ci=22468
once 70% think it’s over - it is, like any market
> high plateau ?
I’d love to see that survey broken down by renters vs current owners vs “investors”.
This survey is a good example of the “my city is different” phenomenon. While most see problems in the national market, most don’t expect declines in their own local markets.
“Christopher Shaxted of Lakewood Homes in Hoffman Estates said builders ‘need to be smarter. The consumer has a little more time to look around.’ Shaxted said he doesn’t foresee a glut of new homes and ‘we certainly won’t see price decreases.’”
Let me get this straight. Inventory is up and sales are down. New starts are up over last year as well. How can that not lead to a glut and price declines? As we have stated before it is simple supply and demand. How can just about everyone in the RE world be so stupid when it comes to basic economic concepts?
This quote wasn’t as good as some of the others we have read, however, I do think it warrants an “Honorable Mention” on the list of Most Insane Housing Bubble quotes. We should really start a list just to see how big it would get.
GM & FORD are hiring !
roflow ,talk about the rust belt
Wow, did you see what gold is doing today?
Maybe they’ll find some gold in Nevada when they drop the nuke on June 2.
Kane and Kendall are waaaayyy out there. Easily 50+ miles each way for a commute to the city. Little to no public transportation. Metra only goes as far west as Aurora at this time. Not so sure about more northerly areas of Kane. I do know that no Metra in Kendall Co. though. There are only 3 expressways into the city from there, and they are already clogged by 6:30am. Shopping, nightlife, excitement?…Yeah, at the Farm and Fleet in DeKalb. Cripes, there aren’t even any trees out there. This is paved over corn country. You would have to be completely brain dead to pay more than $150,000 for a 2,500sf mcmansion out there.
we bought a 7 acre farm FSBO last year, got $100K off the asking price. now I still wonder if it was enough.
we have horses the property/barn is large but the house is tiny. I still drive my 10 year old cars with 178,000 miles on it.
hoping for the best.
webmistress
p.s. I like the Farm & Fleet and we do spend a lot of time there!! My farm is in Kane County just north of Dekalb.
Me too. F&F is just a nice normal place w/friendly people. I was not trying to disparage the good people of Kane and Kendall Counties. I’m just astonished that someone would want to try to commute from there. This is farm country. Best topsoil in the world and we’re paving it over.
Read about O.C. housing market: March.
Look at the defaults and foreclosures!!!!
I believe there has been some who are not so sure about bubble bursting coming over here. Som of these were bubble believers. so a look at history for guidance is helpful at this stage.
Real Estate News Summary, Part 7 Nov 21 1990
56. Builder advertises: $50,000 Price Reduction! Executive homes in San
Jose’s Blossom Hill area from only $325,000. [San Jose Mercury News]
57. Builder advertises: $50,000 Price Reduction! Luxury view homes in the
Almaden Valley from $525,000. [San Jose Mercury News]
58. As a slowdown settles over the Bay Area, people wonder how they can keep
up the high expense of life here. Jean Bishmann, a credit counselor with
the non-profit Consumer Credit Counseling Service of Santa Clara County
believes that many people in trouble are living on credit cards and 2nd
mortgages rather than scaling back spending. She predicts that in another
5 or 6 months “the bottom is going to drop out.” The people who face real
troubles, said Dan Feshbach, head of the Mortgage Information Corp., are
first-time home buyers who purchased at the market peak, especially those
with adjustable-rate mortgages. [San Jose Mercury News]
59. If you must sell now, be prepared to make significant concessions. House
prices and sales are stagnant because prices rose out of the reach of
most buyers. [San Jose Mercury News]
Real Estate News Summary, Part 99, March 1992
780. Housing starts jumped 9.6% in February as low interest rates continued to
propel the industry, especially in the Midwest. February single-family
housing starts rose 15%. However, much of February’s growth is attributed
to President Bush’s plan for $5K tax credits for first-time home buyers, a
proposal that doesn’t appear to be going anywhere. [Wall Street Journal]
4. The Federal Reserve and FDIC are concerned about the $360 billion-plus of
home equity loans nationwide, especially loans to borrowers whose incomes
or home values have dropped. As consumers use their home equity lines of
credit as unemployment insurance, regulators worry what happens when the
money runs out. An estimated 53% of New England borrowers ages 35-54 with
incomes above $55K are in negative equity positions, where their combined
mortgage and other debt now approaches or exceeds their combined savings,
home and investment assets.[San Jose Mercury News]
785. Single-family home prices in 42 Zip-code areas of Santa Clara County and
southern San Mateo and Alameda counties show a median price decline of
10.2% from June 1989 to the last 4 months of 1991. That drop, however,
followed a median gain of 50% from 1988 to mid-1989–a greater increase
than many homeowners see in their lifetimes. Areas that ran up some of
the biggest gains also took some of the biggest hits: southern Sunnyvale,
Los Altos, and southern Mountain View prices fell 20% to 30%. But fears
of a major real estate collapse like those in New England and Dallas,
aren’t likely to be realized. [San Jose Mercury News]
Real Estate News Summary, Part 156, May 1993
1233.In the go-go ’80s, housing prices went up higher than they should have.
So did mortgage interest rates. People stopped buying, and prices fell.
We entered a statewide recession that has lasted longer than the national
recession. Fortunately, mortgage rates are low; otherwise, house prices
would have fallen even lower. Here in California we feel we have a
God-given right to make money on our houses, but we have forgotten that
this is only if you bought in the right place at the right time. Sellers
shouldn’t hold out for ‘89 prices. [San Francisco Chronicle]
Can anyone direct me to where I can find breakdowns of mortgages by state, e.g. how many interest-only, 30 yr fixed, etc were used by homebuyers in CA or FL in the past year?
another thing I don’t get: Why do they all report STARTS like they are a reflection of SALES? STARTS just represent new empty homes that have to go on the market.
I don’t understand why people don’t see through that.
webmistress
I love this “can’t stop building” thing. As if they have no volition. It’s the girl with the red shoes who just can’t stop dancing.
Lakewood is dumping raw land like madd. Why? Greater fools.
A report on Chicago area foreclosures:
‘Home foreclosures in the Chicago area in March rose at a rate higher than in the state or nation. There were 9% more homes in the 14-county area in the foreclosure process in March than in February. It was the second consecutive month of an increase. The national foreclosure rate was up 63% from the previous March.’
‘ Of the 4,592 Illinois homes in some stage of the foreclosure process last month, roughly 85% were in the Chicago area. Out of the nine Illinois counties in the Chicago metro area, only Lake, McHenry and Kane saw a decline. Foreclosures dropped 6% in Lake County, 25% in McHenry and 53% in Kane.’
‘The largest monthly increase of 142% occurred in Kendall County followed by 105% in DeKalb County. DuPage County saw a 63% increase from February and Will County a 30% rise. Cook County experience at 23% March increase from February. ‘