Pricing Pressure And Higher Cancellations In DC
Some housing bubble news from homebuilders. “M/I Homes, Inc. announced results for the first quarter ended March 31, 2006. Robert H. Schottenstein, CEO, commented, ‘Our first quarter results were in-line with our expectations with gross and operating margins of 27.3% and 11.4%, respectively.”
“Our Florida and North Carolina markets continue to be strong, while Washington, D.C. is experiencing pricing pressures and higher cancellations. Conditions in our Columbus, Indianapolis and Cincinnati markets continue to be challenging.’”
“The home builder said quarterly net income $1.14 a share. The company said the results include a tax charge of 4 cents a share for stock-option expenses. A survey compiled by Thomson First Call had analysts expecting earnings of $1.45 a share on sales of $321.5 million. Total revenue jumped 7% from last year to a record $259.1 million.”
“Investors punished the stock early Tuesday as shares slipped as much as 5% in morning dealings.”
From the Washington Post. “Forget about free plasma TVs, gift cards or upgraded cabinets. What about that free BMW Z4 Roadster that just popped up in ads for a new Fairfax County condo?”
“Builders are using more incentives in a softening market, but a car is a rarity. Two-bedrooms start at $356,900 and three-bedrooms at $408,900, according to the complex’s Web site.”
“But hold your horsepower. Developers of the 202-unit complex aren’t actually giving away the $38,000-and-up sports car. Buyers of two- or three-bedroom units get a free two-year car lease While that’s not quite the same as getting a Beamer, it’s nothing to be sniffed at. BMWs lease for around $400 a month, with a $2,500 down payment plus taxes and tags.”
“No word on whether Legato Corner’s sales have gone into overdrive. Sales staff members deferred questions to marketing company, which did not return calls seeking comment.”
Do you think this has anything to do with the bubblicious bench? The bubblicious bench is a mecca for bubbleheads located in the DC metro area.
http://bubblemeter.blogspot.com/2006/03/bubblicious-bench-flippers.html
David
http://bubblemeter.blogspot.com
‘A survey compiled by Thomson First Call had analysts expecting earnings oof $321.5 million. Total revenue jumped 7% from last year to a record $259.1 million.’
That’s quite a revenue miss.
Isn’t a hefty kickback tantamount to tax fraud? Basically the mortgage payments cover the house + beamer lease, slice it or dice it whatever way you may. The mortgage interest deduction is therefore being misused to lease a car.
yeah, but your discounting the fact that you are probably smarter/more creative/more motivated than most government lawyers that would have standing to make that argument in court. not to mention the government has as much vested interest in maintaining RE prices as the condo industry does.
It would depend on the wording in the purchase contract and what the HUD - 1 states.
“What about that free BMW Z4 Roadster that just popped up in ads for a new Fairfax County condo?”
That should appeal to their target demographic: RECKLESS SPENDERS
Think of the value of that Beamer as the difference between the official sale price of those condos (used to comps which buyers rely on to decide on how much homes are worth) and the true market value…
Getstucco:
You beat me to it. Good point.
I don’t need a car. I just want an affordable home for my family. Even with almost a six figure income we still struggle. When will this thing right itself? I have no problem with million dollar homes. I like the idea of having a goal to own one in future, but not when a million dollar home is not worth even a half a million. There are over 3 million homes for sale, but none of them are actually affordable for first time buyers when using conventional financing methods. When will this thing right itself?
I hear ya,,, I’m happy with my paid car and it will not be taken back in 2 years like this deal when the lease is up and you then realize your upside down in your home too….
I remember how my sister, use to complain about the mortgage payment she had to make on her $190K house she bought in 1997. Her payment was about $1,500 with taxes. Now her house is valued around $500K and she refinanced two or three times to lower her payment. She could not afford her house today if she had to buy it now, but she doesn’t think there’s a problem with housing prices. It’s so easy for those who are not negatively affected by this load of fraud across the board to smile and say, “You’ll get your chance”. I can’t wait until the housing Armageddon really kicks in.
I would say that there is NO WAY that the underlying value of my house has doubled since I bought it in ‘99. If money was the main thing that I was worried about I would have sold in ‘04 or ‘05.
I’m quite sure this is the Baby Boomers once again strip-mining something of America, for their own benefit. For the young out there, it’s now the American Dream again, to own your own home. Emphasis on “Dream”.
“she refinanced two or three times to lower her payment.”
amazing how people who wouldn’t have 20 credit cards and max them out will refi and HELOC as if that is somehow different
If it is a true refinance where the only thing she was doing was getting a lower fixed interest rate and not equity extraction, it would be a good move.
“If it is a true refinance where the only thing she was doing was getting a lower fixed interest rate and not equity extraction, it would be a good move.”
I know its cheaper in other states. Here mortgage closing costs are $5000-$10,000. When people constantly refinance, they’re adding those closing costs to their debt each time. I always wonder whether people factor those costs into their decision.
In DC I’ve been recently seeing signs on street corners for a company that will buy ugly homes quickly. I know these have been around but they caught me off-guard because I figured investors were looking for the exits. I’m wondering if investors think they can pick up properties cheap now that inventory is increasing. I don’t think this bubble will quit until the easy money dries up.
Good let the investors buy the excess crap . At least than the banks don’t have to sell them at a greater discount because there will be enough down the road that they have to unload .
yes, I think this comes from a certain type of speculators who are preying on people who get in trouble because the market is slowing.
When the double-digit growth in my country stopped around 2002, we suddenly got many of those ads in the local newspapers - hadn’t seen them before, many of them from small RE agencies etc. They will buy anything for cash money and of course ‘offer you a really good price’.
They are looking for people who need money very quickly and will take a big cut on the regular asking price because they are under pressure. From what I have heard, it helps a lot if you wave some big banknotes before their eyes.
Reminds of how Don King signed fighters. Other promoters would offer more money to sign but Don King would show up with a bag full of cash.
My ex-boss (from about 20 years ago) used to make a tidy supplementary income from buying and selling (and also servicing, he was good value, I used him myself) cars that were too old for dealers to want.
He told me then he used to figure on paying 10% less by showing the owner a bunch of banknotes.
It’s probably the We Buy Houses scam
thanks for the link. I’ve wondered about those signs for a while.
“It’s probably the We Buy Houses scam.”
Or it could be one of the Homevestors advertising for homes to fix and flip:
http://www.homevestors.com/
http://www.housesfast.com/blog/
The local paper did an interview with these guys a year or so ago. They described common scenarios where they get calls in response to their signs: elderly parent dies, their home hasn’t been maintained in decades. Their kids decide it’s easier to just sell it cheap to a flipper than fix it up themselves. Also cases where alkies or addicts inherit the family home, destroy it, then sell it cheap after they’ve hocked everything in it and still need money for drugs. Garbage houses in general are favorites of theirs since nobody wants them and they get them dirt cheap.
After reading that article, I wouldn’t take one of their ‘rehabbed’ homes if it were offered free. Paint and new carpet only covers up accumulated filth and decay, it doesn’t get rid of it. Too many of the homes they described sounded like they should’ve been torn down rather than rehabbed.
THAT’S HORRIBLE. There’s a couple down the street who do this. I’ll never look at them the same way again.
The cracks are leaking in the media dam.
Bubble bloggers need to scope out the recent issue of “Harper’s Monthly”.
The cover story is entitled, “The New Road to Serfdom” or 26 Illustrated Ways Why the Real Estate Housing Bubble is about to Collapse.
Best mainstream media article I’ve seen to date.
Lottsa totally FB’s out there.
Yes indeed. The media is just not beginning to catch on to this. The media will have a field day with stories about struggling FBs and it will show up on the 10PM news in multi part stories. It’s inevitable…they see blood in the water and will increase the frequency of these stories in proportion to how quickly they can replace RE advertising revenues.
Too bad that most people wouldn’t get the “Road to Serfdom” title these days. Sounds like someone at Harpers just liked the title and had never read Hayek’s work because I’m not sure how a real estate bust is equivalent with the rise of socialist centrally planned state. Some would argue that we are on that road here in America, but I believe that we’re more on the teeter-totter of serfdom! I’ll have to check it out before passing judgment though. Thanks.
I’m convinced the housing bubble hangover is going to bankrupt GM and maybe Ford. Lots of pensions are going to end up controlled by the government.
Maybe it’s an apt title after all. He’s referring to the bankers (landowners) instead of the government in this case.
Here’s the introduction, which I snagged from another blog (housingpanic.blogspot.com). Thanks for the heads up — I’m going to buy the magazine today:
The New Road to Serfdom:
An illustrated guide to the coming real estate collapse
by Michael Hudson
Information graphics by Nigel Holmes
Even men who were engaged in organizing debt-serf cultivation and debt-serf industrialism in the American cotton districts, in the old rubber plantations, and in the factories of India, China and South Italy, appeared as generous supporters of and subscribers to the sacred cause of individual liberty.
— H.G. Wells: The Shape of Things to Come
Never before have so many Americans gone so deeply into debt so
willingly. Housing prices have swollen to the point that we’ve taken to calling a mortgage — by far the largest debt most of us will ever incur — an “investment.” Sure, the thinking goes, $100,000 borrowed today will cost more than $200,000 to pay back over the next thirty years, but land, which they are not making any more of, will appreciate even faster. In the odd logic of the real estate bubble, debt has come to equal wealth.
And not only wealth, but *freedom* – an even stranger paradox. After all, debt throughout most of history has been little more than a slight variation on slavery. Debtors were medieval peons, or Indians bonded to Spanish plantations, or the sharecropping children of slaves in the postbellum South. Few Americans today
would volunteer for such an arrangement, and therefore would-be lords and barons have been forced to develop more sophisticated enticements.
The solution they found is brilliant, and although it is complex, it
can be reduced to a single word: *rent*. Not the rent that apartment dwellers pay the landlord, but economic rent, which is the profit one earns simply by owning something. Economic rent
can take the form of licensing fees for the radio spectrum, interest on a savings account, dividends from a stock, or the capital gain from selling a home or a vacant lot. The distinguishing character of economic rent is that earning it requires no effort whatsoever. Indeed, the regular rent that tenants pay landlords becomes economic rent only after
subtracting whatever amount the landlord actually spent to keep the place standing.
Most members of the rentier class are very rich. One might like to
join that class. And so our paradox (seemingly) is resolved. With the real estate boom, the great mass of Americans can take on colossal debt today and realize colossal capital gains – and the concomitant rentier life of leisure – tomorrow. If you have the wherewithal to fill out a mortgage application, then you need
never work again. What could be more inviting – or for that matter more egalitarian?
That’s the pitch, anyway. The reality is that, although home ownership may be a wise choice for many people, this particular real estate bubble has been carefully engineered to lure home
buyers into circumstances detrimental to their own best interests. The bait is easy money. The trap is a modern equivalent to peonage, a lifetime spent working to pay off debt on an asset of
rapidly dwindling value.
Most everyone involved in the real estate bubble thus far has made at least a few dollars. But that is about to change. The bubble will burst, and when it does, the people who thought they would be living the easy life of a landlord will soon find that
what they really signed up for was the hard servitude of debt
serfdom.
good writing, but I wonder if it really applies nowadays.
in my country (Netherlands) most people will probably choose the easy route through bankruptcy. Whatever your debt, after 3 years on an income at social-security level plus some mandatory counceling, all your debts are erased and you can start over and apply for a new huge mortgage. During those 3 years you can keep your car, and if you ‘give away’ your other expensive possessions in time to a friend or family member there is no way they can be touched.
Easy choice, so was is a long waiting list for the bankruptcy procedure in the last years. When home prices really start declining (that is more than 25 years ago here) there will be so many people on the waiting list for bankruptcy that the courts probably skip the ‘tough part’ of 3 years and simply write off all the debt.
I understand bankruptcy is tougher nowadays in the US, although in many states there are still ways to get out of debt the easy way (at the cost of others).
Like others on this blog, I’m afraid that the serfdom may apply first of all to those who were prudent and will have to pay many years for the bailout of all the stupid and reckless home buyers
I use to get Harpers - got a subscription as a Christmas gift - and pretty much hated it. I thought they had really long articles that were basically left wing rants (and my politics lean left). I will check out the latest edition. They’re still late to the party unlike the Economist.
The article was really short — easily scanned in the bookstore. mag costs $6.95! outrageous. but it has a great cover of a guy carrying a huge house on his back that people might want to leave lying around the office for their bullish co-workers to see.
And here come the lawsuits…
http://tinyurl.com/h7u5n
That’s what really bothers me about all this - it seems as though a hell of a lot of people were “set up to fail”. I find myself wondering if this was intentional as I try not to reach for that tinfoil hat. :-p
Gee, lets take a ~$10,000 limited use cost (2 year lease on a stripper Z4) and turn it into 30 years of mortgage payments… Gee, what a bargan!
Does anyone really think software’s going to help?
http://tinyurl.com/ggxb7
I saw that and signed up to look at it. I really don’t think it can. When you’re screwed, you’re screwed.
The fact that a company is pushing that value proposition proves there is a market of soon to be scared out of their minds bubble-fied home owners (I meant to say, home-pretending-to-be-home-owners). There’s always a product that sells, even in a down economy. Here are some potential advertising statements, “Inelastic home bubble software! Keep the price high and buy our product! You’ll get to see frightening graphs of how much money your about to loose! Payment plans available use your PayPal account and don’t pay for 60 days!”
Well, I bought a cheap house in ‘99, refinanced to a 15 year fixed in ‘03 and bought my (used) BMW Z3 for cash in the beginnning of ‘05. I think I came out ahead of anyone who takes their deal. I do suspect that after this think collapses, the dollar value of all of these incentives will be recorded and subtracted from price for appraisal and comp purposes.
“Today’s Homes” around Colorado Springs, CO is advertising Free Housecleaning For A Year if you buy one of their cookie-cutters.
New Home Sales tomorrow at 10 AM NY time!
Deja vu. They used to give leased BMW’s as incentives to sign up employees at dot com firms. Looks like another bust coming up.