‘Welcome To The New Reality Of Real Estate’
A pair of reports on homebuilders. “Lennar, the builder of U.S. Homes houses, is scaling back operations in the Northern Colorado market. ‘We’ve heard we’re not the only national builder that is consolidating,’ said Laurel Followell, who, along with her co-workers, will be looking for a job.”
“It’s all part of the real estate cycle, said Eric Nichols, president of the Fort Collins Board of Realtors. ‘National production builders have a business model that won’t survive without the high-volume demand to keep their machine running,’ Nichols said.”
“When asked if the Northern Colorado market is overbuilt, Nichols said, ‘Segments definitely are.’ Local home builder Steve Spanjer agreed that national builders probably have overbuilt their products.”
“Another major factor is the high rate of foreclosures across the state. In Larimer County, 17 percent of the 1,100 homes in foreclosure were new homes, while in Weld County, 16 percent of 1,400 foreclosures were new homes.”
From California. “The scent of baking scones wafts through the house as children’s feet pound the floors. ‘Dad’ rushes to get things ready as ‘Mom’ lounges on the couch. It’s a birthday party for Camille Chen. ‘Husband’ Jason Simmons has a surprise: He and the kids remodeled the den into a game room and won’t Mom, a notorious poker fiend, be pleased.”
“Except Chen and Simmons aren’t married, the kids aren’t theirs, they don’t really live in the house and they’re all Centex Homes marketing director Amanda Larson’s employees.”
“Welcome to the new reality of real estate. They’ve been hired to lounge around a model home, read magazines and occasionally pretend like they’re having breakfast.”
“Centex has 166 homes to sell in its Milestone development, starting at $507,500 and heading into the $600,000 range, and figured it needed just a little something extra to entice people to come check things out. Centex built four model homes, filled them with furniture, then took things one bizarre step further. The company hired four actors to play the role of a family, in a role that’s half improv, half sales demo.”
“‘Where does the reality end and the..good God, reality begin?’ mused (publicist) Jim Garfield. ‘It’s exciting, scary and really unique, all at the same time. You sit at your desk and wonder, will people come, will it work, will people find it interesting and, most importantly, does it get the client’s story out?’”
“Some visitors seemed a little taken aback, but others joined right in with the birthday celebration. One family played along with the whole thing, asking how long Simmons and Chen had lived there, then turned chilly when asked questions by a reporter. Centex employees sat on the periphery, but no one seemed to question who they were or why they were there.”
“This seems odd, and the company acknowledges as much, but with the formerly white-hot real estate market looking decidedly cooler of late, nothing’s too unusual to hook buyers. Just putting in leather couches and baking cookies won’t do it anymore, at least in Centex’s mind. To make the home-buying experience more real, the company felt it had to employ a very unreal strategy.”
“‘You imagine yourself in this situation,’ MacInnis said. ‘If you have a beautiful experience, that gets people to think, oh, I want to live like that!’ And, by extension, ‘I want to buy this place.’ With houses sitting unsold longer these days, it might not be such a crazy idea.”
To make matters worse, the fear of a 1987-style crash is just out in a UK Times article:
http://tinyurl.com/q95ka
nah. we just has one from 2000-2003. reversion to the mean.
The 2000-2003 crash was arrested in mid-air by the Fed, which put the pedal-to-the-metal on interest rates. Now that the measured series of rate increases is gradually choking the conundrum to death, the markets can resume their mean-reversion to trend.
That would be down angle at what degree?
Starting about 1degree down and increasing until it exceeds the angle of repose…
Please, please not until I reload all my fall index puts. I’ve only been waiting 3 long years of being long volatility and watching it go out worthless.
This is bubble burst is shaping up to be FAR, FAR WORSE than ‘87, the inventory in many bubble markets is unreal. American’s are more leveraged than in ‘87 many with ARM I/O and other psycho mortgages as well as more multiple home owners than ever before. This is going to be painful.
This quote from Barclays could be enough to send the herd heading for the door:
“We are very uncomfortable about predicting financial crises, but we cannot help but see a certain similarity between the current economic and market conditions and the environment that led to the stock-market crash of October 1987,” said David Woo, head of global foreign-exchange strategy at Barclays Capital.
Of course they’re uncomfortable. Their clients are about to take a huge bath!
I agree with you Casa. I think that today the circumstances are much worse, as I remember vividly what was going on in 1986-87. The October 1987 stock market crash was precipitated by the tax reform act of 1986. The day after it was passed by Congress, I called my mentor at the time and told him that “overnight, billions and billions of real estate equity went out the window”. Soon thereafter, real estate went into an 8 year recession and the RTC was formed by the Congress to liquidate the bankrupt S&L industry. Today, we have an impending real estate crash and people are starting to panic, but the current systemic risk dwarfs the S&L credit exposure!
Not only are circumstances today worse than they were in the period leading up to the 1987 crash, they are worse than they were leading up to the Great Depression of the 30’s. The country is more leveraged in practically every aspect, huge deficits, bigger real estate bubble, and no savings.
It will be UGLY…..
In today’s Washington Post is a Lennart ad that says “we are green lighted to red flag … must sell 72 units in 72 hours … open late this week-end … mortgage counselors standing by …” looks even more like some crazed auto dealer than the last post I made on the subject.
How long until they resort to “Crazy Eddie” type TV advertisements ?
For those of you that haven’t lived on the NY area “Crazy Eddie” was a electronics store with the owner on TV saying how selling at prices this low was “CRAAAAAZYYY !!!!”. I think he later went to Jail for tax evasion.
The prices were “INSANE!” (not crazy)
There were two guys, one was crazy and the other insane if recall correctly. Someone from New Joisy help me out here !
I grew up in NJ
In-saaane!!!
or “if you don’t buy this house i’m gonna club this baby seal to death”
Another UHF reference!
That’s tax avoision, not evasion. Big difference.
Cal Worthington. Drop that house from the sky!
Classic:
“I will stand up on my gead to make a deal!”
“If I can’t beat that price, I’ll eat a bug!”
“Go see Cal, go see Cal, go see Cal”
Cal : I’ll eat a bug to sell you a car”
Price cuts in hot markets?
http://www.latimes.com/business/la-re-update21.1may21,1,4847325.story?coll=la-headlines-business
this was hidden in page 21 in Realestate section of LATIMES
Days of equity windfalls may have waned
http://www.dailynews.com/business/ci_3847238
A couple of years ago, my wife and I were looking at several homes in a particular neighborhood and I noticed that something just wasn’t right about a number of them. For one, too many of them had a piano in the virtually-unusable area called a living room. Didn’t have a clue about “staging” then and how geared it was to distract from the flaws — for example, the master bedrooms would have a dresser but no chest of drawers, the family room would have no coffee table. Now this. I suppose soon we will be invited to dinner and a wine tasting in these model homes, with a professional chef posing as Harry Homebody.
And from CA’s Orange County Register– “Air leaking from Housing Market”. http://www.ocregister.com/ocregister/money/housing/article_1149582.php
(freebie registration)
Talk about a psychology change from 6 months ago!.
OMG Next Centex will have a soap opera style series going to keep poeple coming back with cliff hangers and everything. Maybe move to a fear factor type presentation - who will eat the termites? who will sign for that rediculous mortgage?
“Some visitors seemed a little taken aback, but others joined right in with the birthday celebration. One family played along with the whole thing, asking how long Simmons and Chen had lived there, then turned chilly when asked questions by a reporter. Centex employees sat on the periphery, but no one seemed to question who they were or why they were there.”
I’m sorry, but this strikes me as something beyond creepy. It’s bad enough when viewers send flowers to television studios when soap opera CHARACTERS (not actors) get sick or die, but joining in the charade of a home-selling tableau is downright freakish.
Wife talking to husband after hanging out at model……… Oh honey I didn’t want to buy this house until I saw those nice people having the birthday party . Now I can picture myself having a birthday party to . Let’s give the builder full price and not wait another second …………. .
Creepy was my thought as well. It is just icky.
THANK YOU BEN.
As a result of visiting this blog since late 2005, I listed my place for sale in March. I was under contract in 2 weeks and closed last week. I was so relieved to cash out of this mess and start renting.
In the Maryland/DC area, things are at a standstill. Sure houses are being sold, but inventory is building faster than absorbtion. I’ve heard from a local builder that the national builders still won’t meet estimates that were already revised lower. It’s going to take some time before everyone realizes what’s going on. When September arrives and folks realize they’re staring into the winter months without a sale, the frenzy will start. Everyone, be patient. Stay liquid.
You are wise to sell and get out. I agree, “Everyone, be patient. Stay liquid.”
Like I say, “It don’t mean a thing if it ain’t got that swing.” What next?
Part of the New Reality for Real Estate is the sudden boom in Realty Reality TV shows:
————————————————————————————————
Real estate reality shows are hot properties
By Teresa Wiltz
THE WASHINGTON POST
May 21, 2006
http://www.signonsandiego.com/uniontrib/20060521/news_1h21realtva.html
And, this being television, these shows are just a beat or two behind real time, a case of pop culture bringing up the rear in what economists like to call your classic lagging indicator: The bubble’s bursting, and now we have a slew of television programs coming at us, after the fact.
Never mind the softer market – which many real estate industry types deny – we’re still obsessed. “All of America right now is having a love affair with real estate,” says New York real estate mogul Barbara Corcoran, founder of the Corcoran Group.
Most Americans – almost 70 percent – are homeowners. “Everybody’s bought in,” Corcoran says, “everybody’s in the parade. . . . With so many people bragging at cocktail parties or at church how much their properties have gone up,” it was just a matter of time before we’d see our personal obsession played out on the little screen, says Corcoran, who has her own real estate television show in the works.
…
Witness a recent episode of “Buy Me”: We see the breezy Natalie and Henry, who figure that while the market’s hot, they might as well make a mint on their McMansion. And then, after the first open house, when no one bites, we find out the truth: Said McMansion costs about 10K a month just to keep the lights on, the propane gas grill fired up and the pool and the Jacuzzi bubbling along, and the couple is desperate to ditch their property. Still, they list their three-bedroom place at $875,000, when houses in their neighborhood go for $750,000 at most. Soon they’re screaming at their agent, they’re screaming at the buyer’s agent, and they’re screaming at each other, too.
Drama, or, as the narrator intones at the show’s end in a classic Rod Serling timbre: “High expectations and economics often clash in the real estate market. . . . Buying and selling your home is more than just a business transaction. It’s a roller coaster of emotion.”
Here’s the new reality - what buyers have been willing to pay over the past several years had a significant factor of “the house will probably be worth more next year” built in. There were also multiple buyers competing over the house based on this expectation. The sellers, appraisers, lenders and agents all had this factored in…and it was a great tool to push people into homes they could barely afford, even with creative financing. Times sure have changed, haven’t they? Now there’s a new factor creeping in - “this house will be probably be worth less next year, and the year after that”. Potential buyers are catching on to this and the media is shifting toward these type of headlines more and more. It will be verry interesting to see how this plays out over the next several years. I wouldn’t be surprised to see 20-30% reductions in the formerly “hot” markets over the next year or two.
Attention Home Builders
I am currently available as a fake home dweller. I will add total reality to your model home.
I will sit on the sofa in my underwear with my gut hanging out, swigging brewskys and watching the game of the week.
Prospective buyers will then have an opportunity to see what it would be like if they actually lived there.
This is going on in New Orleans’ Garden District right now. Lots of owners are giving free rent to people to live in their expensive houses and make them look good for prospective buyers. Some even require those participating to have beautiful furniture.
my spin is to sit at the kitchen table with calculator and stack of bills as my only companions. i can do a real good stressed-out sweaty guy roleplay.
Or how about a divorced couple in the living room arguing about their finances. The husband will say things like ‘This house was all your idea…and now look at the trouble we’re in’…the wife will say things like…’It’s not my fault you don’t make enough money to buy a decent house for our kids’.
The wife will defend herself by saying that Suzanne researched it!
“I will sit on the sofa in my underwear with my gut hanging out, swigging brewskys and watching the game of the week.”
I guess you will be drinking Schlitz from Costco and watching whatever comes in on Grandpa’s black and white TV. The mortgage won’t allow for much more. Be sure to wear a stained wife-beater undershirt.
And please…a courtesy flush!
Check out my new favorite HB short, WCI (TOL was my old favorite):
http://www.wcicommunities.com
Lots of exposure in Northern VA and FL, with lots of condos in FL. How can this one go anywhere but down? Orders were off over 50% as of the last earnings announcement earlier this month, and a recent article put the number at something like 80%. I wish I had found this one earlier, but I do not think it is too late.
Anybody from Florida have any experience with this company? It is the one where the three guys died in the concrete.
From the recent 10Q:
“Similar to the traditional homebuilding division, our tower division experienced a significant decline in new orders as buyers appear to be delaying their purchasing decisions based on the expectation that significant price reductions may be on the horizon. Additionally, the decline in new orders may be partly due to the increased supply of existing tower home re-sales on the market in Florida.”
Okay, so they admit that nobody is buying because they expect future price decreases AND that there is an increased supply of existing tower home re-sales; i.e., flippers are exiting market, presumably because they expect price decreases as well.
In response to this news, they continue to build, albeit at a slower rate, and they begin construction with a much lower percentate of units pre-sold:
“With traffic levels off approximately 50% in the Florida market, we have delayed the release of several towers from the first and second quarters of 2006 to later in the year, and have reduced the number of towers that we expect to introduce to the market to 11 to 13 from our initial expectations of 15 to 17. During the last two years, we achieved tower unit presales prior to construction of new towers ranging from 70% to 90% which is a level higher than our long term average. In the current environment, we expect to presale 50% to 60% of our towers planned to start construction this year. Gross margin as a percent of revenue for the tower homebuilding division is expected to range from 25% to 28% for 2006 as we use incentives and discounts on a selective basis to motivate home purchasers.”
Finally, they admit that they will not be able to meet reduced guidance unless buyer demand rebounds from the current depressed levels:
“Because we are experiencing lower overall demand for our Florida active adult communities, tower residences and our higher-priced Mid-Atlantic homes, we are lowering our EPS guidance to $4.50 to $5.00, which represents a 12% to 25% increase over 2005 reported EPS. Upside to this updated guidance may be possible if demand improves or incremental land sales are closed. However, if buyer demand does not rebound from depressed levels in the first quarter of 2006, interest rates increase significantly, the ability to obtain permits and approvals for land development are delayed or adverse legislation or regulations occur, then it may be difficult to achieve earnings growth.”
Yep…Better than TOL !
how those builder contracts will change
http://biz.yahoo.com/brn/060520/17956.html
btw name 1 market in usa that isn’t overbuilt
Oh, there’s probably a few places in Mississippi, North and South Dakota, West Virginia and Nebraska . . .
New Orleans?
Cleveland
Many secrets and tricks of RE are now wide open on the internet.
I remember seeing a piano in the living room of a large condo I was looking at in Spring ‘04. I thought at the time it was kind of elegant yet impractical. Looking back, I realize it was probably staged.
Only a few of us read these blogs, but we talk to a lot of people. The internet and more savvy buyers will probably speed the housing decline.
‘Staging’ or ‘dressing’ have always been done. There are several companies here in Toronto that specialize only in that — I’m positive they exist most elsewhere. Even in hot markets most claim you’ll sell for more than their added cost. In a downward market we’ll see far more of them. Back in the early 90’s there was 8/10 furniture used by the condo builders in their ‘model’ suites. Furniture looked right until you sat in it — all smaller than actual furniture but they made the rooms appear far larger… no doubt some of that will also return.
““Welcome to the new reality of real estate. They’ve been hired to lounge around a model home, read magazines and occasionally pretend like they’re having breakfast.”
And for the lucky older visitors, there’s a peek into the artfully decorated master bedroom, where they get to leer at Harry Reems and Linda Lovelace look-alikes get it on.
“Some visitors seemed a little taken aback, but others joined right in with the birthday celebration. One family played along with the whole thing, asking how long Simmons and Chen had lived there.”
“But not all went according to plan for Centex as evidenced by one home searching couple that wandered into an upstairs bedroom and stumbled upon two of the actors engaged in a sex act that was described by the wife as “disgusting and illegal” while the husband stood there simply scratching his chin.” Needless to say they didn’t buy.
LOL, I thought that same thing but wasn’t crude enough to say it here . . .
I had to sit on my hands to avoid making a similar post!
(Nichols said the swell in the supply of homes on the market might be partly due to landlords who primarily rent to college students who do not want to face the city of Fort Collins’ “you plus two” crackdown coming up.
Per city law, no more than three unrelated people are allowed to live in one residence.)
haha, sounds like the RE-industrial complex got ahold of some law makers.
(This week, The Group Inc.’s monthly newsletter cites inventories of homes available. Supplies for new home buyers range from 16 to 17 months in the Fort Collins-Loveland market to more than three years’ supply in Windsor.)
move to COL and you’ll experience a housing bubble time-warp. seems they are a bit ahead of the US.
This is, without a doubt, the most bizarre thing I have ever read.
The housing bubble has become an absurdist drama.
Wasn’t there a post a while back … where someone had visited a Condo opening? There were pictures of the (dinky) condos. And, when the visitor looked out the window, there were half-clad male and female models posing as the neighbors across the way … no doubt to entice millionaire voyeurs and masturbators.
I’ll try to find the link.
Here’s the link for the downtown SD condos with the staged neighbors.
http://www.capitalstool.com/forums/index.php?showtopic=7644
All they need is a big sign:
CENTEX: Where the boys look like boys, and the girls look like girls.
They’ll have them lining up to buy in.
“Except Chen and Simmons aren’t married, the kids aren’t theirs, they don’t really live in the house and they’re all Centex Homes marketing director Amanda Larson’s employees.”
Did anyone else see the Truman Show? This sounds like another instance where life immitates art…