‘It’s Safe To Say The Housing Boom Is Over’
Another homebuilder had disappointing numbers out last night. “Irvine-based Standard Pacific reported after the stock market closed that it expected to cut its earnings and delivery guidance for the full year. Standard Pacific said net orders were off in California, Florida and Arizona, contributing to a 41% drop in April and May compared with a year earlier.”
“Pulte Homes Inc. and Standard Pacific Corp. on Friday became the latest major home builders to warn of lower full-year earnings as the housing market continues to cool across the country. Hovnanian Enterprises Inc. and Toll Bros. Inc. lowered their forecasts within the last month.”
“All four companies cited large drops in new orders and jumps in cancellation rates in the second quarter on top of rising interest rates and larger inventories of unsold properties. Home prices could slip as companies offer incentives and discounts, said anaylst Rick Murray. Investors, who bought many homes during the boom, could sell their assets as the market cools.”
“‘I think it’s safe to say the housing boom is over,’ he said.”
“One of the Phoenix area’s biggest home builders told Wall Street on Friday that earnings would not meet expectations because of a plunge in orders. Pulte Homes, the Michigan-based company that owns the Del Webb brand, said that orders for new homes fell nearly 30 percent across the country in April and May.”
“The financial health of home builders is vital to the Valley’s economy. Housing is the area’s top industry and a major employer. It’s clear that buyers are revolting against high prices and rising interest rates. ‘We’ve been in a housing bubble and now we’re seeing the downside of that,’ said Dawn McLaren, a research economist at Arizona State University. ‘A lot of our job growth has been in construction, and now we have to worry about that. When you look at job growth numbers, that is the measure of the economy.’”
“The slowdown comes at a time when Pulte is rolling out several big new projects in Arizona, including two new Sun City communities and an Anthem community. Housing analyst RL Brown, publisher of the Phoenix Housing Market Letter, said builders need to unload spec homes and keep production moving.”
“‘This is not unique to Pulte, and I would expect that any builder that is being straightforward today about this region to be in a similar situation,’ he said.”
“(Analyst) Stephen East said he expects Pulte orders to be down a “disturbing” 21 percent this year. ‘(Pulte’s) over-reliance on Florida and the West region is now coming home to roost,’ he wrote.”
The Herald Tribune. “In one of the strongest signs yet that the real estate market has cooled, the city of North Port issued fewer building permits last month than anytime in the past four years. North Port, the fastest-growing city in the region, expected to permit more than 5,000 single-family homes this year. But in May it issued just 74 permits. That follows only 88 permits issued in April.”
“It represents a virtual standstill in a market. Sales of existing homes in the Sarasota-Bradenton market fell 44 percent in April when compared with the same month a year ago, while Charlotte County-North Port’s sales fell 33 percent. Statewide, sales decreased 31 percent from 2005.”
“Still, the May numbers for North Port were among the most dramatic that have been reported. ‘That’s kind of shocking, but it was due to happen,’ said Barbara Gross, a North Port City Commissioner. ‘I think if you checked every place, all the permits are down.’”
“Charlotte County, too, is feeling a slowdown in sales. According to the Florida Association of Realtors, condominium sales plummeted 98 percent in April, with two sold, compared to 81 in 2005.”
“Commissioner, Richard Lockhart, said the city’s economic model has fundamentally changed. ‘We can’t depend on the housing market to sustain what we had going,’ Lockhart said.”
Another Arizona report on Pulte:
‘One man’s sprawl is another man’s castle. Those disparate views are being expressed about Red Rock Village, a master-planned community being built by Pulte Homes 30 miles northwest of downtown Tucson in Pinal County. Almost 4,000 houses are planned at the 1,000-acre community.’
‘Pulte officials project the development will feature new homes at prices that will be $20,000 to $40,000 less than than comparable homes in northwestern Pima County.”
“4,000 homes are planned at the 1,000-acre community”
Even in the middle of the desert you get quarter-acre lots.
much smaller than that after you subtract the land needed for roads and other infrastructure. Probably 1/8-acre lots.
the lots here in phoenix are non-existent
I have a pre-con meeting w/ Pulte on Tuesday to begin work on a new interactive water park at liberty bell (anthem, deer valley) and I just quoted a massive, 400K playground for the new anthem development down south. I don’t really know what they’re thinking but I expect once sites are built and bonds are released, construction work will absolutely hit a wall…. There will be no soft landing for us.
BTW…the water features are made in Québec and the play structure is made in Sweden…the only think made in the USA will be the sand and gravel…
I’ve driven by the new Anthem way the heck out here in Florence. The only people that could even live out that far would be retired people. Plus there is nothing out there at all. Its like another ten miles further out than Johnson Ranch which is already way out there. They do have the big fancy entrance with all the waterfalls and such but who will move here. This place would even be boring for a retired person.
They better price them at $20K to $40K to get them sold.
It’s safe to say the laws of financial reality cannot be ignored forever. Nothing appreciates at 20% annually, for eternity. No one was foolish enough to believe otherwise, right?
Ask that question of the dumbasses in Los Angeles.
Or the “economist” predicting 10% annually until 2014 in OC.
http://blogs.ocregister.com/lansner/archives/2006/06/insider_qa_another_housing_bul.html#more
I can’t figure out why the permit #’s are up substantially (YOY) for Bakersfield, while everywhere else the $hit is hitting the fan. The big boys - KB, Pulte, SPF, Hov, Beaz, etc… - are breaking ground on thousands of new homes and gobbling up the advertising space in the local paper. Do they know something we don’t know?? Or are they just going to go down in flames?? Most of the land they purchased here has been in the last 12 months at over 100k per acre. This land was 5k-10k per acre for 20 years.
c&c, I see what you mean but they are builders. I can’t explain the increase in permit #s. But as someone on the blog said some time ago, “It’s what they do”. They can’t really just stop building…they’ll probably just make some major changes. Changes that their most recent buyers (and other F’d borrowers trying to sell) won’t like, e.g., lower the sale prices.
Is here someone on the blog who can shed some light on what builders so when there is a slowdown?
BayQT~
I think what builders do depends on their debt and cash flow situation.
They may have nasty bond and loan covenants whereby if one goes into default, they all do—which almost inevitably triggers bankruptcy. So they need cash flow just to pay off the loans. The debt may make them very short termist—if they all could slow down they might make more money, but perhaps they can’t.
By the way, it’s better to buy a house which was built in a real-estate downturn rather than a boom. In a boom the construction workers are paid oftne “by the piece” and so they rush to do as much as possible in as little time, so quality is low. In a downturn they may want to be paid hourly and drag things out as they know there aren’t as many new jobs to jump to after one is over.
Thanks, Dr, for your reply. What you said in your last paragraph someone here mentioned before…makes a lot of sense. Personally, I have no problem waiting this thing out. I’ll just continue to save my money.
BTW….just a thought. The first house I bought (1979) was in Berkeley, CA and it was built in 1907. A fixer but it had charm and character. Do you think that one of the reasons why houses of the Victorian era and shortly after that were so ornate was because more time and attention was paid to the building of the house? Or, it was just the style at the time?
I absolutely hate new construction. There is no creativity, no character, mostly simplicity at its worse, and the quality is horrendous. I’ve heard stories of signs of wear and tear 2 years after a move-in that should not be happening. Crazy. If I had the money and the wherewithal, I would do a custom build….no question about it.
Thanks again for your input.
BayQT~
BayQT, I rent an 3-year-old townhouse in an “upscale” planned community, built by one of the better builders in the area. I can’t believe how the building’s facade is beginning to deteriorate - the “wood” trim is actually some hard foam substance that has started to shrink a lot, and there are now big gaps at the joints. One piece was falling off entirely - I had to get on a ladder and nail it back on. When I inspected it, I couldn’t believe the “nails” they used on the trim — it would be more appropriate to call them staples.
When we looked at homes in 2004, we couldn’t believe how badly the 5-7 year old homes were starting to deteriorate. Wood trim around windows and doors was already visibly rotted, and the cheap contractor paint was peeling off. Just pathetic. These $700,000 homes will be tear-downs in 15 years.
‘Wow! See? New construction…not for me. What a waste of money.
Here’s a kicker,though. I have heard people say that they would rather buy new construction because they are getting a *fresh* house, and not someone else’s problems. Silly rabbits. And with most of the construction having very high ceilings, who in their right mind (and knowledgeable of energy costs) would buy such a thing if they wanted to spend their money wisely? Ok…so to answer my own question, they are clearly not in their right mind. It’s about the appreciation for many of these buyers. Oy vey!
Someone here said, “If the interest rate goes up to 7% that knocks out a lot more potential buyers because of these high prices.” Not necessarily so. They can probably still buy, but at 7% you just can’t buy as much house for the same payment at lower rates. A lot of people have more house than they need anyway. Smaller house, lower energy bills, fewer rooms to clean (:-D). Sounds like a deal to me.
BayQT~
That’s amazing but no real surprise. In a speculative frenzy people will buy anything, sometimes sight unseen. Who cares about quality of construction when you are going to sell in 2 years and make $100,000 of free money.
I think the average home buyer has watched too many fantasy shows on TV over the years. They are all too ready to believe that any starry eyed notion can be true.
Forget about logic and economic reality, that stuff is too boring - just gimme my free money from houses that are magically more valuable each year even as they fall apart and thousands more houses are built just down the road.
Thanks for the good advice, sounds very logical.
Yep. It looks like the cat is finally out of the bag and the media is getting on board….USA Today has reported this story, too. It has the widest circulation of all U.S. newspapers (says Wikipedia)…..2.25 million copies sold every weekday.
http://www.usatoday.com/money/economy/housing/2006-06-02-pulte_x.htm
Put on your seat belts and protective head gear everyone. Here we go…..
BayQT~
Hmmm…wish they added the follow-up warning by Standard Pacific to the story for a nice 1-2 punch. Looks like the publication time for the story is an hour or so before SP warned….
lots of bargains soon enough
Fox News Cashin’ In just had a segment on the upcoming RE Bust…
Barbara Corchoran is even starting to change her tune… Amazing how fast this thing is changing in the media, all panelists agreed that the market is due for a severe correction.
Points touched on were inventory skyrocketing, high leverage, beginning to see foreclosures, low interest rates and lax lending drove prices to high… All things we have been saying for months and months, but it is finally hitting main stream media and when sheeple hear that info from the so called “experts” it will be the start of the panic on the way down.
Just saw it also. Finally, the news outlets are reporting the truth.
The Washington Post real estate section today has a huge headline, “Do You Know Your Loan?” and a story about a survey they did about how much homeowners understand about the terms of their mortgages.
Nets out to this: people are idiots
barb - that biatch was the biggest pumper going
hope she doubled down in Fall 05
Finnally, it feels like the battle is going in the right direction. I have been checking out this blog for a couple of months, so I am a newbie. I have been saying for years though that home prices are absolutly insane. I drive home in a decent neighborhood that IMHO is heading down hill, and there are all kinds of home’s built in the 50’s that look like manufactured homes. 1,000 Sqaure feet, with 8,000 square foot lots. All of them worth $500,000. Insane.
it is different this time
1. 10% of employment is HIC
what was it in 1990 ?
2. all markets are tanking in a six month window
last time it was from 86 to 91
This is just the tip of the iceberg. Housing bulls who violently resisted my prediction of falling prices and a possible recession, are now out of the denial phase. They denied it, then got angry, now they are starting to accept that what I have been preaching is probably true and likely to happen. I think most are scared and are about to panic.
Does anyone have the steps? Denial, Anger? I wonder which one we are in now.
Thanks!
Tom
Kubler-Ross stages of grief…
Denial, Anger, Bargaining, Depression, Acceptance.
The manifest not necessarily in that order.
I would say we are still in the Denial stage. It should get interesting around the depression stage.
The flippers are sweating. They have not been sleeping well. The IO and ARMs crowd are sweating too, another hike is coming in June.
I spoke with a home inspector yesterday who does most of his inspections in Riverside County, CA. I believe his type of business to be a more accurate barometer of conditions in that he is called primarily to finalize the transaction. Additionally, he works for, as he put it, “3,000 or so realtors.”
He guessed that his business was off 40% or so and that many of his counterparts were “getting out of the business.”
I never knew that economic models were so fickle…
March 2005:
“South Florida is working off of a totally new economic model than any of us have ever experienced in the past.” The realtor also predicted that “a limited supply of land coupled with demand from baby boomers and foreigners would prolong the boom indefinitely.”
June 2006:
“Commissioner, Richard Lockhart, said the city’s economic model has fundamentally changed. ‘We can’t depend on the housing market to sustain what we had going,’ Lockhart said.”
The big boys - KB, Pulte, SPF, Hov, Beaz, etc… - are breaking ground on thousands of new homes and gobbling up the advertising space in the local paper. Do they know something we don’t know??
It’s a no brainer. Everyone wants to live in Bakersfield.
Whats funny is that is the local realtor spin. WTF? Once the buildings stops there wont be enough U-hauls in the world to cover the mass exodus out of this town. I would bet 80% of the jobs in the last 4 years have been RE realted.
You are so right…. I went into a appliance store last year here in Ventura County, and the sales manager was trying to recruit new salespeople. I was wondering about the effect of all the “sub Z’s” going into 1200 sf. “starter” homes, so I asked what the income potential was of his sales force… he said that the average income of these guys was over 100k!!!
Interstingly enough, I know many who have upgraded thier kitchens, and negotiations on prices seams to cease as long as your paying from your equity account.
These sales people, like all the other “gainers” in this market, are also buying cars, houses, and toys they normally would never afford.
This is where the trickle down, crashes down.
J
Believe it or not, Bako actually seems kind of nice, coming from LA. It’s clean in the nicer areas, there’s plenty of parking, there are increasingly jobs that pay more than $5.00 an hour, and it has what LA no longer can claim: a white middle class. Also, the average family can afford a house with a backyard. Paradise it ain’t, but it’s going to grow for sure.
What about the smell ? I’m sure you get used to the barnyard odor after a while but if your co-workers start wispering about you behind your back you can bet you have the Bakersfeild funk on you.
I was born and raised in another cow town up north: Fresno. Both Bakersfield and Fresno and many other “valley” communities are nice but for one major thing: SMOG. If not for the smog, I would return and buy. On the rare winter fogless days from Fresno after a storm, we could see Kings Canyon national park mountain peaks in the 14,000 foot range. A similar view from Ontario of Mt Baldy is visible maybe 5 days out of the year. If only “they” can do something about the horrible cancer-causing pollution in the San Joaqun Valley!
I’d have to agree with C&C on the jobs being created there being highly RE dependent. What used to be affordable for the average family income there is now impossible to touch without suicide loans. Unemployment is down from it’s high of 12% in ‘99 but wages haven’t increased substantially. When the good times there are over, people are going to turn tail and bail if they still can. People flooded into the area because it was cheap and there was easy RE money to be made. It’s not going to be pretty. I can think of too many people who saw buying in the Inland Empire and So. San Joaquin as a no brainer way to grab fast appreciation to be able to hopefully gain enough equity to afford the homes they were priced out of in LA or SD. Bako is a stopgap measure for them, not a destination.
Everyone wants to live in Bakersfield… until they don’t.
Now, says City Commissioner Vanessa Carusone, the future could turn grim not only for the city, which relies on tax dollars, but for thousands of families employed in real estate and construction.
“We can’t afford to have (growth) stop at such a rapid rate,” Carusone said. “I think this is a lot larger than anyone gave it credit for.”
____________________________________
Cut and paste this story and post in about 40 US cities in the coming months!
Sorry, I used the tag wrong…
The two people who actually bought condos there must feel like idiots when they find this out. 98% drop must be considered a [local] crash. I’m sure housing heads will say it’s not a trend and that after
SuperbowlEaster4th of July, things will pick up.I usually receive one or two listings via e-mail per day, but today I checked my e-mail and it was flooded with listings, many with price reductions. Still overpriced, but this is definitely something new.
There ya go!
Best of luck to you!
Another sign of the times: my contractor tells me the cost of lumber and some other building materials that I would need to do an addition that I have been considering is down by around 20 - 25%.
Yep, the US settled the Canadian softwood tariff dispute just as the bubble was receding (in the last 6 months).
This will magnify the receding lumber prices as the boom recedes into a bust.
Hmmm that’s interesting.
I think that materials will go down but I don’t think we are down that much just yet. I’m looking at a pricelist from 3 months ago and the cost of a 2 x 4 is down a whopping .04¢.
Everything is negotiable. They’re just not advertizing what they’ll take yet.
Something is seriously wrong when house construction is the strongest and most important part of a local community.
Strong housing should be the RESULT of a strong economy. It cannot (in the long term) be the MEANS to economic strength. Anytime you see booming real estate in an economy that is otherwise weak it is a sure sign of a bubble.
Boy do I agree, huge run up in housing prices in Silicon Valley but no job creation or rising wages since dot com bust and the Office, R&D parks are still empty or being bulldozed for yet more tacky condos. Good thing we have all those low paying hospitality jobs replacing the high paying Engineering jobs or we’d really be in trouble !
It is estimated that almost 40% of illegals work in construction related industries. When this bubble bursts, where do they go on UNEMPLOYMENT? just another ingredent in the overall problem.
I find it coincendental that 41% corresponds pretty tightly with the 40% number of 2nd home buyers and specuvestors.