‘A Surge Of Cancellations, Drop-Off In Orders’: KB Homes
No link is available for the Dow Jones Newswire report. “KB Homes has noticed a surge in cancellations and a drop-off in orders in the first two months of fiscal 2006, and if this trend continues, the company said it likely will have to ratchet down its revenue guidance for the year, according to a 10-K filing.”
“The comments appear to be a sign that the sharp drop-off in orders recently reported by luxury builder Toll Brothers Inc. may not be limited to the luxury segment as many market experts presumed.”
“‘There are signs that consumer demand in the United States for residential housing at current prices is softening,’ KB Home said in its 10K, which was filed with the Securities and Exchange Commission on Friday.”
“The Los Angeles builder noted that the U.S. Census Bureau reported that single-family housing starts in December fell 12% from November, and about 8% from December 2004. Also, the bureau reported that the median sales price for new homes declined approximately 3% in December from a year earlier. ‘Our results to date in fiscal year 2006 reflect these broader market trends,’ the company said. ‘In the first two months of the (fiscal) year, we have experienced an increase in home order cancellations and a decline in net orders for new homes when compared to the same period last year.’”
“In December, KB Home’s board authorized the repurchase of 10 million shares. Since then, the company has repurchased 2 million shares in addition to the 2 million shares it bought back during its fiscal fourth quarter under the previous authorization program.”
“UBS analyst Margaret Whelan expects the company’s orders to be down 10% in its fiscal first quarter, which ends Feb. 28. She said much will depend on how the company’s key spring selling season unfolds. ‘Demand is definitely down, there’s no doubt about it,’ she said. ‘Everything depends on what happens in the spring,’ she said.”
Meanwhile, incentives keep coming. “Kara Homes has announced a quick delivery home ’spec’-tacular. They are offering homes in all designs that are ready to go at discounts ranging from $20,000 to $246,000 throughout its New Jersey portfolio. Currently, Kara has quick delivery homes available to the general market and in our active adult communities from Mount Arlington to Mays Landing.”
“Residential builders, hoping to jump-start sluggish sales in San Joaquin County, are dangling long-unheard-of incentives in front of real estate brokers and new home buyers. ‘We’ve never offered anything like this before,’ said Kimball Hill Homes sales consultant Niki Ryan.”
“Kimball Hill is presenting buyers with Best Buy and Pottery Barn gift certificates totaling $10,000. ‘That’s insane incentives,’ said Henry Doughton. ‘That’s a lot of comforters and sheets,’ he said.”
“Starting in early January, new-home shoppers might have noticed some unusually enticing ads. Although many of those offers expired before today, when the Builders Association of the Twin Cities kicks off its Parade of Homes Spring Preview, some builders are promoting special prices or terms for the event.”
“Wayne Soojian, Twin Cities division president for Ryland Homes, said some builders were seeing an increased number of unsold completed homes, ones built on speculation. ‘You’re seeing some of the bigger-dollar promotions from people trying to move that inventory.”
“Bonita Springs-based luxury builder WCI Communities had a good year in 2005 but customer traffic in its sales centers was down sharply in January, the company reported Friday. In January, traffic was down 49 percent from a year ago and down 44 percent for the first eight days of February, said Jerry Starkey, president and CEO.”
“Mark Carruthers of Garnerville, N.Y., owns a condo near Edison Mall in Fort Myers and is currently negotiating to buy a second condo in the city. But he’s not willing to pay top dollar, said Carruthers. The market, he said, has gone directly ‘from a boom period into a bust period’ in the past few months.”
“Judy Ramage in Cape Coral said she has seen things slow down too. In January, she said, ‘We’ve got about 580 active listings and we had 109 showings’ compared to January 2005 when the agency had 75 listings and 245 showings.”
Thanks to the reader who sent this in. DJ Newswire links are hard to find. Look for an update to this later today.
Bob O’Brien just used the word “crash” on CNBC. I think he was referring to the homebuilder’s stocks rather than the housing market as a whole. But that may prove to be a distinction without a difference.
The real (bricks-and-mortar) housing market and the paper (Wall Street) version thereof will drag each other down from here on out all the way down to the bottom, and thanks to the blogosphere, no amount of effort by the mainstream press to hide the facts will succeed.
But wasn’t the standard BS line supplied by Wall Street analysts that “even if the market slows down, the big builders will do fine. They’ll just take more market share?” I don’t know how many times I had to read that claptrap from these overpaid idiots. Now, golly gee, a collapse in the overall housing market IS proving to bad for the companies with the most exposure to it. Why can’t I get paid 7 figures for such amazing “insight?”
Are you willing to lie persistently on a daily basis for your bread and butter? I myself could not look myself in the mirror if I made my living the way these shills do.
More market share will just be bigger piece of a shrinking pie.
It isn’t lying if you are simply agreeing with everyone else, right?
Believe me, at the bottom they’ll be talking about how careful house buyers must be… if they even mention it at all.
They are weathervanes.
It seems to me that good and bad are relative terms when talking about the home builders. The home building companies scored big working through the bubble of the past 4-5 years. The profits the enjoyed were unfounded and pure gravey. I witnessed homebuilders on a long term development in my area selling homes in 2000 for 300K. They already had the land (10 year building plan), I know the wages of the workers didn’t go up, and even though building materials may have increased, technology in the home building industry counters that somewhat with reduced building costs. Anyway, those same 300K houses worked their way up to 800K. Same neigborhood, same land, etc. That 500K spread (per House) is practically pure profit. I don’t think there will be a collapse in the housinig market from the builders standpoint…they will just keep lowering prices until their business model is more on par with how it should be. Sure the stock price will normalize (go down), that is why all the insiders are selling off, but their business will be intact. The ones that will be most affected will be the resale home sellers who will have to keep lowering their prices to keep pace with the builders. It’s all very interesting and was easy to predict. Its all pricing, good builders and good realtors will still make lots of money. It’s just that the prices will be driven down. An appropriately priced home in any market will sell.
Woo hoo! “Everything depends on what happens in the spring”.
I agree. There are many, many, MANY sellers waiting until April/May to list. There will be such an incredible rush to the doors - can’t wait to hear the spin out of NAR when that happens.
I have access to my local MLS…I checked one agent (who is one of the biggest “no bubble here!” guys around…today he has just listed ALL his own (agents are required to disclose if they own listed property…not many do, so the number of owner/agent listings are probably much higher) properties today…5 properties totalling about $1.3 million….guess he doesn’t want to wait until spring.
No, everything depends on the data for June that we’ll get in August you see.
And just because the summer might have been “a return to normal”, any drop in come September will just be part of the typical fall slowdown.
And then you ask?
Everything will depend on what happens in the spring. Spring ‘07 that is.
And then?
Well, 2006 and 2007 were bad, right? Then things MUST be bound to turn around then. Can’t keep dropping forever, can they?
They can ALWAYS stretch it out… too bad the homeowners can’t.
And I do actually think the worst drop will be in the next 2-3 years…
The worst that is.
Just diversifying, a la Robert Toll and friends…
Sounds like sellers this spring are going to have to compete with the homes owned by their own real estate agents. Should be some nasty business….
What I’m seeing is a record current account deficit, a massive budget deficit, and signs the air is going out of the largest run-up in the modern history of home property values. Despite this, the bond market stilll expects further increases in the fed funds rate.
Put bluntly…I’m thinking recession but the market is pricing in further inflation fighting from the fed.
In any event… if you think inventories are high now, wait ’til the Fed bumps the over night rates to 4.75% or even 5%.
Glenn,
The record trade/current account deficit and the massive budget deficit are precisely the reasons why “the bond market stilll expects further increases in the fed funds rate”.
Put even more bluntly . . . risky borrowers pay higher interest rates and the US is now seen as a risky borrower.
Sorry about the housing market tank and associated recession.
NEW TOPIC
80’s vs now
I remeber buying w 10-20% down and being cash possitive from the get go in the 80’s and never considering neg am or even being offered an exotic mort- how about since 2002 ? anyone
I remember being able to beat Contra on a single life.
LOL! Too funny.
Thanks Betamax… sorry to threadjack flat. Was sick at home and bored today. Don’t know what excuse I have for the rest of the time.
up up down down B A B A select start ;-)!
ooops
UP UP DOWN DOWN LEFT RIGHT LEFT RIGHT B A SELECT START!
an 8-bit nintendo reference on a housing blog? That’s awesome!
This is exactly why I believe that this bubble will be *different*. Prices will drop much more quickly due to exotic mortgages and the fact that many people are, for the most part, flat broke. The housing ATM has run dry.
I just had a real estate agent ask me how to buy gold yesterday. That can’t be a good sign. Maybe he just wants to add gold trim to the granite counter tops.
WOW.
You need to followup with his reasoning. Please.
There could be a lot of different reasons, some more interesting than others.
He may just be following the herd, or he may be expecting the low interest rates the NAR has been pushing to support both housing and gold prices. Or he could even be expecting the head for the hills thing.
Ask whether he’d be happy with a gold ETF or wants coins to bury in the yard.
‘We’ve got about 580 active listings and we had 109 showings’ compared to January 2005 when the agency had 75 listings and 245 showings.”
OHhhhhh OHhhhh……..
“Kara Homes has announced a quick delivery home ’spec’-tacular.”
Now those clever marketing folks the homebuilders have been paying big bucks for will prove their worth.
Ben, Here is the link.
KB Home Says …
“I just had a real estate agent ask me how to buy gold yesterday. That can’t be a good sign. Maybe he just wants to add gold trim to the granite counter tops.”
Tell them to goto a jewelry store…
You forget, also charge 6% on the gold as your well earned commission.
If you melt down a $500 gold necklace into a lump of pure gold it might be worth $200. If you buy a 1oz pure gold coin for $550 and melt it down it’s still worth ~$550.
or the pawn shop.
“Kimball Hill is presenting buyers with Best Buy and Pottery Barn gift certificates totaling $10,000. ‘That’s insane incentives,’ said Henry Doughton. ‘That’s a lot of comforters and sheets,’ he said.”
INSTEAD OF OFFERING THESE PERKS TO “BUYERS”….
MAYBE they should offer them to the LOCAL REALTORS- given the rapid rate that this bubble is bursting…
bedwetting may go hand-in-hand with crying themselves to sleep at night.
A full set of king-size rubber sheets with EVERY sale.
LOL! feepness, you’re on fire today.
Rather than incentives, just knock 10 grand or 20 grand or 50 grand off the home. All the stupid people have already bought. The only ones left are the smart people and we’ll not fall for that crap.
Why is it that when things were going up these last few years everything was quoted as “Rising”, “Skyrocketing”, “Sizzling”, “Red hot” but now that it’s going in reverse it’s just “Softening” , “Flattening” or “Returning”? I would just call it like it is, “Falling” or “dropping”.
I hate to ruin this thread with a super-offtopic comment, but I find no other way of finding out about this: where is Ben’s metals blog, that’s been mentioned he runs?
On the right hand of this page. Under Links is the link called Ben’s Money And Metals
see links on the main page
If things where returning to ‘a normal balanced market’ why will all the sales incentives? I mean really A 10 grand ‘gift’ Pottery Barn if you buy an overpriced home in a falling market- something is fishy in Denmark- and it is not the fish boys and girls-
Panic is creeping in now-
Because they only pay $9K for the gift card, record higher sale prices for the next sucker… but you get to pay $20K over the life of the loan for $7K worth of merchandise! And higher property taxes!
It’s a win-get-completely-screwed-in-the-ass situation!
LOL. Feepness, you’re on a roll today.
KB Home Shares Fall on Sales Warning
http://biz.yahoo.com/ap/060213/kb_home_mover.html?.v=1
I noticed Ryan homes, the largest builder here in the DC area, is offering $50K off their homes priced “from $570K” in Fauquier Co., VA. There are also flippers in that development desperately trying to unload - http://washingtondc.craigslist.org/rfs/133068000.html.
It’s nice as it’s close to old town, but not all that nice for little kids.
Arwen U.
Could you give the link for the $50K off on ryan Homes in Faquier Co.
Thanks
Arwen U.
Could you provide the link for the $50K off on Ryan Homes in Faquier County
Thanks
Well that makes paying a hundred thousand dollars too much for the house really worthwhile.
That falling knife is going to leave a mark.
“‘There are signs that consumer demand in the United States for residential housing at current prices is softening,’ KB Home said in its 10K, which was filed with the Securities and Exchange Commission on Friday.”
The death spiral in the housing market is gaining momentum. Once it is common knowledge that prices are falling due to softening demand, you can write off 2006 as the housing market equivalent of Black Monday (October 19, 1987), when stock prices fell by 20% on one day because nobody was willing to buy. Fortunately for the stock market, electronic circuit breakers kicked in before the damage really got out of control. Unfortunately for would-be home sellers, there are no electronic circuit breakers for the housing market.
Test
There is a KB development near my home. I drove by the open houses they have there three times this past Sunday and there were more sign spinners (2) than cars at the model homes. I’m assuming the one car was the realtor and the other car was the sign spinners.
Yes, I am a loser who drives by model homes and open houses to see what the traffic is. Also, my daughters enjoy going with me and we play a game where we see who can point out the most open house and for sale signs. Economics 101 for my girls - its all about supply and demand.
Yes, we’ve been dragging our girls (4 months, 2 and 4 y.o.) to open houses and models for a few years now. They actually ask us, “Can we go look at new homes, today?” See, the bubble has redefined what “family fun time” really means.
“Kimball Hill is presenting buyers with Best Buy and Pottery Barn gift certificates totaling $10,000. ‘That’s insane incentives,’ said Henry Doughton. ‘That’s a lot of comforters and sheets,’ he said.”
Scary to think there are people “insane” enough to fall for this marketing B.S. I think this goes to show that many, if not all, of these merchant builders care nothing for their customers or “communities”. Soak them for every cent, spin the press releases, and use their stupidity to your advantage. I am all for making a profit, but the current homebuilding and lending industries seem extremely short-sighted. Honestly, how do these CEOs sleep at night? I imagine they’ll be relaxing on a Caribbean beach when their customers finally turn off the plasma TV and realize they’ve been had.
http://moneycentral.msn.com/content/P143794.asp
This year is shaping up a lot like 1987. Back then, we saw speculation in commodities and stocks in general (though in a much, much milder form than exists now). We also had a new Fed chairman — Easy Al Greenspan succeeded Paul Volcker as chairman that summer. And, ultimately, we had a stock-market crash.
I was driving up Ross Ave, right next to downtown Dallas today around noon. There are a couple of areas on this street where undocumented laborers hang out and wait for a contractor to come by with some work. Today, I noticed that were more of these workers standing around (at a couple of different places) than I ever recall seeing. Not a scientific study by any means, but, it got me thinking there might be a slowdown in construction hiring around here.
rudekarl - I’ve noticed that Home Depot/Lowes (Tarrant County) are not nearly as crowded these days.
I agree. I imagine someone has said this on this site before, but, I’m interested in seeing the quarterly nos. coming out of these businesses in the coming months. This bubble has its tenticles in so many parts of the economy.
OT bu always important…
According to http://www.ocrealestatefinder.com, we are now almost halfway to 16,000 properties for sale in Orange County.
Today’s total… 15,467.
Time to throw another home builder sign on the Orange County Inventory Fire.
“Everything depends on what happens in the Spring.”
Words that are true-
- in Irony.
We may have 20,000 properties for sale in OC BEFORE May.
I thought I was being conservative by predicting July.
This market is collapsing faster than a green Honda Civic that just lost two tires to a spike strip in a police chase on the 405 freeway.
The only question that remains is:
“Will he bail and run? Or will he turn and shoot?”
In any event, it sure is fun watching the action from my living room, courtesy of the live television new helicopter buzzing overhead.
I think he turns and shoots.
talk to me buddy! if you can shoot an arrow into the heart of oc it’s game over.
Congratulations to all KBH shorts
I know and I unloaded my KBH puts in December for much more modest gains… I re-entered 5 minutes before close.
Nice to be holding KBH shorts and puts now, but beware. It is about time for someone to “spook” the shorts. Moving the price up to scare the shortsellers into buying in and driving the price up further. Soon, me thinks. When it happens, it will be a great opportunity to short more so keep your ammo dry.
This reminds me of another reason that I think this bubble’s POP will be bigger than all previous POPs–the poor quality of the houses they’re building today. Houses are now only built to last 30 years or less.
Even 10 or 15 years from now, houses from slap-dash builders like KB won’t be worth much because they’re going to have major problems. And common practice today like running electric and water through the slab will mean big trouble tomorrow.
Yeah, that’s kind of what I was wondering–why would anyone buy a house from KB Homes at any price?
The wife and I have decided that when we go house shopping, we’re not going to buy anything less than 50 years old (and we once lived in a 200+ year-old house, so we know what that means).
My house is 80 years old. Very different in San Diego…
There is bad. I shudder uncovering cloth wiring at times… but I think the good outweighs the bad. We have an actual crawlspace under the house and a teensy little basement! How cool! I was moving wires the other day and it was dirty and unpleasant, but interesting in an archeological kind of way.
And at least the styling doesn’t get out of date if you follow the period.
The townhomes across the street from me were built in 2001 and they are falling apart. My wife and I used to look at the building across the street and comment on how they were just slapping these place together. Well, over the last year, the builder has been systematically moving residents from the townhomes into the apartments around me, while they tear out the interior floors and walls and shore up the buildings. Apparently, the second floors were sinking in all the buildings. Not bad for $400,000+. My wife and I went into an open house of one that was redone, and whose owner was attempting to bail out. The realtor told me that it was now “better than new.” We laughed as we walked out the door at the moronic statement. The only way to really make this place better would be to scrape the lot and start over.
Congratulations to all KBH Shorts
Comment by rudekarl
2006-02-13 14:59:01
I was driving up Ross Ave, right next to downtown Dallas today around noon. There are a couple of areas on this street where undocumented laborers hang out and wait for a contractor to come by with some work. Today, I noticed that were more of these workers standing around (at a couple of different places) than I ever recall seeing. Not a scientific study by any means, but, it got me thinking there might be a slowdown in construction hiring around here.
In Las Vegas, the now unemployed illegal immigrants who did work in home construction has become extremely obvious…there are so many of them waiting around the home supply centers that there has actually been some noise going around in the city council about having some kind of “detention/job center” where all these illegals can be transported where they can wait for prospective employers can come and pick them up. Before, they never would have been hanging out on the streets because they would be on a construction site somewhere.
Comment by Robert
2006-02-13 16:17:42
This reminds me of another reason that I think this bubble’s POP will be bigger than all previous POPs–the poor quality of the houses they’re building today. Houses are now only built to last 30 years or less.
Even 10 or 15 years from now, houses from slap-dash builders like KB won’t be worth much because they’re going to have major problems. And common practice today like running electric and water through the slab will mean big trouble tomorrow.
*shudders* The last home builder I would ever buy from would be KB. They have a horrible track record for producing crappy homes (look up info on HADD Homeowners Against Deficient Dwellings on google sometime), and IMHO, usually tend to be the priciest out of all the big home builders. I’d buy a brand new mobile trailer home before I would buy a brand new KB home.
This has me concerned too, alot of these newly built homes are pieces of crap that will fall apart in about 20 years. They will be money pits.
think about this: the builders are luring hedonistic idiots with hedonistic incentives. new tv’s, opera tickets, shopping sprees, yak yak yak. what these morons need is a good spanking and a brain. i for one am completely unmotivated by consumer goods……
except for maybe a subscription to the jelly-of-the-month-club.
Unmotivated by consumer goods?
How about completely and utterly turned off by them??!
The guy I purchased this place from wanted to do me the favor of throwing in a flat-screen, about 35″-40″ I’d guess, for a modest $10K. (This was 2003.) Looking around now I can probably get a better TV for less than a third the price.
The only reason I’m even looking is that my newest TV is 12 years old now. By fall the crap should have hit the fan enough for the consumer electronics to be reaching decent prices.
I’m keeping an eye on eBay & Craigslist this year– There is going to be a ton of cheap, HELOC-purchased plasma TVs, big SUVs, boats, lux cars, Harleys, etc. for the picking. The bag holders are going to be needing that moola desperately to keep feeding their money pits.
It may be happening now. I perused Craig’s list and noticed that on the list of Toyota Camrys which are pretty stable price-wise and have a deep market, there were two that were well below the comps. Assuming good condition as was stated in the listings, one could conclude that the sellers were “motivated.”
John in MD,
I just saw your post this morning about the Ryan discount in Fauquier Co.. The link is here, but I noticed that they changed it from 50K yesterday to 25K today.
http://www.ryanhomes.com/findhome/community.asp?CID=1836
Fascinating. As pointed out above, the builders planned to sell for $300k and are actually selling for $800k. They are grudgingly offering discounts of between $25k and $100k, depending on the builder and market. This means that they are still at least $400k into super profits on every sale, even with the discounts. They have the ability to drop their prices massively and undercut the heck out of homeowners and investors trying to unload their “investments.” If inventory goes up as dramatically as expected (I’d guess March, not April) the builders will have every reason to reduce their markups dramatically to keep the cash flowing. Say they slash prices by $200k. They’re still $300k better than they expected on the project. Stay tuned for the housing limbo dance. How low can you go? Not as low as a builder.
John in MD,
Oh, I see what happened. Instead of $50K off of 570’s they are now offering 25K off of 540’s.