Florida Homebuilder Sees ‘Dismal’ Orders
One homebuilder is having problems in Florida. “WCI Communities said second-quarter earnings would likely disappoint because of dismal orders at many of its high-rise condo and single-family housing communities in Florida.”
“WCI, a leading builder of traditional and tower residences, today announced order trends for the second quarter of 2006 as well as its recent share repurchase activity. The company is continuing to experience order activity well below year-ago levels, in part due to significantly lower traffic at many of its Florida communities as well as the company’s decision to delay the release of several of its towers because of softness in market demand.”
“For the first two months of the 2006 second quarter, combined homebuilding orders declined almost 50% over the same period a year ago. Traditional Homebuilding orders were down 42% vs. year-ago levels while Tower Homebuilding orders dropped 84%.”
“‘Due to slower demand and increased resale inventory on the market, the company has taken steps to slow down construction activity and capital spending until there is equilibrium between supply and demand in our markets,’ said WCI CEO Jerry Starkey. ‘While most of our Florida communities have seen sales activity below our expectations this year, we believe the historic economic and demographic drivers of the Florida homebuilding market will eventually overcome the ‘wait and see’ sentiment of many would-be consumers today.’”
“‘It appears the condo market in South Florida has come to a standstill, and we do not anticipate an increase in demand any time soon due to the current inventory glut,’ said Raymond James analyst Rick Murray. ‘We anticipate the current supply/demand imbalance will weigh on the earnings outlook for public builders for some time,’ added Murray.”
From the Herald Tribune. “Developer Harold Muxlow has specialized in offering three-bedroom, two-bath homes with a two-car garage for $189,900. The 1,861-square-foot home sells for about $102 per square foot. In Sarasota County, it is not at all uncommon for big-name builders to charge well over $200 per square foot for new residential construction.”
“The key would be selling hundreds of units, notes Muxlow, who envisions eventually moving as many as 500 in North Port. That could be a challenging short-term proposition, given how much the new home market has slowed in what is arguably the fastest-growing city in the region.”
“North Port officials had expected to permit more than 5,000 single-family homes this year, but in May issued just 74 permits. That followed only 88 in April.”
“Muxlow has felt the slowdown in the housing market. He said buyer traffic is off by as much as 80 percent. But he remains bullish about his ability to make money from his business model. ‘It’s all about volume.’ He still hopes to move 200 units this year. The profit if he does? A very cool $1.9 million.”
‘Developer Harold Muxlow has specialized in offering three-bedroom, two-bath homes with a two-car garage for $189,900. Muxlow said he has sold about 50 of the homes in the last year. The quoted price includes the cost of a quarter-acre lot, which runs about $40,000 in many North Port neighborhoods.’
Now that the frenzy is over, builders discover that they can deliver much cheaper homes. But to make a buck, they have to produce in volume. What will that do to the standing inventory of over-priced homes?
Hurricane warning already issued for Florida on Alberto. It’s gonna be a long hot summer for those builders.
The dirty depression started in Florida in the 30’s with a real estate bust. Seems that Florida has more to fear from the real estate bust than the hurricanes. Well you can keep your condos and croke with them. This time even Columbia drug lords won’t have enough dirty money to support the prices.
“The key would be selling hundreds of units, notes Muxlow, who envisions eventually moving as many as 500 in North Port. That could be a challenging short-term proposition, given how much the new home market has slowed in what is arguably the fastest-growing city in the region.”
He’s going nowhere fast, and the 200 units and 1.9 mill prophesied for next year (let alone the 500 “envisioned”) is a pipe dream. What’s he supposed to say to the media, that his business is headed straight into the shitter? No, when it comes to making self-interested predictions that no one will hold him accountable for later, he’s going to puff up his chest and swing for the bleachers.
Ben,
check out this… this is so funny
http://smhbn.blogspot.com/2006/06/new-movie-thank-you-for-buying-houses.html
Funny indeed.
So what happened to the WCI stock price today? Glad you asked. It dropped like a rock for a few minutes after the market opened and then
was strangely stable, like an angel was holding it up. Look at the charts for the homebuilders and compare the WCI pattern to the others. Ain’t angels great?
http://tinyurl.com/ovpm8
I’m not a stock jock, but it looks like the builders dropped broadly and sharply today.
Yes they did, Chip. But WCI had the bad news today…Tower orders down over 80%…and began the day in a steep plunge. But in the first half hour of trading, that steep plunge reversed and came back up and then stayed up while the others generally dropped throughout the trading day. Why did WCI stabilize? It was the one with fresh bad news. One would expect that it would fare the worst of all of them. It started out as if it would but then the angel arrived. I reversed and stabilized. Free market? I don’t think so.
Pablo Escobar where are you? We need you. They should let in more cocaine dealers to solve their problems.
If those figures are correct, he makes a profit of $9500 per home.
Not much room to cut prices, offer incentives, or carry inventory longer than expected.
Actually, he builds to order. Imagine that!
Still, increased supply is increased supply and is bound to continue to pull prices down especially as rates continue to increase.
The sad thing is I can see some brilliant speculator who thinks he’s an investor try and buy one of those and still flip it.
Not worth getting out of bed for.
$9,500 builder profit on a home is probably more in line with historical norms for a small-time builder. This guy may do okay.
“Developer Harold Muxlow has specialized in offering three-bedroom, two-bath homes with a two-car garage for $189,900. The 1,861-square-foot home sells for about $102 per square foot. In Sarasota County, it is not at all uncommon for big-name builders to charge well over $200 per square foot for new residential construction.”
I’m sorry folks but it’s not just price per sq.ft. It’s community: quality doctors, dentists, medical in general, schools and educational outlets for both young and old, quality shopping outlets,outdoor activities, theater and arts, public transportation. It’s weather: I don’t want golf ball size hail, tornadoes, hurricanes, flooding. It’s location: I don’t want quality housing blended with a ghetto next door, I don’t want elder living so I go out every morning to see who passed on, I don’t want to live in a neighborhood with boarded up foreclosed houses or houses with jacked up junk cars in the driveway, I don’t want a condo with HOA fees. It’s quality: I want a quality built house, not one with lots of settling cracks in two years, not one with nails coming back out from the dry wall, not one with the dry wall corners popping out in two years, not one with a fence that is falling down within five years, and I don’t like tile all over the floor(it’s not comfortable to lay on and it cracks with any settling), and I don’t like granite counters (I want a house to become a home and not look like some commercial building).
But wouldn’t you agree that some first time buyers could get home ownership in a project like Muxlow’s ,(if they kept the flippers out ).There needs to be more first time buyer type projects . I wish the builder,(Muxlow), well actually ,he doesn’t seem to be to greedy .
You have to make some compromises when you buy a house. If you expect to having the perfect of everything, you will always be unhappy. I think for first time buyers getting into the market like this might be a good option.
Agree totally if the build quality is reasonable; doesn’t have to be 5-star, just structurally sound.
At that price and spec. Mr Muxlow would sell his 500 in an afternoon where I live in Australia.
I agree. A $9,500 profit is not so bad. The profit margin on a smaller home is going to be less than the McMansions put together by the Toll Bros or Pultes of the world. Good for Muxlow.
Even though sales have slowed, they haven’t gone precisely to zero, and there’s probably a window of opportunity for someone willing to undercut the Tolls and Pultes of the world. Presumably as the big builders slow down, it becomes easier for the small builder to get supplies and labor at a not-so-heinous rate.
salinasron,
Right on Ron! I’ve said this for years. It’s about having quality neighbors as well. Not just different flavors of bad (which is what we usually get). People that you are completely “invisible” to until they want to complain about something. It’s like you’re on a “tight rope” where the only way to assure their continued indifference is if you STAY on that tight rope! The slightest imagined “infraction” brings out a whole laundry list of things about you and your “lifestyle” that they don’t particularly care for. One of those “while I’m at it” kind of deals.
Salinasron … I agree with you that nobody wants a lower priced project sitting next to a high quality project bringing down the values . So hopefully land costs would prevent that effect from happening and projects would develope accordingly.
One thing that is clear, lower priced does not necessarily mean lower quality. I don’t think anyone will be sad about these McMansions in the middle of normally priced homes who will learn a hard lesson when they try to sell the house for how much they paid for it. That is, nobody except for those who own the McMansions.
84% year-over-year decline in condo orders. Sounds like a soft landing to me!
Also note (as I did) that the news from WCI for the most recent quarter shows things are getting WORSE not better. Q1 YOY decline in condo orders was 71%. Wonder what happened to all those baby boomers … the 1000 people per day moving to FL … the guaranteed knowledge that real estate never goes down. Shouldn’t that have buyers still lining up 50-deep? What a joke.
‘1000 people per day moving to FL’
That was always a ridiculous ’statistic’ and these stories prove it. Hear that Las Vegas?
I love that line “but 1000 people a day move to Florida”… They fail to tell you that there is a huge amount of people leaving the state every day.
Growing up in Florida I can tell you that when you move into a neighborhood people come and go all the time. People stay for a year or so and move on. Especially now. People move here, can’t afford to buy and take another offer or a transfer somewhere cheaper.
Don’t know much about Florida myself but I have eyes. I spent a week in Naples and drove up the coast to Ft. Myers. The whole darn place seems to be up for sale. I was playing “count the signs’ with my 3 year old.
turning it into a learning opportunity for 3yr old. Super!
I’ll bet your 3-year old could get a mortgage!
C’mon… only if the 3-year old has good credit.
I just had a horrid vision: Sesame Street branded credit cards.
Ssh! don’t give the credit card industry any ideas.
Actually, there was a poster here a few months back whose 5 year old daughter got a credit card offer in the mail. Remember that? It made a lasting impression on me!
But maybe 5 y.o. is the limit and 3 y.o. is just going too far?
(Now that the frenzy is over, builders discover that they can deliver much cheaper homes.)
Depends on land cost. Those who bought land before the frenzy, and sold during the frenzy, made massive profits.
But here in NYC, those who bought later transferred all their future profits the owners of development sites up front, not to mention suppliers of labor and building materials. They’ll do OK at current price, but otherwise they’re dead.
At more reasonable land costs, development can resume.
Land costs and building costs are a bunch of BS. They can fit 10 homes per acre.
If it cost 125,000 an acre than thats 12,500 per home.
If a year later it cost 250,000 an acre thats $25,000 per home.
The builders are increasing the cost of the finished product 50%, rather than $12,500 to account for the increased land value.
These builders are making a ton of money per home. Especially the high end luxury homes. They are just like SUV’s. Go from 1600ft2 to 3200fts (same amount of land) and ad some fancy upgrades and you increase from 250K to 750K.
“The builders are increasing the cost of the finished product 50%, rather than $12,500 to account for the increased land value.”
That is why I say, just because you paid too much doesn’t mean everyone else should suffer. The builders can do it only because some people are stupid enough to pay for it, thinking that housing prices only go up anyway. They only need to find a greater fool.
‘It’s all about volume.’ He still hopes to move 200 units this year…
I think General Motors has the same idea …. “What we lose in profit, we can make up with volume!”
And the realitors… “It’s not a saturated market, we just offer a greater selection then ever before.”
J
New FHA regulations for “Flippers” starting July 1:
http://realtytimes.com/rtcpages/20060612_antiflipping.htm
And the flippers are complaining that limiting fraud will hurt their business. Just like the banks and mortgage brokers complaining about bank regulators wanting them to make sure people getting loans can actually afford them. Guess doing business honestly isn’t very profitable for them.
It the fact that people have blindly trusted the government will protect them that allowed the banks/brokers to take such advantage.
The flippers should embrace those regulations, it will allow them to commit even more fraud under the veil of government legitimacy.
The government USED to protect them…Nobody told them they werent anymore because Republicans are dishonest.
Much of what they’re doing will help control flippers, but this one:
“For resales that occur between 91 and 180 days where the new sales price exceeds the previous sale price by 100 percent or more, FHA will require additional documentation of the property’s true value before insuring the mortgage.”
??? So they are going to look at any property selling at an annual rate of price increase of 200% as too great a price hike. That is being cautious?
That % is a joke . I want to laugh . But something is better than nothing .
I have said this before and I’ll say it again.
Even with a glut of new housing here in Central Florida, the builders are gonna keep on building. It’s what they do.
They have reaped huge profit margins here in the last 3-4 years; but they will continue to practice their trade with much lower, more traditional profit margins.
They will build all the way down to the bottom as long as they can profit. And profit they will.
I can see them going back to charging $ 90-100 K for brand-new 3/2 cinderblock houses….and they’ll build ‘em right down the street where the same type of houses were bought up by absentee greenhorn flipper idiots for $ 180-200K the year before.
Within two years Florida will consist of people that belong here…IE: have normal jobs, families here, etc….and people who visit here…IE: Mickey Mouse, Seaworld, the beaches, etc.
Back to the way it was; and back to the way it was meant to be.
“Back to the way it was; and back to the way it was meant to be.”
I wish. If that were to happen, I’d probably stay on.
Regarding builder profit, I think builders will build for essentially zero profit until the point at which they believe they cannot remain in the business at all. They want to keep their valued subcontractors fed (and loyal) and will endure a fair bit of pain to do that.
From the update:
‘It appears the condo market in South Florida has come to a standstill, and we do not anticipate an increase in demand any time soon due to the current inventory glut,’ said Raymond James analyst Rick Murray. ‘We anticipate the current supply/demand imbalance will weigh on the earnings outlook for public builders for some time,’ added Murray.’
Oh, is this a fun read. Deadly quotes: “crippled South Florida housing market”, “desperation of speculators”, “a record setting 30,000 foreclosures in Florida”, “speculators dealing with the two edged sword of rising interest rates”.
Rent Finders USA`s Florida Business Activity Up 28%
WEST PALM BEACH, FL — Jun 8, 2006 — Rent Finders USA, Inc.
Florida Rent Finders, RFDU’s wholly owned subsidiary, that operates 9 retail locations in the crippled South Florida housing market; has obliterated prior months’ business activity by writing $818,588 in gross commissions for the month of May.
“While these are not top line numbers yet, we have long used our commissions written as a leading indicator. May is typically a slow time in our market, but the desperation of speculators is creating incredible opportunities for buyers and tenants,” stated Florida Rent Finders Founder and President, Terry McManus.
In perspective the $818,588 May number was 28% higher than April’s $638,880, and almost 35% higher than March’s $607,000.
“The massive increase is related to the tremendous drop in transactions for the industry over the past 90 days. This anemia creates desperation in sellers and landlords to seek out tenants or buyers at almost any cost. A record setting 30,000 foreclosures in Florida in the first quarter is just the beginning of speculators dealing with the two edged sword of rising interest rates; mortgage payments on their investment properties are rising and at the same time reducing the market of potential homebuyers. Developers and condo conversions have exacerbated the situation by adding too much inventory too fast,” stated RFDU’s CEO, William Luckman. “But at the end of the day, we are the one real estate company that really works for owners; Rent Finders provides landlords with consumers with cash to either rent their properties as cash flow relief, or as buyers to exit their investments completely.”
http://www.macreport.net/todaysMarkets.asp?id=3138
We’ve been talking about when the construction defects lawsuits against the builders will gear up. Well, Mike Morgan, the Florida real estate guy who give Mish lots of good, honest information about the Florida RE market, is facing a lawsuit by homebuilder Lennar Corp., due to using their name on a website he’s created warning people about construction defects in Lennar homes:
Homebuilder targets realtor over Web site
By Jason Schultz
Palm Beach Post Staff Writer
Saturday, June 10, 2006
STUART — A national home builder sued a Stuart real estate agent on Friday claiming his Internet crusade against the company’s homes had trampled on its trademark.
But the real estate agent vowed his campaign to expose what he says is shoddy building by the company will not go away.
The lawsuit alleges that a new Web site Morgan created, http://www.defectivehomes.us, is causing “infringement, confusion and dilution” of Lennar’s trademarked name.
Morgan, who runs the Morgan Florida real estate firm, created the Web site on Monday to gather complaints from residents who have bought Lennar homes.
The Miami-based Lennar Corp. filed the lawsuit against Mike Morgan in circuit court in Stuart on Friday afternoon.
The lawsuit alleges that a new Web site Morgan created, http://www.defectivehomes.us, is causing “infringement, confusion and dilution” of Lennar’s trademarked name.
Morgan, who runs the Morgan Florida real estate firm, created the Web site on Monday to gather complaints from residents who have bought Lennar homes.
Lennar General Counsel Mark Sustana denied Morgan’s allegations, but said the company has offered everyone who has bought a Lennar home the option to back out of their contract and get a full refund with 5 percent interest.
http://www.palmbeachpost.com/treasurecoast/content/local_news/epaper/2006/06/10/m1f_mclennar_0610.html?imw=Y
We ought to offer support (by writing letters or financially). It’s great to see someone (a Realtor, no less!) stand up to the HBs. The stories I’ve read about are unbelievable WRT the arrogance and unwillingness of HBs to make good on their promises to their buyers.
The bubble appears to be popping first with new construction.
I had a chance to drive around Boise this last weekend and noticed a lot of new construction and available homesites are for sale. One neighboorhood of homes pricing 250k and up had 21 completed or nearly completed homes for sale in a 4 block area. Another 2 dozen or so lots in the next phase are available; little construction activity was noted in the new phase. The site was the same in other brand new developments- just finished homes and available lots arent’t moving, especially compared with last summer.
For you researchers- I was driving around MLS area 550 in SW Boise (Meridian school district). I quick search shows about 280 homes available and listed as: to be built, under construction, or new and never occupied.
Thanks to the person who mentioned this awhile back. I looked into it and it was indeed highly vulnerable, so I bought some Puts that are up 20% so far.
Like I said earlier, I was a little surprised when it was holding up to well.
WCI said that its second-quarter order activity is well below year-ago levels, weighed down by sharply lower traffic at many of its Florida communities, and its decision to delay the release of several of its towers due to softness in market demand.
The company now believes orders for the full year 2006 will likely fall at least 20% below 2005 order levels, in part due to the company’s expectation of releasing to market only three to five towers during the year compared to its prior expectation of 11 to 13.
I posted this in a previous thread when this came up. They will leave these towers on the books at 2005 values. The writedowns on this company’s assets will be enormous.
At least 15 more storms predicted after Alberto — at least one every 11 days, on average. Y’all come on down! (Bring a tarp.)
I guess 1000 people are moving out of FL per day.
Yeah, but 10 million gallons of water is moving IN.
Feep — good one.
Gross underestimate feep :), 10 million gallons is about 6 inches on ONE square mile.
I’m sitting here waiting to see if this thing turns into a hurricane. In any case, I do feel very sorry for the oyster shack people in Apalach. I drove through there a few weeks back, the damage was still painfully obvious from last year. That area floods so bad.
On a side note, I was just watching Jeb’s briefing and he pronounced Levy county as “levee”. Grrr. It’s lee-vee. I don’t know why that annoys me so much but it does lol.
Don’t diss ole Jed, or he’ll have his big brother drop one of them “nuke-u-ler” bombs on you….
LMAO!
Painful to hear from him every time, but I hear it more and more in the TV press.
Idiots and parrots!
Maybe it bugs you because, as governor of the State, he should be able to pronounce all the county names correctly? Just a hunch.
I would bet more than 1000 will leave FL per day with these hurricane warnings. And the 1000 moving there are going to think twice. Now we are going to hear cries for the federal gov’t to subsidize their hurricane insurance costs. I say BS. No subsidy.
“Sitting by the dock of the bay, watching the time pass away, sitting at the dock of the bay, wwwaaassstttiiinnngggg time.” Wonder what Otis Redding would have to say about all of the hurricanes a comin’. Great TV watching on the Weather Channel. So long flippers.
Must be a good pun in there somewhere, re RE flippers and skindiving flippers.
believe it or not Cramer just gave this stock, WCI, a strong buy recommendation on his show tonight…UNBELIEVABLE!
watch the lemmings drive it up in the morning (it won’t last…)
Cramer is completely clueless
I had Cramer on in the background tonight and couldn’t believe he gave props to WCI stock. Whenever Cramer is calling bottoms….get out…
1000 people moving to Florida each day; heck I should go out and leverage to the hilt so I can sell overpriced houses to the newcomers. My friends who bough in north Tampa are now underwater on thier house. The other friends are living in a cookie-cutter white coller turned blue collar minority neighborhood and are miserable.
I’ll be glad to have those greedy rent seekers out of our state so business can proceed as normal.