‘The High-Stakes Game Of Musical Chairs’
Business Week looks at the homebuilder numbers. “It looked like there was finally a bit of good news in the housing sector, when the government announced a rebound in home construction for May. But dig into the data, and the picture for housing is only getting worse.”
“Permits for construction; a better indication of where the market’s headed; continued to decline. Homebuilders are getting increasingly pessimistic, according to a survey that is more up-to-date than the government data. And homebuilder stocks are continuing to slump.”
From Danielle DiMartino. “After I had mulled over the troubling 5 percent rise in May housing starts, a brilliantly simple explanation hit my inbox. ‘Builders with no starts are ‘unemployed,’ wrote James Bandy of Dallas, ‘and they will never be voluntarily unemployed.’”
“Mr. Bandy said he recalls Texas in the mid-1980s well enough to recognize the sequel to the high-stakes game of musical chairs. Given that we all know how the game ends, it’s hard to see why so many builders continue to be willing participants. Yet they play on.”
“Inventories of new and existing homes are at the highest levels ever recorded. Wouldn’t it be smarter to show a bit of restraint and shelter what profit margins do remain? It’s not as if retaining sales volumes to keep up appearances is still a legitimate excuse. Wall Street long ago pummeled homebuilder stocks.”
“Rather than pile on more incentives to stanch plummeting demand, those with an eye on survival could simply cancel, or at least postpone, groundbreakings.”
“Besides, there’s something to be said for the greater good here. ‘A declining housing market could be more damaging than estimates, because the housing sector boom accounted for over 40 percent of the jobs created in the current expansion,’ (economist) Asha Bangalore told her clients.”
“And then there’s the vulnerability of so many young homeowners who’ve been hoodwinked by the lending community. Why worry about a mortgage blowing up, after all, if you can immediately sell it in the wide-open collateralization market?”
“In 1992, 40 percent of those tapping adjustable-rate mortgages had high incomes. Only 25 percent were among the lowest earners. Today, those figures have flip-flopped.”
“It’s painfully apparent that, somewhere along the way, the industry abandoned concern for its customers’ long-term well-being.”
“Maybe builders just don’t appreciate how critical a role they play. Oversupply is but one issue when viewed in isolation, as is the risk to the labor market, as is the threat to the banking system. Add them together, though, and we’re talking about a seriously brutal session of musical chairs.”
Two related links from Florida:
‘As an industry, Neal said ‘last year we built maybe 10,000 new homes in the region’ while the real demand ‘was perhaps 8,500.’ Even the backlog of homes to be built has dropped during the last two quarters, says Tony Polito of Tampa’s Metrostudy.’
‘Meanwhile, the number of units finished and vacant has grown and overall inventory levels are up. To Polito, a key number is the ‘units completed’ compared with ‘move-ins.’ In the Sarasota-Bradenton market, the units completed have exceeded the move-ins each of the last five quarters with the ‘biggest gap ever’ appearing during the first quarter this year.’
‘That led to an overall increase of finished vacant units from 780 in March 2005 to 2,004 by March 31, 2006, Polito said. ‘Sarasota-Bradenton has the highest level of months of supply among major cities in Florida,’ Polito said.’
‘Even as sluggish home sales force developers to slash prices and offer extra incentives, the cooling market hasn’t slowed the push for new subdivision approvals. Housing developers are still betting big in Manatee County, at least on paper.’
‘They pitched plans to the County Commission this week for almost 2,000 homes in four separate projects. And that pace has been typical in recent months.’
‘I think the wheels are in motion,’ McClash said. ‘They’d rather get their approvals now and wait for the next cycle.’ This year isn’t looking as good for developers, but staying optimistic means they’ll be ready for the next boom. ‘It’s not like they can leave things sitting on hold forever,’ Friedley said. ‘They want to be in line if the market does come back.’
Some of these builders have so much profit in their new construction that they can undercut used-home prices for quite a while and still keep their subs employed. In some bubble areas, I think this is the play even the “I’m savvy” flippers didn’t count on — serious price cuts by the guys who are building new, that which the flipper is trying to offload second-hand. Builders also can loans with bought-down interest rates and, for that matter, might soone be willing to take some or all of the paper themselves, something the average flipper won’t want to do.
For that part of the market in which it is builder-vs-flipper, the builders are going to win every time, IMO.
I have come to the same conclusion. Is there anyone out there that is in-the-know enough to do some rough numbers? (For example, at a high-level, what is good gross margin on new construction?)
I’m not “in the know” but can give you some examples.
I remember about 6 years ago looking at some nice townhouses in Annapolis priced around 100k to 120k. Builders were happy to sell for that, and were making profits. Now they sell for over 300K. I’ve heard building materials have gone up, but I don’t believe its possible that building materials alone justify this. Labor sure hasn’t gone up too much. I suspect builders could keep building similar townhouses, cut prices as need be all the way down to around 150K, and profit all the way.
Assuming they already own the land, which has certainly risen in price along with the rest of the housing bubble.
I’m right there with you on your logic for builders costs. I’ll give some SFH examples from my area.
Typical 4BR 3.5Ba nice (3200 sq ft. including basement) on .25 acre single family house went for around 350k when new in 2002 in a neighborhood like Potomac Station. The 2003 tax assessment shows land value of 125k, and structure of 255k. Today this home is listed for 600k.
To see how much margin the builders have to play with I’ll assume nominal building materials prices and labor costs went up 30% over the 3 years since the tax assessment. That puts the cost of the structure at 331k. If we assume the builder already had the land we can use the 125k figure and adjust that 5% annually for inflation/carrying costs and come up with 145k.
So these conservative numbers would indicate that the builders today can make a profit today equivalent to that of 2002 for selling for 476k. Strip out their usual profit margin from the original sale and they can likely sell for 450k or less and still break even on the sale.
If prices on these do get slashed to the mid 400s there will be a bloodbath of foreclosures in Loudoun county. Currently most new homes are priced almost equally with equivalent existing homes once you factor in builder discounts and incentives.
Insurance for building crews has skyrocketed, in fact, putting many smaller, local crews out of business (when business was still good). My husband was formally in the home building trade.
Sorry to hear that.
Our media / government continues to report “near record levels of new homes being built, new permits issued and new homes sales…
What accounts for the differences between the publics experience, each publicly traded housing builderreports, versus these weekly/ montlhly reports.
I am beginning to think the NAR or Unlce Sam has adopted Sheing- hie China as one its input lines.?
why yes, comrad, we are exchanging our rubles now before those rich americans figure it all out…suushhs someone may hear you Egor!
Gross operating margins range from 15% for low end starter type housing to 30% for higher end housing.
From various quarterly reports, 25-30% margin is pretty common. We still have a long long way to go before we see negative EPS numbers. Eventually we must of course which means some of these stocks could still be cut in half.
I read in a blog somewhere that mid-grade housing in SoCal costs about $125/sq ft to build, not including land. It looks like the builders can keep going, especially if a cooling economy hammers commodity prices.
thanks to all!
Here in NYC, there is ongoing demand for more state and local expenditures for “affordable housing.”
What I tell them is that elsewhere in the country “affordable houing” is built all the time. It isn’t intended as such, but it ends up that way. And the tax dollars aren’t required until the FDIC gets involved.
Nice comments on the TX bust in the 80s. Of course, the new age builders feel that they’re bulletproof and the old ones have had the 7 years after their last bankruptcy go by so they can take the cure again when they need to. You should see the crap that’s going up in Big Dump all over the place. The sickest stuff IMO are the gigantic McMansions being built on teardown lots on Lower Greenville/Lake Highlands and the Mockingbird/Skillman area. There is a whole row of nasty big ugly townhouses built right behind a strip center behind Mockingbird. I am sure that the builders are trying to sell them for 350K+ judging from the size and pretentious facades. I’d love to know who’s buying. For 350+ you can buy a nice 50s remodeled house right down the road a bit and not have the lovely view of the store’s parking lot when you look out your windows.
From the Idaho Statesman: http://www.idahostatesman.com/apps/pbcs.dll/article?AID=/20060620/NEWS02/606200363/1029/NEWS02
“In Ada County, the number of single-family permits issued in Meridian last month was 37 percent below the comparable month a year ago, leading to speculation that a slowdown in new residential construction is under way. In Boise, overall building activity in May rebounded from a temporary slump the previous month to finish 34 percent ahead of May 2005.”
“In Meridian, where single-family housing has been fueling the building in recent years, $37 million in residential permits were issued last month, down from $59 million a year ago and $46 million the previous month. It was the third consecutive month that that residential housing permits failed to match the same month a year ago. “I think we are seeing a little bit of slowdown,” said Meridian Building Official Duante Whitman. Whitman speculated that rising interest rates and the inventory of new housing on the market are causing some builders to rethink their plans for 2006.”
“There are enough homes out there that some of these builders are pulling in their horns a little bit,” he said. “I think we’ll probably see this slowdown for the rest of the year.”
“Inventories of new and existing homes are at the highest levels ever recorded.”
Does anybody have a good website to go to to track the national data on inventory/available lsitings?
http://www.ziprealty.com/maps/index.jsp?usage=search&cKey=74rbwvlk
it was 800k around mid may.
I’m wondering if actual MLS is higher than that as Ziprealty doesn’t cover our area at all.
“Inventories of new and existing homes are at the highest levels ever recorded.”
Does anybody have a good website to go to to track the national data on inventory/available listings?
“hoodwinked”
That pretty much sums it up!
I think the word “brutal” pretty much sums it up.
How about doing a little homework before signing your life away for the next 30 years.
When prices (stocks, houses, whatever) go up, ever Joe Sixpack becomes a savvy investor and a Laissez-faire free market capitalist. When prices go down, all of the sudden these “savvy investors” puts on their “victim” hats and start looking for the government bailouts.
“Inventories of new and existing homes are at the highest levels ever recorded. Wouldn’t it be smarter to show a bit of restraint and shelter what profit margins do remain? It’s not as if retaining sales volumes to keep up appearances is still a legitimate excuse. Wall Street long ago pummeled homebuilder stocks.”
This writer does not understand the alternatives facing the HBs. They bought inventory when land was cheap. Big runups in land values account for those bloated inventory figures currently shown on their balance sheets. Any firm who is “smarter by showing a bit of restraint” gets to eat the lost inventory valuation once prices have really tanked, instead of finding some sucker to buy an overvalued home at a sale price which will still be high enough to cover costs for the near term future. Since all the builders face the same alternatives, and since all of them conclude that it is in their individual interests to build and sell as quickly as possible before bubble prices are history, in the aggregate they are all stepping on the gas as they approach the cliff of rapid price deceleration…
Yep ,agree 100% Getstucco .
( They bought inventory when land was cheap.)
not all of them. remember the bob toll stories? why not just sell the land? we don’t see the condo developers building, they are selling the land.
oh well, so much for the regional homebuilders learning from the last cycle. I can’t remember how many times I heard that.
“why not just sell the land?”
Conjecture: The values shown in inventory are backward-looking to the time when the market was hot. Selling at current price levels would reveal that the inventory figures are blatantly inflated in light of current market conditions. Building a house on there and selling it (maybe using a new car as an incentive) buys the HBs time before they have to report really bad news on their balance sheets.
Could anyone who actually knows how this works please offer comment?
Here in Vegas, the homebuilders paid very high land prices in the BLM land sales over the past few years. Much of the land was marginal, needing significant improvement due to grade, etc. Selling the land would be very difficult; who would buy $300 million worth of open desert? Only another builder would even attempt it. If I had bought all that land I would keep building houses and selling them, all the way down if necessary, until I went broke or all the houses sold.
Inventory has to be stated at the lower of cost or market.
Looking at the top line financials builders have an operating margin of between 15% (low end houses) to 30% (high end housing) which implies to me that a builder could absorb a similar pricing decline before having to take a write down on his finshed product (this would apply to construction in process also). Materials used for construction would be priced out at lower of cost or market based on current pricing at the date of the financials.
Land for future construction is tricky. I imagine that the builder would have to prepare a financial forecast allocating the land costs as a component of future housing to be constructed and sold to support its value on the books i.e. the future sales price of the house (arguable) has to cover the cost of the product. Even if comparative land across the street sold at lower prices at the date of the financials i.e. market value for land is lower than cost, I believe that a builder could successfully argue with his auditor not to write off the cost of land on his books if the cost is recoverable through future sales. The builder’s margin just gets eaten.
sorry….posted in the wrong spot…
I will take a shot at this although I offer no promises that I am 100% correct. (scary but I do have my CPA but spent most of my career with a financial services company)
When an HB buys a parcel of land, they need to record the purchase at cost. Once they start building on the land, they will record additional developer inventory for all appropriate costs. The HB will be able to take these costs off their Balance Sheet once a certain percentage of completion is acheived as well as a certain percentage of sales and down payment. For example, if a development is 10% complete, 10% of the overall sales have been made as well as deposits of at least 10% of each of those aforementioned sales, they can start recognizing revenue as well as Product Cost (which decreases all of the inventory they have capitalized) based on FASB 66. (This is all predicated on total estimated costs of the project etc.) A little off topic but now I will get to what I think the question is. If an HB has purchased land back in 2002 for $1M, if the land is worth $15M in 2006, they can’t write up this land for a gain. They need to keep this land on a cost basis. The problem for the HB’s occurs on the flip side. If they bought a parcel of land in 2005 for $15M and now that land is really worth only $10M, if they don’t start developing on that land, they would need to take a $5M hit to their profit. (This is of course if the auditors catch them and believe me, I worked for a Big Six firm and it was the biggest joke going) It is much more beneficial for the HB’s to continue to build on this land as it affords them the opportunity to avoid this immediate write down (which would produce a trickle effect as once the auditors smell blood, they will be looking at all of their land parcels) and bleed in their losses over time once they either start selling the homes for a loss or decide to take a write down at a later date. Either way, they are going to take a bath unless they find some stupid dopes to take these homes off their hands. (which unfortunately i fear is going to happen…I mean who the hell in their right mind is actually buying right now!???!) Apologies if none of this makes sense as I know I have rambled on this.
great post bobbymac, thanks.
Simon, Meritage Homes, and Toll Bros. paid $312 million for the site (formerly a Daimler-Chrysler vehicle-testing ground) with a view to building as many as 30,000 homes, plus office and retail space, possibly including a large mall…
…Simon CFO Stephen E. Sterrett. “And we bought it at $55,000 an acre, so we feel like we bought it wholesale.
http://tinyurl.com/qkote
An acre is a mighty big chunk of land and lots keep shrinking, even in a normal market that price is only $10,000 per lot (it’s less but they don’t mention how much will be allocated to light commercial) which while expensive isn’t going to kill the firm tomorrow. I’m not sure why people think that just because idiots abound in housing, that everyone who touches the business must also be an idiot.
It may take them two decades rather than five years to get all that land sold, but I’ll bet they make money on the land.
Well, if you think undeveloped desert land is worth 55k/acre without houses on them then I guess they did pretty good.
Not now but what will it be worth with houses? Betcha those lots get priced up to $20-50k after they build something on em. Even if they spend a few million getting them rezoned and another hundred on infastructure, they can probably come out ahead once the bust has passed (unless it’s the end of wester civ in which case they may have well spent it on blow). Builders don’t go under from buying land, they go under from building spec homes if they build and orders are there they will be fine. If they have to cut prices to get orders they are still fine.
I will take a shot at this although I offer no promises that I am 100% correct. (scary but I do have my CPA but spent most of my career with a financial services company)
When an HB buys a parcel of land, they need to record the purchase at cost. Once they start building on the land, they will record additional developer inventory for all appropriate costs. The HB will be able to take these costs off their Balance Sheet once a certain percentage of completion is acheived as well as a certain percentage of sales and down payment. For example, if a development is 10% complete, 10% of the overall sales have been made as well as deposits of at least 10% of each of those aforementioned sales, they can start recognizing revenue as well as Product Cost (which decreases all of the inventory they have capitalized) based on FASB 66. (This is all predicated on total estimated costs of the project etc.) A little off topic but now I will get to what I think the question is. If an HB has purchased land back in 2002 for $1M, if the land is worth $15M in 2006, they can’t write up this land for a gain. They need to keep this land on a cost basis. The problem for the HB’s occurs on the flip side. If they bought a parcel of land in 2005 for $15M and now that land is really worth only $10M, if they don’t start developing on that land, they would need to take a $5M hit to their profit. (This is of course if the auditors catch them and believe me, I worked for a Big Six firm and it was the biggest joke going) It is much more beneficial for the HB’s to continue to build on this land as it affords them the opportunity to avoid this immediate write down (which would produce a trickle effect as once the auditors smell blood, they will be looking at all of their land parcels) and bleed in their losses over time once they either start selling the homes for a loss or decide to take a write down at a later date. Either way, they are going to take a bath unless they find some stupid dopes to take these homes off their hands. (which unfortunately i fear is going to happen…I mean who the hell in their right mind is actually buying right now!???!) Apologies if none of this makes sense as I know I have rambled on this.
“It is much more beneficial for the HB’s to continue to build on this land as it affords them the opportunity to avoid this immediate write down (which would produce a trickle effect as once the auditors smell blood, they will be looking at all of their land parcels) and bleed in their losses over time once they either start selling the homes for a loss or decide to take a write down at a later date.”
Thanks for your excellent post, which supports my conjecture very well!
Really good background for those of us without accounting skills. This does confirm why they MIGHT still be building even as they know prices are plummeting. Other good reasons exist, including their cost basis and ability to undercut flippers.
It suggests the classic “Prisoner’s Dilemma” of game theory-the best outcome for all of these builders would be to quit adding inventory, in the hope of keeping prices high (though it seems like this stage is already past). They could all cut costs by laying off their workforces and sit on the cash they accumulated until demand catches up enough with the oversupply to start up again. If just one of the builders “cheated” on this and continued building, they would get the advantage of the higher prices. Therefore all the builders keep building in the hopes of not being the one left holding a bunch of worthless empty land.
has anyone noticed that now the housing market is slowing everyone is saying that the commercial side will pick up the slack? sort of like with the consumer slowing, magically capex spending will offset the difference so there is nothing to worry about.
is anyone into commercial RE? I can’t imagine the bubble isn’t there either. besides, with the consumer slowing and the RE-industrial complex starting to shed jobs, who is going to fill those spaces? I’ve heard that hedge funds and some others need space, but the RE bubble is going to hurt the financial sector too. as well as all those commercials malls. all those buildings leased by realtors, mortgage people and whatnot.
Now you want to see a bunch of people who think they’re bulletproof - try the commercial RE developers. Maybe some of them should read Craig Hall’s book.
I see a few business closing near me, but no new ones opening to take their place.
The bubble is in Commercial also. However, I think the loss of Realty and Mortgage leases on this blog is overstated and wishful thinking.
I don’t know Mr. Income Stream,
I talked to my realtor friend yesterday. She’s constantly in the paper as award winning for volume. She told me her June numbers are down 50% yoy.
What for leasing??, I was in a hurry when I typed what I meant was that the damage from the loss of Real Estate and Mortgage office leasing space is overstated. Commerical is a little bit ahead of residential in the bubble phase. I was in a meeting about a year ago in Culver City where they were lamenting the fact that space that used to lease for $1.75 was down to adout $1.35 in a business park. With the advent of downsizing and telecommuting commercial has been hanging on a thread for a few years. The only reason they may have had a spike was from 1031′ers who were cashing in equity from their dogs and moving onto other things. I’m actually at this point starting to see deals that cash flow with less than 40% down on the market.
I am a commercial lender for a small commercial bank. I do CRE financing all across the US. There is deinitely a bubble in commercial but no where near the extent of residential. I say this only when looking at the types of deals my bank is funding - we are pretty conservative along with the tighter underwriting guidelines. Although their are some creative finacing programs, most banks lend on cash flow (remember when property used to be an investment) and/or LTV (nothing greater than 75% unless it is an SBA loan). Will there be some pain in my industry = absolutely. Two groups in particular will be hit hard - as txchick said the commercial builders for one. The other group are the “mom and pop” investors who moved from the 1-4 multi-family to the 5+ multi-family units. Unless rents move up dramatically, many of the people who bought multi-family prop in the last 2 yrs (especially here in So Cal where cap rates are 4-5%) will be crushed. These people bought properties with negative cash flow but “hoping” for appreciation…game over.
As for the builders, I just don’t get. 50% of the calls I get these days are for commercial construction financing. I do maybe 2% of these. Everyone thinks he/she is a builder. “I bought a piece of land and now I want to build xyz type structure on it”. Unfortunately most of these people:
1. have none or very little experience
2. not done their due dilligence
3. most importantly = no CASH liquidity
Most will be pummeled. Just like on the residential side, the smart $$ is on the sidelines. And to no ones surprised on this blog, the rich will get richer. But it is an opportunity for people with LIQUIDITY to possibly pick up some CRE and benefit from positive cash flow… like the gold ol’ days.
To some extent I think thats true but commercial has always reflected a longer term market with very stiff clauses to account for traffic, market ect. Just got our new mall lease and it’s like 15 pages.
“Brutal” is still not as “brutal” as the alternatives. Dawinistic destruction of wealth (including destruction of many whose wealth was never really more than speculative) frees up capital and provides bargain basement opportunities for the next wave of entrepeneurs. Between a rising middle class in those parts of the 3rd world that provide our “cheap stuff” and a constrictive long-term energy picture, economics - rather than protectionism - will require us to re-invest at home. Or we can stagnate, outsource those last few of life’s necessities that can be outsourced, let our homes inflate to kings’ ransoms, insist that a “new generation” of US workers can survive on wit and personality (selling the world stocks, legal services, financial instruments, etc.)… and starve. Maybe I’m dense, but I just don’t see how it could *not* be That Simple.
It is that simple. I fear for my kids.
(is anyone into commercial RE? I can’t imagine the bubble isn’t there either)
Take a look at today’s WSJ. The fundamentals are improving in commercial real estate: there is no bubble in rents, which are moving up after being stagnant. But purchase prices have outrun the valuation those rents can support, except at a low rate of return. So it’s better than for-sale housing in my view. Perhaps about as bad as stocks and bonds.
1991-1996 REIT’s did pretty well overall. Maybe something we should explore in regards to commercial property.
Commercial real estate is an entirely different animal. I doubt anyone who knows the biz is going to post here or anywhere. It is not a spectator sport. The closest to public participation is when a bunch of doctors pool to fund a strip mall or something under professional management. If I knew anything, and I don’t, I’d not be interested in explaining the nuances of structured net-net-net split frontloaded class b leases that strip out parking as a seperate leaseback arrangement to qualify for business expenses and still collect congestion mitgation and air pollution credits. Or so I’ve been told by a friend of a friend that this is the stuff other people know about. But like I said they ain’t talkin’.
Robert,
When all of that boils down to the bottom line, most REITs (which now own a ton of commercial) are paying dividends (generating FFO) of about 3-6% of market value. That’s pretty low historically but far far better than single family housing.
You are most correct. That is actually very conservative. Like I said, “I know nothing” but commercial RE does indeed have one number, the bottom line. They do not impute appreciation, they do not discount against anything further out than the next lease period or so I am told by a friend of a friend that might know something about the industry. People buying REITs in the last 3 years were… ummm… a temporary abberation. You are correct that the 3-6% P/E is low but you also correctly note; as compared to whatever else was available.
You got it. I used to neg some those and it is a bloodsport. Mostly for the doctors. Not the brokers.
Your overstating the commercial biz true it is a different animal but the biggest and raunchiest players barely have a high school education. What your talking about in your post are ploys for institutional investors ie: Insurance Companies, Pension Funds etc.. Whose knack for depreciation and tax credits should be considered a science.
http://tinyurl.com/fm8kg
“What do the NAR and Genghis Khan have in common?”
this is about the NAR from the freakonomics blog, don’t know if this was already posted here.
“What do the NAR and Genghis Khan have in common?”
Both prosper by raping and pillaging their victims.
“What do the NAR and Genghis Khan have in common?”
They both died in the mistaken belief that they controlled the world.
“Mr. Bandy said he recalls Texas in the mid-1980s well enough to recognize the sequel to the high-stakes game of musical chairs. Given that we all know how the game ends, it’s hard to see why so many builders continue to be willing participants. Yet they play on.”
They can voluntarily give up their chair and have a 100% chance of losing their seat, or they can keep dancing to the music and at least appear to have a chance of holding on.
What’s confusing to me is that this is confusing to anybody!
If all else fails, just start building in the middle of the Missisippi River and hope that Uncle Sucker writes a check eventually.
“KB Home / Shaw Louisiana Frame New Houses in New Orleans”
http://biz.yahoo.com/bw/060621/20060621005621.html?.v=1
These houses are actually on the “high ground” in New Orleans. And we’re talking really high ground, as in 6-10 feet ABOVE sea level, instead of below sea level. That area doesn’t flood from hurricane levee breaks (though from poor drainage, that’s a different matter). Given the soaring demand there for houses/neighborhoods that didn’t flood, KB will probably make out pretty well.
Katrina was the Cat 5 storm that missed NO — the eye veered to the east at the last moment. If the next one lands a direct hit, then 6-10 feet above sea level will not save anyone left behind in the levee-walled bathtub…
Wasn’t Katrina a 3 when it made landfall?…East of NO
Right, it was Cat 3. Since it was Cat 5 earlier, though, the mass of water that hit was still almost Cat 5 level. The winds, though, were far less, and they in fact were not even Cat 3 in the vcity of New Orleans itself, I believe.
And yes, if a Cat 5 hits New Orleans directly, it will be much worse, but if you know New Orleans geography, you’ll see that a huge storm surge has to wend its way through a lot of paths to get to that Uptown area. It’s not directly on the coast, you know, like Biloxi, or even close to the Gulf like the Plaquemines Parish area that got decimated even worse. My gawd, there has been a lot of misinformation on that area since last September.
But that’s irrelevant to the housing discussion. What matters in that housing market there is that those new houses being put in by KB/Shaw are in some of the highest, driest parts of Orleans Parish, and thus KB will do well because buyers perceive them as good places to buy into. If you HAVE to live in New Orleans for whatever reason, that’s a decent location, one you’ll likely be willing to pay for. (Sorry to not be gloomy here!)
Another way to manage excessive inventory
http://finance.messages.yahoo.com/bbs?.mm=FN&action=m&board=7079963&tid=kbh&sid=7079963&mid=19853
Here’s an example of yet another facet of the developing homebuilder implosion - poor construction. Times this by what, probably three or four “examples” in every 100+ unit development that is hastily being thrown up as the market tanks?
(From Mike Shedlock’s website)
Southern California – I bought a home from Lennar at the end of October 2005. Since then it has been a living hell. Multiple water leaks and months to repair because they are too busy building other homes next door. They used green lumber that results in severely bowed walls, ceilings, doorways. So bad they moved me out for 2 weeks (me, wife, and 3 little girls– oh yea 3800 in food and lodging that I had to front) they could try and fix it. When they opened the walls up to try and square things up they realized the entire house was sub standard work with studs that were split, twisted, bashed, splintered, uneven, moldy, and even broken in truss areas. They rushed to cover things back up as fast as possible, lied to my face about the repair to the framework. They have damaged my front yard concrete work, damaged my wood floors, terrible job even on the 2nd and 3rd attempts to correct. Now their answer is to move me out again, and again, until things are ok with me. Nearly 8 months later and I have yet to enjoy a finished product. Windows don’t close right, my garage door literally crunched like a beer can under it’s own operation, I have cracks in the foundation, stucco cracks like spider webs, etc. I am sending the photos I have, they are not much but surely capture the “un-workman like” fashion that these corner cutters produced. (Received from Lennar Home Owner - Posted June 20, 2006)
“When they opened the walls up to try and square things up they realized the entire house was sub standard work with studs that were split, twisted, bashed, splintered, uneven, moldy, and even broken in truss areas.”
Is this one of the first hints about the downside to employing illegal immigrant construction labor in order to frantically build out the housing stock at the end of a mania?
The garage door image is so painful….
I have heard my share of the same horror stories right here in Orlando. A couple of them about Bradford Builders who are “custom-high end” builders. Houses usually are in the $600k area. All with substandard work done….leaks from rain, cracks etc.
Oh well, only been saying that doody will hit the blades any day now. Does anyone believe any of this junk, even the expensive junk, wasn’t slapped together as fast as they could find illegals to do it? Cue the violins and the TV news consumer crusaders.
It’s a nightmare. Unfortunately, during the bubble times, they have no incentive to present the best quality. But these builders should be taken to court immediately, bubble or not, there is no excuse for what they are doing.
“It’s painfully apparent that, somewhere along the way, the industry abandoned concern for its customers’ long-term well-being.”
Huh?
Since when did the mortgage-banking-NAR-HB-industrial complex ever give a rat’s ass about its customers’ long-term well-being?