Wednesday, November 08, 2006

"No Sign of Daylight"

From Business Week:

How Deep Housing's Decline?
Rumors of the real estate market's resurrection are greatly exaggerated, according to three major homebuilders who see no sign of daylight


Remember those headlines about the U.S. housing slump possibly nearing an end, heralding a turnaround in 2007? Well, forget about it. Three of the major homebuilders just checked in with reports showing that they are decidedly not on board with that view.

In financial releases on Nov. 7, Beazer Homes USA (BZH) and Toll Brothers (TOL) said their new orders had dropped by more than 50%, while both continue to grapple with rising cancellation rates.
...
In a statement, Beazer Chief Financial Officer James O'Leary said the company had cut a quarter of its workforce, or 1,000 jobs, in September and October "in light of our reduced volume expectations" for next year. Toll also said his company had cut workers, but declined to offer specifics.
...
Toll also disclosed a record 585 contracts scuttled in the current quarter, amounting to 37% of the contracts signed in the fourth quarter, compared to 18% in the third quarter. But 25% of the current cancellations were in two markets, Orlando and Northern California.

22 comments:

Lander said...

Hat tip to reader John.

karl marx brothers said...

Speaking of the housing downturn fallout . . .
Lowes is really dead on weekdays.
Been renovating this home since January & noticed a big slowdown.
It's actually pretty nice to be able to take your time while strolling the aisles. I like the reduced foot traffic.
I HATED the way Home Depot whored themselves out to the merchants by placing those freakin cardboard floor kiosks every 3 feet.
It's almost impossible to look at an item in the aisle without getting run over because the kiosks block 1/2 the width.
Took awhile to get familier with Lowes layout but I love it now.

No, I don't own Lowes stock but just appreciate the choices competition can bring to us all.

JR said...

KM Bro,

I have noticed a distinct lack of traffic in Home Depot lately. I went there on Sunday and three of us had the whole store to ourselves. No waiting in check out lines. Is this seasonal? I don't ever remember it being this way, so I think the housing downturn is having a strong effect.

Anonymous said...

It's funny. Everybody's talking about the housing downturn, the bursting of the bubble, but I look around, even here in Sacramento, and prices of existing homes seem only slightly below the peak of about a year ago.

And an anecdote: the in-laws of a friend at work were happy as clams to pick up a 2/1 condo in Marin County, twenty years old, for only $775k about 6 months ago.

Merced Going Quickly said...

I couldn't beleive this crap!

LFrom Hispanic Trending. Latino group calls immigrants an untapped home buyers market: The slumping housing market could get a $200 billion boost from new immigrant home buyers if mainstream lenders start using alternative methods to score credit
....lack Social Security numbers or legal status in the U.S.
...Should the new reporting methods gain wider acceptance
...No law requires that buyers be in the country legally to buy real estate
...enerates a credit score using nontraditional data.

http://mercedgoingquickly.blogspot.com/

karl marx brothers said...

jr:

Slow Sunday at Home Depot surely is very unusual.
If its not bad weather or a holiday, then . . . !?

On a side note: when I use an automated check out scanner I want to say a cuss word to see if I hear" you are fined 3 demerits, John Spartan " from the electonic voice.

Anonymous said...

Anon 6:49, you're right, prices of existing homes haven't changed much. In many areas of Sac, they are down less than 10% from their peak, and in some of the most desirable zip codes, they haven't even peaked or are down 1 or 2% year over year. One poster pointed out that it's mostly the builders who are driving this train wreck so far. Individual homeowners are extremely reluctant to sell for less than recent comps in their neighborhood, so they will avoid doing so as long as possible. Only very motivated sellers are closing deals in this market. That's why Lyon said recently that just 10-20% of current listings are priced realistically. But, like the other poster said, individual homeowners will start competing with the builders next year and prices of existing homes will fall more steeply. And there's nothing like a few foreclosure sales in the neighborhood to bring down the comps.

Anonymous said...

I know of two instances where the seller sold for $30K below what they paid 12 months ago. Both of these homes were brand new at the time.

JR said...

Anon 6:49,

If you look a little more closely, it is very easy to see all sorts of price reductions. In Placer County, where my wife and I walk 3-4 times a week, sales prices for existing homes have dropped 15%, sometimes 20%, since June 2005. The homebuilders in Lincoln are down 5-10% more, with incentives.

Go to this web site http://flippersintrouble.blogspot.com/
and you will see hundreds of homes where the listing prices are substantially below the recent purchase prices. Actual sale prices will be even lower, if they ever get sold.

While the majority of individuals are not pricing at the market level yet, they have to compete with the sellers who are (including the builders). The inventory of Greater Fools has almost dried up. People are examining the market much more carefully, because the individual price differentials are so great, the builders are including huge incentives, and real prices are declining. Once you start adding in the foreclosures from all the Flippers in Trouble and the ARM resets, it will get much more competitive. Just be patient. You can rent for 30% of the cost of buying, with no risk in losing equity value. We know prices are not going up, so why not save the extra $30,000/year in expenses, bank it, and buy a nicer home for less money next year?

Gwynster said...

I don't know where some people are looking, but I've been seeing some nice reductions in my area of Davis but most of these homes still aren't selling.

In 2004, 2 Br duplexes where going for $389. The low-end 2 Br condos off Poleline were asking 299K and getting it.

I've only seen 2 of those condos sell, for 229k and 239k in the spring. I expect to see them listing for 210k in sping 2007.

Compare that with 3 BR SFRs listing for 370K to 380K and a few 4 BR SFRs going as low as 413K. Those are huge reductions compared with 2004 and 2005 prices.

However, your average home shopper has begun to use sites like Zillow and the County assessor database website to find out what the home was purchased for around 1999-2000 and making decisions based on that number.

I'd say I'm happy to see this change in buyer psychology.

And I'm not worried about rental rates increasing either. You can now rent a nicely updated 3 br apt for $855 which is a nice drop from the $500 per br average I was seeing all 2004, 2005, and early in 2006. It's a great time to be a renter in Davis >; )

Anonymous said...

Help, I've fallen and I can't get up...

Gwynster said...

Lander, I spotted this in the Davis Enterprise's letters to the editor: 11-8-06.
-----------
Davis renters are doing the math
Davis Enterprise, The (CA)
November 8, 2006

As a newcomer to Davis, I'm intrigued by the local housing market. Your Oct. 26 articles ("Sales Slow, Prices Dip" and "Some Buyers Waiting for Market's Bottom") contrast the bulletproof optimism of real estate agents with the cautious realism of a prospective buyer, but missed an important detail.

The Bardin family in your article is apparently renting a home for roughly $1,400 a month that was listed at $575,000. The cost of owning the home at this price would be around $3,800 a month under standard assumptions. Even netting the $800 to $1,000-a-month tax benefit, buying this home would cost twice as much as renting it. This same disparity is rampant in Davis.

Like so many new arrivals, we are renting and waiting to buy. The greatest threat to real estate agent optimism may be that several of us do this mortgage math and choose to rent indefinitely.

Travis Lybbert
Davis
--------------------
I'll try to dig up the article beginning referenced.

Gwynster said...

I was able to find the article through the campus library:

What's it like moving into the Davis real estate market? Consider the experience of Dave Bardin, his wife Changwen and their 1-year-old daughter Nina.

Davis Enterprise, The (CA)
October 26, 2006
Author: Jeff Hudson
Enterprise staff writer
Estimated printed pages: 2

What's it like moving into the Davis real estate market? Consider the experience of Dave Bardin, his wife Changwen and their 1-year-old daughter Nina.

The Bardins moved here recently from Truckee, where they'd owned a home. Bardin has a new job as a clinical specialist for ArthroCare Corp., which takes him to medical centers in several Western states.

"The biggest concentration of hospitals and surgery centers is in the Bay Area, Sacramento and Reno," he said, so moving to Davis puts Bardin within driving distance of many of those facilities. The Sacramento airport also has some good airline connections to the other cities he serves.

Bardin and his wife, as parents of a young child, also were interested in Davis' parks, and are aware that the Davis schools have a good reputation.

They decided to start with a rental house.

"We started looking on August 15, right when a lot of college students were looking," Bardin said. At the outset, "we were looking based on price. But everything renting for $1,300 to $1,500 a month was student-oriented. We're a young family, and I have two dogs. So we had to get something with a back yard."

Since the Bardins weren't finding what they were looking for in the under-$1,500 range, "we started looking at nicer places," Bardin said. "And we saw some newer houses, up to $2,500 a month. We also saw a few places that were thrashed."

On Sept. 1, the Bardins moved into a recently remodeled three-bedroom, two-bath home on Monarch Lane, in a quiet East Davis residential neighborhood. The rent is almost squarely in the middle of the higher and lower ends of the range they looked at. It's a home that also was up for sale about a year ago, at an asking price of $575,000 — but didn't find a buyer.

Bardin said the landlord was "happy to rent it to people who aren't students."

He said they figure they will be "renting for the next year or two," while he sees how Davis works as a home base. He's aware that home prices are trending downward, and there are homes for sale in many neighborhoods, so he doesn't feel pressured to make a quick decision about buying.

For the time being, the Bardins have put some money into treasury bills and stocks.

"We had a good third quarter on the stock," he said. "It was not a bad decision to have done."

— Reach Jeff Hudson at jhudson@davisenterprise.net or 747-8055.

Sacramento Forums said...

Keep in mind those are the opinions of new home developers. As far as I can tell, the prices of older homes in established neighborhoods haven't dropped nearly as much.

Merced Going Quickly said...

In Turlock, noticeed a condo selling 45K less than the developer is selling. A sign went up for s condo in the same complex a few days later, the same price. The owners are actually underselling the developer.

The location is Balboa Park in Turlock.

karl marx brothers said...

" . . great time to be a renter "


I lOVE IT !! Nice turn of phrase, Gwynster.

Print that on USA Today front page & watch countless peroxide blondes go grey overnight, and middle-aged pacemakers seize up.

Gwynster said...

The Bardin's are doing what my husband I are doing, except we're just taking 5k chunks and putting them in CDs. By renting, we're able to to save 1k to 1.3 a month which is a lot on our salaries (low paying UCD jobs). I've been doing this since '99.

It's a damn nice nest egg we have saved up but hell if I'm going to buy anything that we can't afford at .33 of our combinded salaries with a fixed rate. We plan to live here at least for the next 15 yrs if not until we retire.

If prices don't come down enough, we've already decided on paying cash someplace else like TN, KY, or NC. The salaries there aren't any worse then what UC is already paying and sometimes better.

Now apparently in Davis we have a few housing projects coming online with the next 2 yrs. There was an article in the DE using the new projects to justify claims that we have bust-proof market. All the locals are pissed as hell and I'm delighted at the possiblity of more prices drops.

Another thing to remember is that UCD will start bleeding retirees at a ferocious rate and most all of them will be selling to relocate out of state. So plan on yet more inventory in a market that's already seen some great price reductions.

JR said...

Sac Forum,

Prices are dropping in established neighborhoods everywhere, because they have to compete with the builders now. Check out MLS 60113991. The house was built in 1988. The seller purchased in early 2005 for $489,000, using a 20% down payment. They tried to sell it since April 2006, could not even get an offer. They lowered the price to the loan amount, plus a commission. There was still no sale. They gave up and deeded it back to the bank a month ago. Now it is an REO, listed at $403,000 for 1900 sf with a nice pool. So these sellers, who lost their $97,800 cash down payment, might just argue with you about prices holding in established neighborhoods.

Pricing set by the sellers can be a joke these days. Just look at JTS Estates at Lincoln Crossing. In October, they said all price reductions will end on October 31. Oops, just kidding. Their ad in the morning paper has new "liquidation" prices (probably still way overpriced for this market) for November. That subdivision in Lincoln has 140 homes and has been completed for almost a year. 20 homes are currently occupied. The builder has been trying to dump 50 of them since July. I think 20 may be sold to people who now will lose more equity to further builder price reductions. Another 70 homes are owned by Flippers and they are all in trouble and headed for the exits.

Here is the new wrinkle.....so many Flippers are in trouble at the Estate at Lincoln Crossing and have had their UTILITIES TURNED OFF…… that the builder or the HOA hired a construction crew with a WATER TRUCK through the neighborhood and SPRAY THE LOTS that have no utilities. That looks very strange.....a big truck spraying the house and yard from the street, like it is an earthmoving project. I guess no one wants to pay the back water fees for the delinquent property owners. It is an amazing site.

I wonder if the other home owners will have to pick up all the missed payments for the Mello Roos bonds and the HOA fees that all these Flippers are failing to pay. It has to come from somewhere. Evidently, a couple of homes have resold using fraudulent buyer “cash back” loans and the FBI is investigating. (These are two adjacent homes, which also get sprayed once a week with the water truck, cause the new buyer never turned on the utilities for either home….hmmm, something fishy there……)

I still predict there will be a big auction out there in early 2007. 140 homes, 20 occupied, some already in foreclosure, the builder dropping prices below the Flippers, yet little ability to sell anything at the reduced prices. It just gets "curioser and curioser".....

Anonymous said...

Jr, do you know for sure if the FBI, or anyone in government, is really investigating? Or was that just a guess? I'm asking because someone needs to investigate these wild developer and loan games that are ruining the economy and people's lives.

Anonymous said...

Also, a while back someone mentioned JTF might he selling off their corporate office. Is this for real, or just a rumor? If so, any link to that information might be helpful. Thank you.

sippn said...

JR, I think what sac forum meant my "older established neighborhoods" is from the flat Earth perspective.... one day's drive with a horse and buggy from the Fort. From that perspective, East Sac, Arden, Sierra Oaks, Willhagen, SW Carmichael, still very solid, minimal inventory....well, you can take a whole week to look.


But, an 18 year old tract home in Rocklin needing almost everything new... a tough sell in almost any market....perfect for Rocklin Renter.

JR said...

Anon,

My understanding is the mortgage fraud game is becoming more easily identified by computer programs now. They look for the MLS listing price to jump, the new price at or above the recent sale price, multiple loans to the same borrower over a short time frame, 100% financing, new home developments with Flippers in Trouble, etc., etc.

If you are a seller and agree to give cash back to the buyer without the lender's knowledge, you will be probably be going to jail and getting a substantial fine and paying for the lender's losses, if the buyer doesn't make the payments.

If you see mortgage fraud, call the FBI in Sacramento. They have a whole division on Auburn Blvd, near Orange Grove that goes after these crooks. It costs honest people a lot of money every year and artificially increases housing costs

Look at

http://www.mortgagefraudblog.com/

All the info you need is there.