As loyal HP'ers will recall, I've been comparing the dot condo craze to the dot com bubble for a long time. How the telecoms overbuilt, selling supply to dot coms that eventually crashed. Companies like Cisco and Global Crossing then had to mark down billions, and their stocks lost almost all of their value.
Same thing today - homebuilder selling to flippers during the gravy days, then poof, the demand goes away, and homebuilders actually compete with the flippers to get rid of the inventory. Their stocks crater, there's massive oversupply in the system, and here we go again
Good write up on this very subject. Thanks Mark for the link.
Just like the telecommunications equipment makers, the home builders made the mistake of selling products to buyers who really could not afford them or were likely to re-sell them.
In both telecom and housing, demand was artificially enhanced. The result will be a glut of supply, as previously sold inventory comes back on the market.
The problems will be compounded as the builders continue to over-build even as it is obvious that demand is faltering. This self-serving strategy is necessary to maintain the illusion of future earnings so that insiders can exercise stock options and unload their shares, the prices of which have already been cut in half since their January highs.
A decline in new construction and home prices will not only crush the home builders, but also the entire bubble-economy that their reckless behavior helped to artificially sustain.
June 12, 2006
It all seems so obvious now... Homebuilders, artificial demand and the destruction of the bubble economy
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2 comments:
Here comes Tropical Storm Alberto. There goes FL selling season 2006.
IMHO: Because of the equity or wealth destruction coming in the next few years, especially in California, there will be so many people who will feel psychological discouragement and use their displaced energies (formerly spent shopping for garage trash and toys)into venting and lashing out. Rage will be seen in so many forms. California road rage will intensify. Office politics will become mean and nasty. Grifters and con men will come out of the woodworks, not to mention property thefts.
Being cognizant of above risks, I got out of California and moved to slow-but-steady Kyle, Texas. Everything is so green in Kyle during spring time and mild weather is as nice as San Diego. In Oct.'05, we sold a 1963-old, 1,300 sq.ft. house in San Diego for 500K and bought a brand new 2,000 sq.ft.house in Kyle for 140K in cash. Neighbors are gentle and warm people who wave at you. Former neighbors in San Diego were meanies.
In 2006, California is mired in debt and deficits. Texas swims in surplusses. California is getting gouged in oil prices. Texas is investing in wind farms off Gulf Coast. I would rather be in a place that seems smarter.
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