October 13, 2006

KB Homes official: "It's just shut down. It's stopped". HP: Housing was a debt-fueled joy ride of a ponzi scheme collapsing fast and hard now

Nah, real estate never goes down. Nah, there was no housing bubble - it was different this time. Nah, there's never a bad time to buy.

HP'ers, we are in the early stages of the biggest economic collapse this country has ever seen. A debt-fueled joy ride of a ponzi scheme, that is now collapsing faster and harder than anyone ever imagined.

Watch KB Homes, under SEC investigation now, either file for Chapter 11 or be acquired, along with a lot of other tier-2 and tier-3 builders quickly running out of cash and access to credit and sitting on massive inventories of overvalued properties just waiting for a balance sheet restatement. There was a massive shakeout during the dot-com collapse, and the same thing will happen here.

(Oh, check out KB Homes "moonlight madness" sale this weekend! Open 'til 11 so you can make a horrific financial decision when you're either drunk or groggy!)

KB Home has stopped building new houses in the Victor Valley and plans to lower prices to a level that brings buyers back to its communities."We're going to bring the market where it needs to be," said Rex McGuire, senior director of operations for KB Home Inland Valley, who spoke at an economic enhancement forum in Victorville. "And it's not easy. It's like turning the Titanic."

He added that no new inventory would be added until the new-home inventory was brought down.

"We're sitting on a lot of dirt right now and it's killing our balance sheet. But we're adjusting to that. We're taking a haircut," he told the group of about 50 Realtors, brokers and business owners at the event, sponsored by the Victorville Chamber of Commerce.

One area that is not selling in the Victor Valley is KB's higherend luxury communities, Mc-Guire said."It's just shut down. It's stopped," he said. "We were going full-throttle, and as soon as this market had a correction, our brakes weren't that good. It took a little while."McGuire said a price correction would lure buyers back in search of deals and that the slowdown in home buying was merely "a blip."

A realtor at the same meeting added this:

"If you really need to sell your home, price it right. Take your 80 percent and be happy," she said. "Maybe you don't make 130 percent on this home, but you'll probably get a bargain on the next."

And a Countrywide official added this:

"For the first time as a nation we're actually seeing a levelization, a decline in prices," he said.


a.creampuff said...

"Madness" all right.

Richard said...

""We were going full-throttle, and as soon as this market had a correction, our brakes weren't that good. "

Now that one goes done in the 101 greatest excuses book.

Classic - just classic.

Anonymous said...

I was in Victorville in summer of '04. Used to live there and have an uncle who still does. The whole county is atrociously overbuilt. Used to be nice.

My uncle showed me a postcard he got from an investor wanting to buy his 1300sqft 3/2 ranch for $270k, sight unseen.

"Why are they building all these homes?" he wondered aloud. "There was not enough water before. This is the fucking desert!"

That market will probably be a total implosion.

Anonymous said...

KB has stopped in Bakersfield. Dead stopped in the middle of site improvements,and they are trying to sell the project.

Anonymous said...

builders drove this bubble up and they are going to drive it into the ground taking down prices as they go - it is all connected and all related - that's why appraisal values are built on something called comparable sales. the idiots and dolts who built or bought during the past couple of years are going to be taking it financially in the shorts for a few years to come. too bad.

Smug Bastard

a.creapuff said...

Anyone here read Tom Wolfe's A Man In Full? I wonder if the KB Homes "official" is meeting up with the workout artiste at the bank right about now? Saddlebags!

Anonymous said...

The market opened today, "Retail sales down, but if you remove the gasoline sales drop they are up".


It was ok when retail sales were rising to include the gasoline sales huh?


Shows you how desperate the financial companies are to keep the paper train going at all costs.

So the motto of the day is now "What iceberg?"

We're just polishing brass on the Titanic. It's all going down soon.

Anonymous said...

This is going to sound very Marley & Marley but I think it's time to short Christmas.

Anonymous said...

shorting christmas may be a good idea but i would go long on God if i were these idiots.

a prayer is about the only thing left.

hebrew house lender said...

Anon 10/13 2:21:57, Appraisal values mean very, very little. The "comparable sales" can be from as much as five miles away under most conforming guidlines for most mortgage banks. The appraiser may choose to ignore the house that just sold next door that is a carbon copy of the subject, and use one that is five miles away and just comparable instead. This is how you can get these inflated values that flippers use to pass properties back and forth to different pools of "investors" with cash back. Some lenders have what is called an "appraisal review" (though these are mostly non-conforming lenders) in which they go through and verify that the comps the appraiser used are really the most comparable.

Anonymous said...

I looked at a large Tex. based home builders project in So. Cal. They built it in an industrial park. Big trucks zooming by! They want $600 plus for a 4k sq. ft. lot and a 1700 sf. house. Have they bumped their heads? You can buy a nice 2000 sf. house on 8k lot for less in a nice neighborhood! These boys are in trouble too!

Anonymous said...

all this buying and selling has done nothing but raise the property taxes on neighborhoods,and when and if it collapses another tax scheme, to save ownership, will be established, this is the neo controled welfare statism, fueled by fractional reserve bankings, with the rider, that the alternatines would be worse/ as job protectionisms for the super elitists, so one must be/get screwed, because everyone else got screwed, or i pay irrational tax/prices so must you, buy now! feed a realtor! banker! politician! and myrids of others

Anonymous said...

patriots, one and all, so, help me, patriots, one and all

Anonymous said...

" "For the first time as a nation we're actually seeing a levelization, a decline in prices," he said.

But he added that in the last four years, prices have increased faster than any other time in history. For him, the numbers represent opportunity.

"It's a perception game," he said."

Well... I perceive an Economic A$$ Whuppin'!

What do ya'll perceive?

Anonymous said...

Rich people have no need to live in Victorville. That's in the desert north of San Bernadino. If you are a doctor, businessman or someone who has to live there with money, then you already have your house. The desert areas are for those people who live and work in LA and can't afford to live there, but can afford the time and expense of commuting.

This is on Interstate 15 that goes to Vegas. It's as hot as Phoenix and has the same scenery. If you *have* to live in SoCal, but can't afford it, this is where you live. Back in 2000, you could get a 4-bedroom house for $99K! It's nice weather in the winter months, but the AC has to be on all the time in the summer to the tune of $400 per month!

Todd Tarson said...

I'm not surprised by any of that. There is no need to continue to build new homes until the current market absorbs the inventory. Could take years to do.

The builders were setting the price when prices were going way up, and it is no surprise that they will set the price as the prices go down.

Good days ahead for buyers, but don't take this the wrong way, I'm NOT saying that right now is the best time to buy. If for some reason a person has to buy though, they will likely make a good deal. Better than the folks did last year.

Anonymous said...

And a Countrywide official added this:

"For the first time as a nation we're actually seeing a levelization, a decline in prices," he said.

Hey Mister Countrywide Man, play a little lie for me,

in that jingle jangle '31, we'd come lynching you

Chris G said...

I'm wondering why you linked to a 1999 10-K filing for KB Home. I don't see the comparison. All I can see is that you gave examples of where KB Home scarfed up smaller homebuilders.

S&P, the company that, among other things, issues credit ratings on debt, generally says the homebuilding sector still looks alright from a debt/liquidity perspective. S&P is generally talking about the companies that are listed on the stock exchanges. The ones that are not publicly traded, however, might have a problem (the tier 2 and tier 3 companies, as Keith mentioned).

And by the way, this backdating of stock options thing will, at the worst, result in the resignation of high-ranking executives. If they have to, their lenders will revise their credit agreements so they can file later. No way they yank credit to a company that is quite solvent.

And KB Home is listed on the NYSE. The NYSE is very forgiving to companies that file their statements later than the SEC deadline, so no problem of getting delisted.

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