This, my friends, either shows a complete ignorance of basic economics and supply and demand, or the perfect definition of 'denial' or 'lunatic'.
Either way, anyone who believes the party will continue for homebuilders is either a fool or a liar. Crushing layoffs, bankruptcies, mergers and asset firesales await the homebuilding industry, for years and years to come.
We built way too many damn homes during the speculative bubble, and we don't need any more. Therefore, we don't need homebuilders.
The real estate industry may be slow in California, but builders say they won't suffer much.
That's good news for the state because the California Building Industry Association says it is a $70B dollar industry and it employs about half a million people in the state.
The buying and selling frenzy in the California housing market is over, but the state's building industry says construction is still booming and just not in home building.
With more homes on the market, there's less of a need for homebuilders. But they're finding their skills transfer easily to other construction jobs and predictions are builders could be very busy in the next year building office complexes and shopping centers.
January 15, 2007
Massive over-supply of homes. Record dropoff in demand. Yet builders think they won't get hurt. Yeah, right.
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34 comments:
Keep building...keep building....
Every new home is one more to over-saturate the market and accelerate the decline. (Unless they turn out like Mexico, where unfinished properties exist in abundance compared to here. Let's all pray that doesn't happen!)
Keep Building...just keep building....
They did say that their skills would transfer to other construction jobs, so at least they know they won't be building homes forever. That said, there certainly won't be room for everyone...
I read recently that commercial construction always lags residential by 6-18 mos.
Now that the developements are all done you still gotta put up the community centers,shopping mall,schools,librarys,industrial parks,etc.As long as the construction workers can find work,screw the homebuilders.
>> Therefore, we don't need homebuilders.
Well, I kinda hope mine sticks around for a few more decades so that they're available to honor their 20 year warranty.
By the way, here in Columbus, OH, M/I Homes just reported sales down 60% - 60 PERCENT!!! And they're STILL building new homes in the area!?!
The problem is commercial is a faction of the size of residential, i.e. you do not need a supermarket complex for every subdivision.
Home builders have nothing else to do but build, that's their business!! They just have to accept lower profit margins and go for people who want new over a used home. This of course undermines the re-sale market when you can buy new over used by drawing in people who normally would not buy new, but do because its cheaper & you get a new home that "should" have fewer problems structural wise. This is not always the case because modern immigrant labor based construction is horrible in terms of quality.
I was at a birthday party the other night and asked a friend who is an IT manager for a large construction supply firm in Denver. They supply all sorts of beggining stage products....rebar piping etc...I asked him how biz was( since I am a finish carpenter, and want to see what is coming). He told me december sales were down 75% yoy. His estimate but there is no reason for him to bull shit me. Granted the weather has sucked out here for a while but 75% drop is not very pretty. I have been trimming homes on a ski resort and that is winding down as there are few buyers. Pretty Prime spot but the builder is not flooding the project with specs. There are alot of the earlier stages of construction trades out looking for work these days and they tell me Denver is dead so they are looking in the mountains in hopes of work. For me, I have been reading about this and expecting this for quite some time so I have back up plans.
Bill M
1:16,
Exactly. And in 18 months, surprise, surprise there will be a shortage of homes all of a sudden and the cycle starts all over agan.
Yes I said shortage. For you see unlike the genius HPers, I realize that every year the population of these fine United States grows by 1%. For those of you in FloriDUH that's 3 million people a year or 4.5 million people in the next 18 months. They all have to live somewhere whether they rent or buy. As far as construction goes that is irrelevant since the homes/apartments need to be built one way or another.
There is excess inventory right now and not enough demand for it all. As a result builders have slowed way down. New permits are at 10 year lows across the country. About as textbook Econ 101 as it gets. Supply is too high, prices fall, suppliers stop producing. Demand increases over time, price increases again as shortages arise, suppliers start supplying again.
So you all go on talking about 60% crashes. Unless all of a sudden the population starts shrinking (something that has NEVER happened in US history not even during the 1930s) you're dreaming.
D.E.N.I.A.L.
25% of all the homes sold in the past few years were second homes (by investors) and now not needed.
Then you have the REIC pumping out more and more dead inventory every day
Next you have a record inventory of unsold homes on the market today.
Finally, you have rapidly diminishing demand as people realize that if they buy a home today it'll be worth less tomorrow.
Add that all up and you think we'll have a shortage of homes in a few months?
Oh, man, that's the dumbest thing I think I've ever heard.
Ever.
"Unless all of a sudden the population starts shrinking (something that has NEVER happened in US history not even during the 1930s)"
Anyone kow what is predicted when the boomers begin their dirtnaps? What affect would this have on prices? I would have to assume that they would drop precipitously.
Accordingly, this should be factored in when purchasing a home- that is, over the next 20 years prices are going sh*t the bed.
RE starts were 2M units / year. For 3M people increase. Alot of those are illegals who will go home in a recession anyway.
If it slows down to 1.2-1.5M / year (which would take time as builders want to continue to build), that's a recession.
Plus the 2M units / year were sold to "investors" 2nd/3rd/4th homes etc. Now that prices come down and people can't refinance, the excesses of previous years supply comes forth again.
It's going to be more than 18 months of "softness".
"This is not always the case because modern immigrant labor based construction is horrible in terms of quality."
You get what you pay for... There are good people on both sides of the border and the good ones "name their price" to do the job right. The "price conscious" pay less but have to pray a little more-- regardless of the "country of origin."
Actually the population growth of industrialized nations is headed for a massive decline in the next 50 years, unless all the Indians move in. India is the only nation with birth rates capable of fueling a continued population boom, now that Chinese birth restrictions have taken hold. I forget the actual numbers, but Japan is supposed to loose something like 1/3 of it's population by 2050, with similar albeit not so drastic numbers elsewhere. Schools here in CA are closing by the truckload and, regional political issues not withstanding, this ain't a sign of sustained growth.
My $0.02 on solving India's population issues is to allow human cell sorting (google flow cytometry or XY, inc.) and give every family the boy they keep trying for. Watch out for the ensuing testosterone powder keg...
To answer Keith's question though, the builders will definitely not be hurt, only their employees. I don't see Mr. Toll with a personal loss for FY07, reporting it maybe, but not seeing it. As for the employees, haven't about 1/3 of jobs already been cut?
"This is not always the case because modern immigrant labor based construction is horrible in terms of quality."
EXACTLY! And the dirtball Corporate Homebuilders who hire people based on cost and not experience. Went into K Hov home up the street. $1.1 million and what a piece of crap. They must have used three truck loads of caulk to patch all the inferior workmanship. People are stupid. They see granite countertops and they think oooooo.... superior construction. Stupid is as stupid does! Gump this.
Um, building homes even beyond what's sane is good for the people. So what if the builder takes a huge loss, the house which can hold a family gets built.
I have no beef with the housing industry and frankly, hope they keep building.
The real winners in this nightmare to come are the mortgage brokers, the people and organizations that lent money and then sold the mortgage paper to someone else down the line. The next real winners are the real estate agents who got a massive increase in pay for an even easier job, selling inflated houses to desperate buyers.
The losers are the people who bought houses, bought any houses because no matter what our loan amount was, if you bought since 2004 your house is going to be worth less than your loan pretty soon. If you put a down payment in there, you are really screwed because you won't be able to walk away from that loan and you'll be paying twice as much per month on your mortgage as someone who buys the house down the street in 2009.
The other losers in this deserve it. Those who purchased the high yield, but risky loans.
Stoks heading perhaps below the 2002 lows.
A good read:
http://www.marketwatch.com/news/story/if-bulls-wrong-about-2007/story.aspx?guid=%7BC5852C33%2DC1E0%2D4157%2D993F%2DC41670B01033%7D
2M was in 2005. 2006 was 1.5. 2007 forecast is also 1.5. The slowdown is well under way in building.
Population growth is not going to slow down. Recession, no recession, people keep coming here and unless they all bring a tent, they need to live somehwere.
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RE starts were 2M units / year. For 3M people increase. Alot of those are illegals who will go home in a recession anyway.
If it slows down to 1.2-1.5M / year (which would take time as builders want to continue to build), that's a recession.
Builders are cutting down on building. I don't see what the problem is here people.
Demand dropped, supply is dropping.
Meanwhile, single-family building permits for the first 10 months of 2006 declined 29 percent in Arizona and California, and fell 25 percent in Florida, 23 percent in Nevada and 22 percent in Ohio. Weak metro-area markets for building permits in the first 10 months of 2006 included: Detroit, down 45 percent; Jacksonville, Fla., down 36 percent; Columbus, Ohio, down 33 percent; and Phoenix, Ariz, down 33 percent.
Here's a graph of single family housign starts.
http://www.nahb.org/generic.aspx?genericContentID=45409
You have to separate "housing" from "single family housing". Some housing is condo/apartments.
3 million people a year don't need 2 million housing units. 10 years ago it was 1.3-1.4 million housing units (roughly) and the population wasn't growing any faster.
So what happened? Why so many more starts? Housing was one of the economy's bright spots.
Well housing demand was fueled by SPECULATION and 2nd, 3rd, 4th home buyers. All those excess houses are now about to be dumped on the market. Housing starts were above where population growth for YEARS.
So yes, population growth means houses will need to be built. The excess houses having been built in the past 5 years or so will swamp the market. And if housing starts go down to where they were 5 years ago...(when 3 million people were being added to population every year) then that means RECESSION.
You can't have housing starts go from 2M to 1.2-1.5M and not have it be a calamity. It would actually have to fall further to allow the millions of spec houses to be absorbed.
Unless the speculators are willing to finance their empty houses at 7% interest forever. Most of theses people don't have the pockets to afford 50K out of pocket on their "investments" every year.
And it's also not necessarily true that "housing demand" will keep prices up. People can't have a demand for something they can't afford. If they can't buy it with a 100% LTV teaser rate or option arm, because of lenders losing money and going bankrupt, then all the housing demand in the world won't keep prices up.
Thanks to the magic of derivatives, this time it's different!
with unemployment only able to go up and all those realtors (TM, R with circle) needing to move in with their parents, demand will only go down.
and since, eerily to "children of men", a lot of the people i know, and have heard, trying to have kids, not being able to, that's that many fewer 3 and 4br houses needed and moving up not needed...
There are still too many uninformed people out there paying full price for homes. They don't even ask for free incentives or discounts. It's sad.
That's also assuming that all of the new population growth will be buying a house. Many of the immigrants will be in apartments for years. When they buy a house, it will be 20 people living there instead of 4.
The 10% of builders that are legal citizens will find work, the 90% that are illegal Mexicans will begin to rob the homes they just build working for $5 per hour and no benefits for the builders.
Anon @3:00 --
The US population won't be growing: it is hard for people overseas even travel here, the country's reputation has suffered, immigrant issues are not favorable toward growth, and when the economy tanks people will flee.
but the media does hype up certain stuff and everybody says 'the bubble's gonna burst' - there is no bubble."
Perhaps no bubble, but there are a lot of houses.
In 2005, an average of 1800 homes sat on the market in Fresno at one time. Last month, 4800 hundred homes had a for sale sign out front.
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Ya, NO bubble, right Chuancy?
their 20 year warranty.
HAHAHAHAHAHAHAHAHAHAHAhahaa
Yes I said shortage. For you see unlike the genius HPers, I realize that every year the population of these fine United States grows by 1%.
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You ASSume that everyone of that 1% can pay the exorbitant prices that are beign asked. That is a logical fallacy. Prices HAVE to come down, like it or not.
Anonymous said...
Actually the population growth of industrialized nations is headed for a massive decline in the next 50 years,
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I'd like to see (and I know the G has the stats bec of all the $$$ that goes to these programs) the birth rates of poor ghetto blacks v. white M-C's.
I am voting for them.
Joyce Baker is my hero. 650 sq ft ($1300 per sq ft) and a 3375 ft lot. "Great alternative for CONDO BUYERS!"
Within the past 5 years, they've built so fast that construction defects are inevitable. When this takes place, people will start to unload. Who will then make the money? The Lawyers. Who will win? Hard to say. The owner will go after the realtor & the builder. The realtor & builder will blame the supply company. The supply company will blame the construction labor, etc., etc.
I suppose when they say that the housing market has bottomed out, it means that the builders have found enough suckers to breakeven.
I have been a real estate investor for 12 years. I was in Colorado in 1995 buying homes at reasonable prices and by 2001 the market was flat. During the greatest run up of prices in the history of real estate, Colorado had the single worst rate of appreciation in the U.S. 1.3% in 2005. The reason? Over built by greedy stupid builders. Flat for 5 years before the professionals I
know there would admit, it has really gone down if you take out the new homes for sale and base value on resales. I went to Vegas in 2002 and quickly became a "speculator". I sold everything at the top in June 2004.
Everyone in Vegas laughed and said why would you leave, it only going up!? I said, why would you think it will continue to go up 46% annually? Look how many homes they are building. Two years later it was flat, declining by
my outlook. Even worse now in 2007. On to Phoenix in 2005, where once again I saw the same thing happen. Reasonable people's eyes glossed over and their reason went out the window, as appreciation rates topped 56% that
year. Production ramped up at unreasonable and unsustainable rates. People's attitude's changed about the jobs they had in real estate, mortgage lending, or construction. What was once a good job that they enjoyed and
had a steady future, became a race for the cash filled with new competition that needed no skill, no talent and no experience to make a fortune!!!
This is the real danger, and it is far more reaching than the value of your house or your neighbor's. This Country's culture and currency are under
attack. It is more than a debtor culture, it is a debtor nation. 1929 will look like a cake-walk compared to what is coming. You tell the kids that grew up plugged into each other the way they are that they can't afford internet or cell phone service anymore and see what they make of themselves. Try heating that 6000 sq ft house with ever increasing energy costs. The dumb got suckered in to those ARM'S and they will walk away at the end of '07 as easy as they always have but the debt will come due. America will have to pay it.
The banks will get hurt sure. The all-important economy will suffer, of course. But make no mistake, American currency and our very way of life are under financial attack.
Just do some research on the rate of golden parachute bail-outs
happening at the Federal Reserve. Four top posts have retired since the bubble and have yet to be filled. President Wilson, was quoted as saying, after signing the bill that created the Federal Reserve Bank, "I layment that
my legacy to my country is that I have destroyed my country, for I have handed over the reigns of America's currency to bankers." This is a house of cards. I have said it for years while people laughed. Fewer people are laughing now. The cover of TIME magazine always marks the point at which everyone knows and a trend comes to an end. It's all down hill from July '05. BTW, I own one house, outright. Bring on the the CRASH! Yoshahorror
Well here it is Oct 2008 and everything you said proved out 100%. Borrowing (debt) is what keeps the money flowing: “That [a form of debt money] is what our money system is. If there were not debts in our money system, there wouldn’t be any money.” Marriner S. Eccles, Chairman and Governor of the Federal Reserve Board.
The Fed controls the credit and the money of the nation, but just how powerful is the Fed? I will let Henry Kissingers, Presidents Franklin and Theodore Roosevelt, and Congressmen Wright Patman and William Jenner answer that question:
“Who controls the money, controls the world.” Henry Kissinger, Council on Foreign Relations.
The real truth of the matter is, as you and I know, that a financial element in the larger centers has owned the Government ever since the days of Andrew Jackson — and I am not wholly excepting the Administration of W.W. The country is going through a repetition of Jackson's fight with the Bank of the United States — only on a far bigger and broader basis. Letter to Col. Edward Mandell House (21 November 1933); as quoted in F.D.R.: His Personal Letters, 1928-1945, edited by Elliott Roosevelt (New York: Duell, Sloan and Pearce, 1950), pg. 373.
"Today the path of total dictatorship in the United States can be laid by strictly legal means, unseen and unheard by the Congress, the President, or the people. Outwardly we have a Constitutional government. We have operating within our government and political system, another body representing another form of government - a bureaucratic elite." Senator William Jenner, 1954
"In the United States today we have in effect two governments...We have the duly constituted government...Then we have an independent, uncontrolled and uncoordinated government in the Federal Reserve System operating the money powers which are reserved to Congress by the Constitution." Congressman Wright Patterson, Chairman of the House Committee on Banking
and Currency
"These International Bankers and Rockefeller Standard Oil interests control the majority of newspapers and the columns of these papers to club into submission or drive out of public office officials who refuse to do the bidding of the powerful corrupt cliques which compose the invisible government." Theodore Roosevelt
I could have added dozens more, Presidents, Congressmen, even people in the Fed but this is long enough as it is. Learn how you're being bamboozled both by the Fed and your own government. Watch these two youtube videos:
http://www.youtube.com/watch?v=G1Idxps_qEk
http://www.youtube.com/watch?v=cy-fD78zyvI
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