October 17, 2007

US Homebuilders now admit what we've known here for too long - their industry has imploded and an epic housing crash is upon us

Not many homebuilders will survive this downfall. We won't need to build new homes in this country for years. Years and years and years. One word: Overcapacity.

KB Home is the new Global Crossing. Toll Brothers is the new Qwest. And the housing crash is the new telecom/dot-com bubble on steroids.

Confidence among U.S. homebuilders fell to a record low in October as declining prices, higher mortgage rates and loan restrictions scared off buyers.

The National Association of Home Builders/Wells Fargo index of builder sentiment fell to 18, more than economists had forecast, from 20 in September, the Washington-based association said today. Levels lower than 50 mean most respondents view conditions as poor. The index averaged 42 last year.

Bigger discounts and sweetened incentives have yet to revive demand as buyers wait for even bigger bargains, builders said. The report underscores Federal Reserve Chairman Ben S. Bernanke's warning yesterday that the housing slump will constrain economic growth into next year.

``The contraction in housing is going to be deeper and more prolonged than many people thought,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York, who correctly forecast the decline. ``It doesn't look like home sales are reacting to discounted prices. A lot of buyers will wait until the market hits bottom.''

26 comments:

Anonymous said...

If my eyes don't deceive me, that's a GBU-43/B MOAB (Mother of All Bubbles) in the photo.

Anonymous said...

Keith,

I dont know what youre yapping about. I am still unable to get a good seat on a commercial airliner therefore the economy must be in great shape.

westwest888 said...

It's amazing how many irrational actors are in the market. Personally, I wouldn't touch any of these houses/condos/penthouses/ lofts/townhouses with a 10 foot pole. But one of my roommates just bought a 1BR condo. One of my coworkers just doubled down and bought a house in addition to the condo he's had for 7 years (effectively neutralizing his unknowingly brilliant investment).

Tons of people are willing to buy at any price, as long as you bake it into an acceptable monthly payment. Regardless of how far they need to stretch to afford a 1BR in post-war soldier housing.

Until every serious buyer in the housing market puts rational thoughts and analysis over their irrational desire to purchase this month, the market can't crash. Like Greenspan says, it will turn on a dime. ....in 2010.

Anonymous said...

I hope KB goes down in flames. Tiny 2 storied shabby houses on zero lots in Phoenix/Mesa have incresed in price over the last year, not decreased!!

Anonymous said...

Dow 14k coming soon, just you wait.
ipods are selling again, just you wait.
Damn you keith.


Dopes

Anonymous said...

that's because there are fewer flights going to fewer destinations these days. this is a trend that begain in earnest late last year as the troubled major carriers fought to keep from bleeding out cash when fuel prices were through the roof.

http://tinyurl.com/2w49ke

drmatically fewer flights = more asses in seats, more profitability, less planes, fuel and payroll as overhead. the airlines had to scale down to survive.

your limited empirical observation is hardly a measure of the economy's health.

Batman said...

Once again the housing meltdown is predicted for the UK too

http://tinyurl.com/2qrp6r

Wonder when the prophesies will begin to pan out?

Stuck in So Pa said...

"westwest888 said.......

......Tons of people are willing to buy at any price, as long as you bake it into an acceptable monthly payment."
____________________________ That’s the bottom line isn't it, Instant Gratification. Tell them that they can have it right now! Don't worry or even think about the possibility that you can't afford the total price, but you CAN afford that monthly payment today!
Of all of the "kids" at work that I tried to warn about buying now, only one held off. Our company has now gone into layoffs, and shorter workweeks for those remaining in the rank and file (hourly.) This company has never done that before, EVER! (farm products industry, people gotta eat, so no layoffs, or so everybody thought!) My co-workers were barely making their payments before, now the fun begins,
and this isn't even a bubble area!

LauraVella said...

Anon said:"I dont know what youre yapping about. I am still unable to get a good seat on a commercial airliner therefore the economy must be in great shape"


Commercial airlines have been laying-off workers for years...no wonder flights are packed.

American - 900 employess, and 3,100 flight attendants
United - 26,400 employees
Hawaiian Air- 136 employees
Eastern- 4,000 employees
Northwest- 900 employees
Delta - 7,000 employees


Delta's insulting booklet offended laid-off employees, suggesting dumpster diving to save money.

http://www.thesmokinggun.com/archive/0821061nwa1.html

michael said...

"your limited empirical observation is hardly a measure of the economy's health."


he was being sarcastic. some donkey made that argument for the health of the economy yesterday.

a more reasonable proof of a strong economy is that Ruth's Chris was packed in Arlington VA this past saturday night.

; )

Frank@Scottsdale-Sucks.com said...

a more reasonable proof of a strong economy is that Ruth's Chris was packed in Arlington VA this past saturday night.

Go visit Scottsdale Arizona where formerly-packed restaurants are sitting vacant and closing one after another like dominoes.

Anonymous said...

contrary to what they want you to believe, you do not HAVE to buy a home. A home is not gas for you car. Potential buyers can wait a long long time for the best discounts. Just wait until a couple of the builders go under, then we will see true fire sale prices.

Anonymous said...

I just saw a kid with an ipod so that's solid proof that the housing market is fine.

Anonymous said...

a more reasonable proof of a strong economy is that Ruth's Chris was packed in Arlington VA this past saturday night.

; )

Now were talking. And lets not forget the 12 million hispanics brought here to recycle prevailing wages downward by $10.00 per hour. Just think of all that extra cash we get to split!!!

Anonymous said...

Not sure why the drop in new home starts and permits is considered negative news. Shouldn't they be doing/have been doing this all along? Isn't this what we have been complaining about? Sell what you got before building more! It only takes about three months now to throw up a house due to overcapacity in the building trades. It makes sense not to start any new ones until well into next year sometime.

Anonymous said...

Is that the Zepplin with the KB logo on the side?! :)

By the way did anybody see Patrick of Patrick.net on NightLine last night? He's a bit geeky in a charming sort of way. NightLine really didn't get into the numbers of ownership/rentalship much. They seemed more interested in his blog fame.

Anonymous said...

Go visit Scottsdale Arizona where formerly-packed restaurants are sitting vacant and closing one after another like dominoes.

October 17, 2007 4:46 PM

Interesting. Some of the biggest holders of inflated real estate holdings are these massive restaurant companies.
Man I'd hate to see our economic engine like McDonalds take a big balance sheet tumble.

Downtown O-Town said...

Over capacity.

I have been waiting for that to come up more -- even on housing panic and other bubble blogs.

I saw somewhere (sorry, no source) that there are a million homes in progess to be completed this coming year. Seems high to me -- but we know that it is a lot -- with all these national and local builders. And they have to build to live -- like sharks they must keep moving.

And, I read that 70% of American households now own their own home.

And, there are millions of homes vacant -- it could go to 6 million.

This morning some reporter asked the President what he would do to jumpstart housing sales.

Over capacity sprang to my mind.

Maybe . . . we finally have more than enough housing units in America for every houshold that actually wants to tie themselves down to a mortgage (admittedly, that is most Americans.)

At some point we surely will. Maybe we are there.

Maybe the last new buyer, has bought. Figuretively, of course.

Yes, I know, new young housleholds are formed every day. But, similarly, older Americans die and vacate their housing units.

Over-capacity -- are we there ? I think maybe so.

And, when supply exceeds demand, then prices go down . . .

Downtown Orlando

Out at the peak said...

I got more information about my old house Sonoma County, CA (after selling it for $560K at the peak). So it became an REO two months ago with the bank buying it back for $470K two months ago. They have it on the MLS for $419K now. Redfin is offering $8K cash back. That's a total $149K (26.6%) loss not to mention carrying and transaction costs.

I should make an offer for $300K -- the same price I paid in 2000. Although if I rented it out, I probably would be cash flow negative. So in a way, it's still not a good deal with a 46.4% discount!

LisaK said...

Let me ask a question here... What are the odds, that I could offer say 30-50% on a REO (our market is oversaturated -- new home prices slashed, foreclosures rising rapidly) and have it actually accepted?

I'm in the No. VA market -- but far enough south of DC to make people factor in increased "commute time." Kinda like a ripple effect -- the further down houses in Woodbridge, Dale City, Springfield fall, the further ours have to fall.

Avg. time on the market in our area is 114 days, and we have over a one-year supply of homes (and rising).

30% off the REO cost would bring the housing in-line with 2000-2002 pricing. 50% off the REO cost would bring it in line with 1993-97-ish pricing.

Just curious.

Happy Homedebtor said...

Lisak said:
---------------
You're smoking crack, but good luck. :)

Anonymous said...

LisaK said...
Let me ask a question here... What are the odds, that I could offer say 30-50% on a REO (our market is oversaturated -- new home prices slashed, foreclosures rising rapidly) and have it actually accepted?

I'm in the No. VA market -- but far enough south of DC to make people factor in increased "commute time." Kinda like a ripple effect -- the further down houses in Woodbridge, Dale City, Springfield fall, the further ours have to fall.

Avg. time on the market in our area is 114 days, and we have over a one-year supply of homes (and rising).

30% off the REO cost would bring the housing in-line with 2000-2002 pricing. 50% off the REO cost would bring it in line with 1993-97-ish pricing.

Just curious.
___________________________________

You can offer whatever you want. The worst they can say is no, but I'd attach a letter explaining why you are offering this price and also have your financing already approved before you submit your bid. Offer them a quick close and they might take it just to get it off their books.

If they say no, wait two weeks and submit an offer that's $25,000 lower.

As a buyer, you have all the power. Use it!

Jymkata

LauraVella said...

This is a first...in todays mail I received a flyer from Florsheim Homes auctioning off their remaining inventory out in Tracy area...a sign of the times! This homebuilder should be thanking their lucky stars they only have 7 left to sell!


Closeout Event
(In bold huge letters)-NAME YOUR PRICE. We're going to accept an offer, will it be yours?
Just 7 homes left! 4 Homes at Valley Rose in Ceres. 3 Homes at Rose walk in Turlock. Come to our Closeout Event, take a tour of the homes and make us an offer. We'll take offers between 12 noon, Saturday, October 20,2007 and 5:59 p.m. on Sunday, October 28, 2007. Then the best offer on each home will be accepted regardless of how far under the original price it may be! Call today or go online to www.florsheimhomes.com/closeout for details.

FORECLOSUREBOY said...

I call on Congress for a builder bailout.

Congress should fund the construction of homes and then house section 8, AFDC, SSI, minority college student dorms, art grant recipients, mentally disabled, and veterans in these homes.

build them and then build some more! flood the market and lower prices for 100 years.

Anonymous said...

Wanna know what will save the homebuilders and clear dead inventory? One word...

Arson!

Anonymous said...

Offer whatever makes you cashflow in your area. Aim for 8% R.O.I.
If numbers make sense then do the
deal in good area only. If its a 60% discount, then thats what it is. Don't pay a dime over. Ask for closing costs, appliance credit,
gift card, whatever you can get.

This is only the beginning, you will soon be able to pick and choose your property. Home prices
are only worth what people are willing to pay, so never be scared
to lowball anybody.

Get a subscription in the legal newspaper in your city. Here you will find a ton of information on foreclosures, trustee sales, and reos. Also look at BIGGER POCKETS.COM. You will find over 15 links to banks that have reos available with some asking prices.

30 year fixed and must cashflow without big deposit.