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floridabuilder2 (99.65)

builder 101 - Lennar earnings today... The number I have been waiting for!!! bankruptcies are imminent (14 of 20)

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September 25, 2007 – Comments (13)

Did you get a look at Lennar's earnings report this morning?  Lennar is one of the big 5 and they delivered the number I have been waiting for during this down cycle.  The number that would signify that bankruptcies in the building industry are imminent.  People, the $hit is about to hit the fan.  Not one analyst has brought up this number, not one blog, not one AP wire... that I have seen.  The magic number is upon us!!!!!!  But before I tell you what that number is and my rankings of who is going belly up... I think its time to break out in song and dance.... wine and women....  so sing along with me... Happy Days Are Here Again (Historically significant song - Great Depression era)

So long Lennar, Goodbye KB

We are rid of you, Can't you see

Foreclosure signs everywhere, Happy Days are here again

Vultures circling in the air, builder carcasses everywhere

Bob Toll's sad, in total despair

Happy days are here again

Builder pigs to the slaughter, bring an axe Jeffrey Dahmer

Swing away, isn't this fun?

Happy Days are here again

Sharks smell blood in the water, Pandemonium in the harbor

Shorts aren't covering, longs are bothered

Happy days are here again

Now its time to make some money, private equity thinks its funny

Lots of deals and lots steals

Happy days are here again

 

Wow, that felt good!!!!!  The pigs got too fat at the trough for too long and now I am going to get rich off of them.  This is why I left public building to get a piece of equity in the private side.  And yes people our plan for monetizing assets is brilliant.

So what is the number I was looking for?  I thought some crap builder would be the first, but the fact that it is one of the big 5 tells me that we are going to see more bankruptcies than I even imagined.....

the number?  backlog 6,367 minus quarterly closings 7,636 = (1,269)

people.... their backlog is lower than their quarterly closings... and their signups are less than their backlog!!!!!!

Do you know that it takes more than 90 days for a typical house to go from contract to closing?  Lennar officially has backlog less than 90 days or one quarter... actually only 75 days of backlog....

Lennar was the first builder starting last year to slash pricing (lower gross margins) to keep backlog full... while other builders were still protecting margins.... Now you see why Khov had a deal of the century......  If Lennar was the most aggressive early on in maintaining backlog what does that say for the majority of builders that were trying to protect margin?

Go back to my first blog of the 5 ways to get cash... read all my blogs... lights out people... they are running out of closings to get cash!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!  Closings is their operation!!!!!!!!!!!!!!!!!!!!!!!!!!!!

You heard it here first, I am going to predict that a top 30 builder will file for bankruptcy within the next 30 to 60 days... bank on it... now that builder might be private and not public and when it happens I will provide the link and give you its ranking within the top 30 builders

the following public builders are now either going bankrupt, de-listed or sold for less than their price today to the bond holders..... LEV, CHCI, TOA, HOV, DHOM, OHB, WCI, BZH.... yes I am going on record as predicting that all of these companies are going under, delisted or bought out by bond holders at a lower price than yesterdays close...

Anybody who reads my blogs knows that 2 months ago I brought dire messages about overstated inventory and liquidity... and notice that every AP wire is about a builder trying to reneogtiate his credit line or bonds... how every AP wire is about huge writeoffs (worthless land) and no land sales...

Well those two issues are huge, but when your backlog goes below your quarterly closings in an oversupplied market with the huge overheads a public builder carries.....  you are dead.  Period.  We are going to have RTC all over again for builders.

Happy days are here again!!!! 

Builders should not be public companies and I will discuss this in a very soon to be released blog

13 Comments – Post Your Own

#1) On September 25, 2007 at 1:39 PM, feebuilders (< 20) wrote:

FloridaBuilder once again you are dead on, I have been out here in California befuddled over the what seems obvious to me and you have clearly defined as the complete meltdown of the public builder. Just like you I came from the public builder ranks (10 years worth) and saw the writing on the wall 3-4 years ago when the publics went nuts using the off Balance sheet financing to acquire marginal deals. I figured back then that when the %^# the fan there would be nothing but ripe opportunities for the smart player, I just didn't realize that it would be this overwhelming. Outstanding insights on your part all that you are saying is exactly what I have been experiencing over the past few years,glad to see that there is someone else out there who avoided the koolaid.  I look forward to your future posts

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#2) On September 25, 2007 at 2:40 PM, glenvar (45.26) wrote:

Smart-and can write song lyrics too.  Builder, I have been amazed that people keep arguing that housing will only decline in price by 10% or so, or that housing will bounce back in the Spring.  Where is the sense of reality?  The numbers don't lie.  Builder financials are unsustainable, period.  Someday someone is going to insist on payment in cash--and the building industry cannot raise cash in the current environment.  And people insisting that KHOV's "sale" last week was just a sale and nothing more.  People are lying to themselves in order to believe that their home is worth more than it is.  The value of any asset is solely what someone will pay for it.  Not what you think they should pay for it.  A simple concept, but falling on deaf ears currently.  Thank you for telling the people that the kool aid may be tainted.

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#3) On September 25, 2007 at 3:06 PM, floridabuilder2 (99.65) wrote:

feebuilders... hopefully you are still in the building industry, because you are going to be able to pick up lots at a fraction of the cost, put up an affordable house make money and make a family happy that they got a good deal....  the publics got too greedy with raising prices almost daily in some communities

glenvar buddy this link is just for you

http://money.cnn.com/2007/09/19/real_estate/steep_home_price_drops_coming/index.htm?section=money_topstories

all these numbers that show prices are only down 1% are counting home sales in Bangor Maine and Seattle Washington.. no one builds there anyways.... also the numbers don't show all the hidden discounts, closing costs paid, etc... to get a deal done..  what really matters is where people are moving to... the new markets in the smile states....  the public builders generated 70% of their revenue in DC, NEV, FL, AZ and CA.... unfortunately if you bought a home in those states in 2005 or 2006 your eating a crap sandwich with Bill Miller....  however, most of those homes were bought by investors who had no intention of moving in...  We need a sharp and hard correction, clean out inventory and foreclosures, push weak builders into bankruptcy get prices down to affordable levels... and then we can move up 4% a year starting in 2010... until then you are right, this thing is going to be deep... however, you only lose money if you sell, so if you overpaid... wait it out and by 2012 you'll be whole again... you shouldn't buy a home as an investment, you should buy it because you want to live there

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#4) On September 25, 2007 at 3:27 PM, glenvar (45.26) wrote:

Thanks for the link.  Great info plus my market only down 1%.  Of course my market doesn't ever go up either.

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#5) On September 25, 2007 at 5:54 PM, renegade49 (90.29) wrote:

The only thing you are wrong about is that no one builds in Seattle.  It's unbelievable the number of cranes dotting the skyline and they are mostly condos.  Seattle is boom city and is showing no signs of a slow down.  I think there are several pockets of prosperity around the nation which will be the exception to the rule, but I have and still do agree with 99% of what you have been saying here.

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#6) On September 25, 2007 at 6:01 PM, floridabuilder2 (99.65) wrote:

Let me clarify renegade..... residential homebuilding single family detached... for instance, none of the publics builds in NYC but that is one of the top markets for permits... mainly highrise and multifamily dwellings...  sorry for the confusion

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#7) On September 25, 2007 at 6:15 PM, FourthAxis (85.48) wrote:

Awww Builder...you're such a bear.  Here, let me help you:

1.  People always need homes
2.  More people are born everyday
3.  Lower interest rates make housing more affordable
4.  Real estate is the only guaranteed path to prosperity
5.  Housing is not a bubble because there are underlying assets
6.  Builders are now selling under book value
7.  ...and 10 other stupid examples that don't make sense either.

Listen up to builder if you want the facts guys....Housing prices are around 4-5X income levels.  Till they drop back to the average ~2.5X we've got issues, PERIOD.  All the backwards logic in the world isn't going to make a difference.  With backwards logic and a slowing economy you are only ensuring a harder fall at a later date. 

Second, you can call guys like builder and I bears if you like.  Say that we're seeking vengeance....whatever.  The truth is, this is bigger than two cheerleaders.  This would play out the same way even if builder and I didn't say peep.  Honestly it NEEDS to happen so we can get moving again.  So wouldn't we be idiots not to try to make money off of something that we feel is guaranteed to happen?  Just because we might think your favorite stock sucks, doesn't mean we think all stocks suck or that we're hoping for rain.  It is what it is and we will continue to call 'em like we see 'em.

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#8) On September 25, 2007 at 9:49 PM, floridabuilder2 (99.65) wrote:

fourthaxis,  you almost turned me into a long on your 10 points of light until i realized it was a joke... whew.... i almost bought into what you were saying... i am such a lazy thinker...

anyways, you hit the nail on the head... this correction must happen, builders need to go bankrupt, people need to be foreclosed on and prices need to drop... this will bring us back to equilibrium and get us back to the point where honest hard working people who save money can buy an affordable house... in the meantime, guys like you can make money on the short side and guys like me can provide a service by procuring bad assets off a banks books... everyone wins

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#9) On September 25, 2007 at 11:30 PM, feebuilders (< 20) wrote:

My fellow Bears, yes I have remained a Home Builder but not as a Public Builder employee, I started a company that caters to the Equity and Investors who have taken back or are in the process of taking back properties from Builders. I agree with you Floridabuilder, I see the opportunity even now to pickup lots at cents on the dollar it is just a matter of time before the blood letting begins( we are seeing some of it now ). The Public Builders are reeling right now under the weight of all that funny money and now its time to pay the price. Affordability is the key to this whole mess,when housing was too expensive for most American families you knew that it would just be a matter of time before the ride ended.

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#10) On September 26, 2007 at 1:40 AM, dwot (99.98) wrote:

I've been telling -- pleading with -- my nieces to not buy right now.  They are so intent on wanting home ownership.  The advice I give on entering the market is to research the home prices over the last 10 years at least, look for a peak and buy your home 4-7 years after the peak.

It doesn't make nearly so much difference to people upgrading or down grading, but economic burden from a poorly timed entry into the market is enormous.

Of course, my experience is seeing housing more than double during a bullrun on housing.  If your housing market is going up only 2-3% per year it does not make that much difference when entering the housing market.

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#11) On September 26, 2007 at 2:28 AM, renegade49 (90.29) wrote:

Actually dwot, right now could be a good time to buy a home depending on the area, the personal circumstances of the buyer and how much due diligence they are willing/capable of exercising.  I don't think of a home as an "investment" although I recognize that in some ways it is kind of like one.  Some markets have not experieced a bubble and some people are 99% sure they will be staying put in their new home for many years.  Those people could buy right now.

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#12) On September 26, 2007 at 8:51 AM, floridabuilder2 (99.65) wrote:

dwot, renegade is correct... depending on where you live....  I think you can get a great deal today or in the next 4 months into Winter in Jax, TB or Orlando... however, markets like Sarasota, Fort Myers and Miami still have downside....  I would buy condos in miami out of foreclosure or single family detach close to the water in fort myers again out of foreclosure...  Jax, TB and Orlando you can buy from a desperate builder or homeowner, the foreclosures are high but not enough great foreclosures (locations) in those 3 markets

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#13) On September 26, 2007 at 9:16 PM, QualityPicks (95.28) wrote:

dwot, ditto what renegade and floridabuilder are saying. My additional piece of advice is to compare prices against incomes and rents. Why would you buy a house, pay $3,800 a month in P&I if you can rent for $2,200 and invest the $1,600 difference? Also, research the median income in your area (zipcode) and figure out how much house can the median-income guy afford (30 yr fixed loan, 10% down). That gives you a level were your market would find solid demand again.

@floridabuilder: Thanks very much for your posts.

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