A Halloween Homebuilding Update
Now that our favorite primate housing analyst is off to WalMart to look for a new costume....there is little doubt he will return as a new character before Halloween....so in the meantime here is a quick HB update.
The analysis is simple and direct. IT SUCKS FOR HBs out there and it will likely suck for a number of years. Anyone thinking of investing in a HB right now or getting into the business in the foreseeable future should have their head examined.
RYL and PHM reported tonight and both were as bad as the other. Both are liquidating inventory in a mad scramble to raise cash but doing little to pay down debt. It will catch up to them soon as they will likely have miserable sales in the next two quarters only digging a deep hole even deeper.
As I have been stating for many many many months......it will only get worse until home prices come into balance with incomes and inventory comes into balance with demand.....my estimation is we are about 5 to 10 years away before any such balance is reached........and during that period you might expect 80-90% of public HBs to go bankrupt as most have way too much debt on their books supporting too many unprofitable communities.
Our favorite housing analyst babe "I don't drink kool-aid" Ivy Zelman gave a presentation at the Fall Construction Conference today. In keeping with the Halloween spirt, Ms. Zelman gave the following quote:
When it came to sales in the new-home market, she said, "Current trends are pretty frightening."
"September trumped July and August, which we didn't think was possible," Zelman said. "And then we saw October."
But even in this era of going asset light--essentially reducing land exposure--Zelman pointed out that some public builders were facing a "big conundrum" vis à vis a diminishing supply of finished lots.
"At some point they have to put a shovel in the ground," Zelman said, "or invest cash in new options."
It is when the HBs have to put the shovels in the ground when the cash will start to bleed....and at that point there will be few donors to replace the lost pints.....and it looks like we are at that point for many right now.
Again.....if current conditions persist......you can comfortably expect 80-90% of public HBs to go BK or be near BK within the next few years......especially if those executives keep paying themselves enormous salaries for losing shareholder money.