Use access key #2 to skip to page content.

alstry (34.92)

American Communities DESTROYED

Recs

19

May 11, 2008 – Comments (20)

“Hundreds of families have lost their homes to foreclosure since the beginning of last year, and in a sign of more to come, at least 1 out of every 16 households has received default notices.”

“Dave Myers, was the first buyer at Trilogy at the Vineyards by Shea Homes, closing in October 2006 for around $750,000. The unfinished amenities and housing downturn have chopped 40 percent off the value of his home, he said.”

“‘Trilogy was advertised as the place ‘where dreams take flight,’ he said. ‘Well, pretty much they’ve flown away. We’re now the house on the dirty hill that doesn’t have any trees, and doesn’t have any vineyard, and doesn’t have a clubhouse.’”

“Thorton and his wife moved to Brentwood in 2006, thinking they’d found the quintessential little-town neighborhood for their three children. ‘When we first moved in, there were a lot of good people, neighborhood watch types,’ he said. ‘They’re all gone. There is no sense of community here.’”

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/05/11/MNGE1095FT.DTL

This story is being repeated all around America.  We kept financing homebuilders to build as they kept financing buyers who couldn't afford the homes.  All the while homebuilder executives extracted hundreds of millions of dollars for themselves in salary, bonus, and stock sales.

Now they say they couldn't see it coming?  Then why did so many sell at the top in the summer of 2005? 

When you loan money to someone you know can't pay you back, it ain't hard to see it coming.  When a company KNOWINGLY sells a product that will cause harm to its consumer, that company gets prosecuted.  And these homebuilders are begging for tax rebates???

The fallout is just beginning.  Even more homes going into foreclosure destroying communities....many of them new communities.  Jobs being cut by the hundreds of thousands.  Taxes evaporating for many state and local governments.  Money is getting harder to come by.  Pretty soon we will all realize that most are Subprime.

The solution for insolenvcy is bankruptcy....anyone notice that bankruptcies are skyrocketing????

20 Comments – Post Your Own

#1) On May 11, 2008 at 11:33 AM, cabuilderboy (88.90) wrote:

How will you ever sleep tonight, knowing SPF releases earnings tomorrow? Having an admittedly biased opinion, I think your harping on the builders is a bit harsh. Builders didn't develop sub-prime, Alt-A, 1% Fed Funds Rate, CDO's or any other derivative security which had 300 people in line for 8 homes at a new phase release.

Yes, the big builders all have mortgage companies, but it wasn't their money they were lending. I don't own a mortgage company, and somehow people still found a way get a loan without my help. Builders reaped the benefits, no doubt, but there is plenty of blame to go around. If the builders were so smart, they would have taken the earnings and waited for land prices to come down. They are in trouble now, because in order to stay a builder you have to buy back into the market (land).  All that overpriced land is now causing heart burn and investors are holding the bad.

You can blame the builders all you want, just make sure you spread the blame. When I see a builder running the Fed, Treasury, Congress or the White House, then you will have a better argument.

Lastly, I used to work for Shea, and they are one of the good guys. The above story is tragic, but how much money do you think a company like Shea spent to get that property ready for construction. The entitlement, environmental, engineering, architecture, site development, infrastructure are far more than you would would estimate. So, to think Shea just built a few random homes and stuck the buyers is naive. The Triology project is a successful brand, but not immune to market forces.

Set your alarm, the SPF call is early!!

Report this comment
#2) On May 11, 2008 at 11:33 AM, joeykid13 wrote:

That is very sad.  Many people who lost 300K of equity in their homes will be tempted to walk away...unless they can see a turn.  How much longer?...How much lower?...nobody really knows.  I heard somebody say several months ago, that the only solution, was for the government to come in and burn down a million homes...now that is scary.

Report this comment
#3) On May 11, 2008 at 11:35 AM, EScroogeJr (< 20) wrote:

There is a much better solution: stop building $750,000 homes, build $75,000 homes instead. The demand, the community and the construction jobs will be there, and the people who buy these homes will not default of their payments and will need no bailouts.

Report this comment
#4) On May 11, 2008 at 11:36 AM, joeykid13 wrote:

Builder...are you long or short on SPF?  Some folks are predicting that a Bankruptcy is imminent.

Report this comment
#5) On May 11, 2008 at 11:39 AM, joeykid13 wrote:

Amen to ESJ's comment.  Where did people get the idea that they should be in a 750K starter home anyway...absurd.

Report this comment
#6) On May 11, 2008 at 11:54 AM, cabuilderboy (88.90) wrote:

I would not be long SPF. I think they have some serious liquidity issues in the mid term. From my own inspection and from my sources, they have started a number of spec homes, in expectation of turning them into cash by year-end. A failed strategy which didn't work for them last year. The only thing that saved them was a tax refund of about $258M back in January from 2007 land sales.

I would lean more toward the short side, but congress and further stimulus talk could place an artificial floor on builders which continue to hurt short positions. SPF will see more pain, just wait for tomorrow's earnings.

EScroogeJr: If it were only that easy. I talk to many civic leaders and groups about this very subject. How am I supposed to provide a $100K home, when just the building fees in Turlock, CA are $67K. In any little city in CA Fees can range from $50K (Manteca) to $95K (Patterson). With CA prop 13 property tax restrictions, the jurisdictions can only get money from new development, no matter who beneifits, therefore fees continue to rise. I would love to build a more affordably priced home, but I can't avoid fees (permit, school, landscape maintenance, etc., etc.). Again, you can't blame the builder for the input costs.

Report this comment
#7) On May 11, 2008 at 12:50 PM, dwot (42.57) wrote:

I agree with cabuilderboy, the blame ought to be spread around.  I tend to blame the banking system and fed more.

Report this comment
#8) On May 11, 2008 at 12:54 PM, dwot (42.57) wrote:

Implementing and regulating sensible lending standards was the fed and the bank's responsibility.

Report this comment
#9) On May 11, 2008 at 1:00 PM, dwot (42.57) wrote:

And I am going to defend the idiots that borrowed more then they could afford to certain degree.  If you were to do research the information you get is mostly put out by the banks and the banking information isn't what is affordable, but what they will lend, so people that really don't know where to start in their research would have found terrible information to guide them.

I know when I took out a $300k mortgage the banks said we qualified for about $560k.  I was over whelmed at the prospects of paying that money back and it was almost half of what the banks would lend.  At the time I was saying the banks were insane.  I knew that the amount we were borrowing was extremely burdensome, yet people could easily borrow far more.

Report this comment
#10) On May 11, 2008 at 1:03 PM, dwot (42.57) wrote:

joeykid, the guy in the story is in a 55+ retirement community, so $750k isn't a starter home.  They guy probably really didn't lose much because he sold a home that he cashed out on.

Report this comment
#11) On May 11, 2008 at 1:14 PM, EScroogeJr (< 20) wrote:

cabuilderboy,

I understand all that you're saying, and I'm not blaming builders. In fact, I said it many times that of all parties involved, builders are the least responsible for the "bubble". The fault lies first and foremost with officials and then with bankers. That is not to say that builders are totally without blame, especially big bad guys like TOL who work hand in hand with the local building bureacracy, but still I'd be happy to see less builder bankrupcies and more bank failures instead, and of course I'd be happy to see every single land development code and every single regulation thrown into the fire. But of course the sad fact is that officials will never let you build a cheap house, so you'll just have to keep building $750,000 McMancions and wait for Benny B. to print enough money until the first buyer shows up. A stupid situation you find yourself in, and you can thank the home equity lobby for that. The only sensible bet in this situation is that alstry and his fellow homeowners will eventually have their way, buyers will capitulate after being offered 0% loans, and you'll be selling McMancions for a profit even if it comes in inflated dollars (hence my green thumbs on builder stocks). But of course I'd much prefer to see sensible home prices.

Report this comment
#12) On May 11, 2008 at 1:44 PM, misterpickles (< 20) wrote:

I agree with dwot fully about the bank. The banks were lending money to people that did not make the suffucent income to pay back the loans. It is the responsibility of the lender to make sure they are lending money to qualified buyers. If I worked at Mc Donald's and tried to by a Porshce from the dealership they would laugh me right out door because no one wold lend me the money I would need. Where were the bank's risk models on lending money?

Report this comment
#13) On May 11, 2008 at 1:56 PM, painterflipper (57.28) wrote:

I had to leave the country as a matter of fact... I was doing more than "excellent"... I own zilch (houses, etc) there. Will I ever be able to return to CA? NO. If I do, probably "Bankruptcy" will be my middle name(despite I have a MA in my pocket).

Report this comment
#14) On May 11, 2008 at 2:00 PM, leohaas (31.85) wrote:

Indeed, it would be nice if builders start building less expensive homes. But I don't see that happening in my neck of the woods. My town has a 3 acre minimum for lot sizes (for fear of overcrowding the local school, responsible for 75% of our property tax). That means the only kind of home that will ever be built here is a McMansion...

Report this comment
#15) On May 11, 2008 at 2:37 PM, alstry (34.92) wrote:

Let's make one point clear.  A distinction should be made between publicly traded builders and private builders.

With the public builders, the exectutives cashed out of hundreds of millions of dollars worth of their own positions while continuing to tell the world how great things were going.

Such behavior is deception, reprehensible, and potentially criminal.  A private/public builder making business judgment mistakes is completely another matter.

The public builders have access to public money.  The public executives take on public money and sell out of their own positions while leaving a long trail of dead bodies along the side of the road.

A private builder does not have such benefit.  As a matter of fact, the reckless behavior of public builders have put many responsible private  builders out of business due to the insane way public HB executives are compensated.

If my analysis is correct, we still have two to three years before this unwinding process bottoms out....expect a lot more main ahead.

Report this comment
#16) On May 11, 2008 at 3:10 PM, joeykid13 wrote:

Good point dwot...I stand corrected.  Maybe not the guy in this story but keeping up with the Jonse's has always been a problem.  To quote Dan Aykroyd..."We lived well...well boyond our means."  Off to the Mother's Day BBQ...Happy Mother's Day...to all it may apply to...Have a Great Sunday!

Report this comment
#17) On May 11, 2008 at 3:12 PM, joeykid13 wrote:

"beyond " that is sorry, and Jones' that is...I hate being rushed.

Report this comment
#18) On May 11, 2008 at 3:58 PM, DemonDoug (81.27) wrote:

Builders were part in parcel with loan officers and bankers by getting people into homes they couldn't afford with OPM.  A lot of that OPM came from BSC and the shadow derivatives/cdo/clo/mbs market.  Just like your realtor could find you a loan officer that could get you a no money down liar loan, so could these HB's.  So I don't see how they are any less culpable than the rest of the REIC.

I'm with alstry - but if you can believe it, even more bearish.  It is my firm belief that with no fed intervention, half of the HB's would already be BK, and all but 4 or 5 would be bk by 2010.  With fed and tax interventions, yes, there is going to be some propping up like builderboy and escrooge stated.

Everyone is to blame, from the banks to the builders to the effed borrowers to the local officials all the way to the white house. 

Report this comment
#19) On May 22, 2008 at 1:00 AM, russiangambit (29.12) wrote:

I beleive the government is apart of the problem. Only in the US people feel like they have to own a home, if they don't, - they are a failure. And they keep hearing from everybody that owning  a home is an "american dream". Plus, the government encourages it through providing tax break on the mortgage interest. I remember very well how I kept hearing just 2 years ago from Bush on TV many times that the house ownership is at the highest and how people are acheiving the "american dream" etc.

As a foreigner, I find it very odd. In most places, people don't feel like they have to own a home. They are happy with an appartment or whatever they can afford. In Russia, where I am from, 99% of population can afford only a tiny flat. If they all set their sites on a house, 99% of the population would be depressed, because it is not achievable.

Anyway, the bottom line is, the US constitution doesn't guarantee everybody a house, so the government should get out of this game entirely and let the free market do its thing.

After all, the resources of this world are limited. If everyone owns a house, the Earth will simply burst. Some will have to move to the Moon.

Report this comment
#20) On June 05, 2008 at 6:34 PM, jester112358 (28.69) wrote:

I agree with russiangambit.  There is a conspiracy between realators, HBs, banks and even local governments which depend on property taxes to fund borrowing (bonds).  This diverts useful capital that should go into productive activities like manufacturing into unproductive assets like single family housing.  Such housing and its associated sprawl are disgusting environmentally, responsible for a large loss of farmland, wetlands and a huge waste of people's income.  If men were in charge of housing decisions, (all husbands and boyfriends may now nod knowingly) house prices would be in the 75-150 k$ regime as suggested by escroog JR.  This is more consistent with American's real income.

 Freedom is more important than assets.  Houses just tie you down.  Freedom is just another word for nothingess to loss (Janis Joplin) 

Full disclosure:  I have over 90% equity in my house and don't mind at all that after appreciating by over 80% in the last 10 years it has now lost over 20% of that "paper" appreciation.  Like any asset, don't pay too much for it!   I also strive to live well beneath my means.  Produce more than you consume (like the Chinese who save 50% of their small incomes on average).

Report this comment

Featured Broker Partners


Advertisement