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alstry (35.28)

BK for 75% of Public Home Builders?

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March 07, 2008 – Comments (7)

Right now foreclosures are at a historical high and climbing.

Home equity is at a historical low and decreasing.

Vacant inventory is at a historical high and climbing.

Home values are continuing to fall around the country while material costs are relatively stable.

Incomes are not staying close to increasing NON housing expenses.  Now that jobs are being eliminated, the problem will likely get even worse.

Many experts say we still have a few YEARS of continued pressures.

 

Todays public homebuilders have the highest absolute levels of debt that they have ever maintained.  The fixed costs are the highest ever due to recent expansion.  Currently, the liquidation value of many builders' assets are not worth anything close to their liabilities.

We are now in an environment where it is very difficult for a builder to make a dime building homes.  As a result, we have entered the liquidation phase.  Those builders that can liquidate to cash and land(assets worth more than liabilities) should be able to wait out the storm.  Those builders that have more liabilities than assets are likely out of business.....many probably in 2008.

It this point, most builders are simply liquidating assets at huge losses.  Builders like MDC and Toll and a few others should be OK in the long run.  The rest, we should see a dramatic change in attitude in the next eight weeks.

Its tough to lose money on every sale and make it up on volume.   At some point, you run out of money to produce volume.

7 Comments – Post Your Own

#1) On March 07, 2008 at 11:12 AM, FourthAxis (< 20) wrote:

I heard there's a builder BK feud going down?  LOL  ...and don't forget CA where there were more foreclosures than sales!  Oooops!

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#2) On March 07, 2008 at 12:09 PM, EScroogeJr (< 20) wrote:

"Its tough to lose money on every sale and make it up on volume"

Ridiculous. Homebuilding has always been profitable and will continue to do so. A company can have negative book value, but as long as there is a little cash and the debt is not due immediately, it always has a chance to build itself out of trouble.  

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#3) On March 07, 2008 at 1:00 PM, alstry (35.28) wrote:

Ridiculous. Homebuilding has always been profitable and will continue to do so.

Sorry, I know the FACTS are troublesome sometimes to some.  Homebuilding is now NOT profitable.  Homebuilders are LOSING BILLIONS of dollars collectively.  It will likely NOT be profitable for the foreseeable future as conditions continue to deteriorate.

As far as HBs always been profitable, that is simply NOT correct either.  A bunch went bankrupt about 15 to 20 years ago.

In light of the above, I am not sure what Ridiculous is modifying.

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#4) On March 07, 2008 at 1:32 PM, DemonDoug (82.77) wrote:

MDC, NVR, and KBH are the only ones that I see that will definitely not go BK.  TOL would be 4th on the list, but TOL I think is in a lot more trouble than they would have you believe.  The desperation coming from Bob Toll in some of his interviews is palpable, and IIRC TOL hasn't written down hardly any of their land assets.

If fundamentals were to hold, I think we'd see 75% of all HB's go BK.  However, there are likely enough knifecatchers who they they are equity vultures or turnaround specialists that a company like CTX might get bought out.

Escrooge: What are you smoking/drinking/popping/or injecting and can I have some of it?

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#5) On March 07, 2008 at 2:16 PM, dude59 (29.40) wrote:

Look at the blog posts from floridiabuilder he has some good insights.

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#6) On March 07, 2008 at 2:38 PM, alstry (35.28) wrote:

Who is Floridabuilder?

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#7) On March 07, 2008 at 6:35 PM, EScroogeJr (< 20) wrote:

DemonDoug, Bob Toll is the most predatory bastard in the whole industry. TOL will catch cold at MDC's funeral.

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