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EScroogeJr (< 20)

builder bailout is a non-event



April 10, 2008 – Comments (3)

Banking system bailout is different. This was an unmitigated evil, because it prevented the banking system from collapse. Now, as to the desirability of builder bailout, I am agnostic. If builders don't get a bailout, then land will remain cheaper for a while, as floridabuilder points out. Sadly, with land investors not selling anything because they recognize the value of land too well, bancrupt builders is the only remaining suurce of cheap land. Not that it's going to make housing any cheaper becuase in the absence of competition, the remaining builders are not going to pass their lower input costs to consumers, they will keep it all to themselves. On the other hand, if we do have a bailout, the industry will stay competetive and run slimmer profit margins, but again, these slimmer margins will not produce cheaper prices because competing builders will drive up the cost of land. Now you have builders ready, or, rather, forced by the "invisible hand" to pass their cost savings to consumers, but unfortunately, they have no cost saving to pass along. So either way, the consumer is screwed. The only practical question is which builders to greenthumb. If there is no bailout, then we have a winner-take-all scenario, with TOL and MDC emerging victorious. If the bailout comes to pass, the spoils will be distributed more equally among the players, and then HOV, SPF, and BZH will outperform the rich builders because avaoiding Ch 11 is all it really takes for them to produce a two-bagger in the short term.  Either way, floridabuilder is wrong: affordability is not coming back, and it is only the short-term price of land that is debatable.

3 Comments – Post Your Own

#1) On April 10, 2008 at 5:16 PM, VTEngineer2001 (< 20) wrote:

I wish there wouldn't be a crutch for anyone - homebuyers, builders, or lenders. I pinched pennies for 5 years in order to buy my home in June 2006 - still put 20% down - and took out a 30yr fixed. My budget is tight, but manageable. I'd like to see the system work itself out and let the chips fall were they may. As my mother told me time and time again, "you made your bed, now you have to lay in it." This may be a narrow view of this problem, but I really don't care.

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#2) On April 10, 2008 at 5:30 PM, EScroogeJr (< 20) wrote:

The lamb grazing together with the lion, eh? Too hard to achieve in the real world: the interests of first-time buyers and existing owners are too oppossed.

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#3) On April 10, 2008 at 6:25 PM, VTEngineer2001 (< 20) wrote:

I agree, but I don't shed a tear for those in over their head. If you can't crunch basic numbers and tell whether or not you can afford a home, then you shouldn't buy one. And the excuse of "the lender said I could afford this with and ARM" doesn't buy any slack with me. Would those people jump off a bridge if someone told them? Anyway, if you don't know enough about the finer points of a mortgage, then hire someone who does - or at least ask a family member for help. It is just amazing the amount of people whom acted like Goofy and signed on the bottom line. I work too hard for my money to blindly sign something without checking into it - and the same goes for investing.

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