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alstry (36.24)

Builders Simply Shutting Down-Inventory Dumping ans Skyrocketing Foreclosures

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June 11, 2008 – Comments (5)

 “But she said: ‘Certainly, anecdotally we are hearing from our members they have seen a good uptick in sales activity and that it is concentrated in the areas where you see the biggest decline in prices.’ The price declines, in turn, are most pronounced in the areas with the most foreclosures.”

http://www.pe.com/business/local/stories/PE_Biz_S_housing10.392ac25.html

Could you imagine how sales would pick up if homes were selling for $1?

Although sales have picked up recently, much of it has been due to drastic price cutting by lenders and builders.  Such dramatic discounting will likely lead to more abandoned communities and more collateral foreclosures.

As stated in an earlier blog, once a builder can't sell a house for construction cost, it becomes a cash flow negative money losing proposition each time the builder goes vertical.  Recently, the press seems to be reporting about more communities being abandoned midway or builders liquidating entire communities vertical inventory at cheap prices. 

As gas prices keep rising, the value of outlying new development communities will likely keep falling as it becomes too expensive to commute long distances.  As prices keep falling more and more builders will simply shut down.

AZUSA - Frustrated over problems at what will be a new 1,250-home community, some residents want a home builder to buy back their homes.

Two of four home builders at Rosedale, Fieldstone Homes and William Lyon Homes, stopped construction this year at the city's first master-planned community in the foothills.

Neighbors living in Fieldstone's Arborview neighborhood said they feel cheated, others said being surrounded by vacant homes and unkempt grounds causes safety concerns.

Even though Fieldstone representatives deny the allegations, residents feel the developer has walked away from the project.

"The bottom line from my perspective is that we were presented and purchased what was supposed to be a house in a master-planned community," said resident Neil Giles. "It's supposed to have all these amenities and what really happened is (Fieldstone) walked away from everything."

http://www.pasadenastarnews.com/news/ci_9470699

“ Sunday’s sales netted $4.5 million for Standard Pacific Homes, which had been struggling with sluggish sales in its Avondale subdivision in southeast Santa Rosa.”

“Minimum bids on the development’s remaining three-bedroom, two-bath homes just south of the fairgrounds started at about $200,000 — half off original asking prices. The majority of homes sold for about $240,000 to $260,000.”

http://www.pressdemocrat.com/article/20080608/NEWS/836438468/1036/BUSINESS01/Santa_Rosa_homes_fly_off_auction_block

An amazing new trend may be developing by upset homeowners seeing their type of home selling for half price............walking away from their home and buying another close by at a cheaper price creating even more foreclosure inventory.

Next month, Michelle Augustine plans to walk away from her four-bedroom house in a Sacramento, Calif., subdivision and let the property fall into foreclosure. But before doing so, she hopes to lock in the purchase of another home nearby.

"I can find the same exact house as what I live in right now for half the price," says Ms. Augustine ...

http://online.wsj.com/article/SB121314811278463077.html

In the above example, every new home purchase results in an additional foreclosure.  A problem similar could arise if we start bailing out some homeowners and not all.  Those that are struggling to keep up with their mortgage will simply stop paying waiting to be bailed out further exacerbating a rising default problem.

None of the above contemplates a further slowing economy and slowing jobs environment causing people to lose their homes from lack of income.

5 Comments – Post Your Own

#1) On June 11, 2008 at 4:50 AM, alstry (36.24) wrote:

GAS PRICE EFFECT NEW HOME COMMUNITIES

Gas prices are roughly $2 per gallon more than they were a couple years ago.  Many new home communites are located in outlying areas 30-60 miles away from job centers.

If we assume that the typical two car family commutes 24K more miles per year at 20 miles per gallon.  That family consumes about 1200 additional gallons of gasoline costing that family about $5K more per year in gasoline costs compared to living closer in.

Factoring tax benfits from the mortgage deduction and current interest rates, that family could probably afford about $100K more house if they lived closer to work offsetting gas costs.

If gasoline prices keep rising, the offset could be even higher.

In addition, when comparing rent versus buying, one would factor renting closer in would have about a $400 per month gas spend advantage.

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#2) On June 11, 2008 at 5:28 AM, alstry (36.24) wrote:

No Money..... No Home

We hear the housing Chimps talk about rising population and a housing turnaround.  However, at the end of the day, if there is no income or no savings, that person simply cannot afford a home no matter how much they may need it.

Take Florida for example.  The retirement capital of America.  As costs for retirees have skyrocketed but their incomes remained fixed, many have been forced to sell their homes to meet monthly living expenses....even if their home was fully paid off.  For the first time in Florida's history, the state is experiencing negative population growth.

Further, much of Florida's economy was centered around housing and with housing in a depression, many regions in Florida are also in a depression.

As noted above, many new home communites are located a good distance from job centers.   Many of the jobs around these communites were created to service those residents and with the hope new jobs would become plentiful.  In many areas, the jobs never materialized and beautiful new shopping centers remain mostly vacant.

Now we have a bunch of new communities all over the country that make little economic sense and few residents within.  As the economy slows and more and more experiences wage cutbacks or job losses, fewer and fewer will be able to afford a home....especially if food and fuel prices continue to rise.

I am not sure where the housing chimps think the demand will come from?  The millions of Airline, Autoworkers, Banking/Finance, Construction, Real Estate related and Government workers who have lost their jobs within the past couples years?  What about the millions more who are likely going to lose their jobs?

What about all those retirees whose fixed income is now not even enough to pay non housing related expenses? 

What about those up and coming teenagers whose unemployment levels are the highest since 1948?  How about their parents as the problem migrates with unemployment rising at the fastest rate in 30 years?

What happens to savings if the stock market starts to mirror the imploding earnings of many publicly traded companies?  In many many sectors, earnings are now NEGATIVE.  How much is the equity worth of a money losing company with lots of debt?

With deminishing savings, no or lower paying jobs, and non housing expenses going through the roof, can anyone provide a support for a housing turnaround?

Is anyone thinking anymore??????????????

 

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#3) On June 11, 2008 at 1:24 PM, bobbyj0708 (< 20) wrote:

I know some of you doom and gloomers are relishing the day when our economy collapses so you can proudly sport your "I told you so" badge at the local watering hole......

 I thought this was a cheap shot by FB. Just because you tell the truth doesn't mean you just want to say "I told you so" at the local watering hole. I know I want to be able to say "I told you so" at a bar in Rio or Venice or Paris.

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#4) On June 11, 2008 at 1:28 PM, bobbyj0708 (< 20) wrote:

I shouldn't have written that but I think that FB's comments were certainly unfair. Telling the truth may be unpopular but someone has to do it.

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#5) On June 11, 2008 at 1:55 PM, alstry (36.24) wrote:

The Truth and Thinking are what my blog is all about.

Without the Truth, the world is simply speculation.

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