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alstry (< 20)

EVERY Homebuilder to Shut Down?



March 13, 2008 – Comments (5)

Right now in many parts of the country, homes are selling below replacement value.  In that environment, every home sold, is sold at a loss......even if you got the land for free.

The funny thing about that is that the more a builder sells, the more money the business loses.  Do you think that is why new builder executive compensation packages rewards units sold as a seperate metrix not including profits.  Executives are being incentivized to lose money.  Now that is capitalism at its best.  And analysts are recomending people buy the stock of those companies?

We are heading down a very slippery slope.  We are rewarding our business executives to destroy our nations wealth.  The spec building must stop and must stop now or TRILLIONS more will be lost.  It is criminal behavior when a foreign country dumps inventory in our markets.  We bonus our executives to for doing essentially the same thing?

As more foreclosures and specs come to market the downward pressure will continue.  As existing homeowners put their homes up for sale even more inventory will flood the market.  As the economy slows and people lose their jobs, there will be fewer and fewer buyers against a tidal wave of inventory flooding the market.

Until homebuilders stop building specs and dumping inventory at fire sale prices, the destruction of American wealth will continue for the foreseeable future.

Our nation is facing headwinds it has never faced before.  Leverage is at levels that will drown the best swimmers.  Money will be made by some and lost by many more.  How this plays out is anyone's the end there will be winners on CAPs and losers.  That is what they call a  market.  Good luck.

5 Comments – Post Your Own

#1) On March 13, 2008 at 10:47 AM, cabuilderboy (84.78) wrote:

Where do  you get your spec information? I will agree last year was very problematic, regarding builders speculating homes, but that has come to almost a standstill. I know, becasue I get in my truck and drive communities from Sacramento to Bakersfield. Your request to stop, was a market force realized by the big builders mid 2008.

I agree inventory levels are higher than normal, but new starts are at a trickle, so your impassioned plea is bit overzealous, regarding spec building. Alll inventories have to come down; foreclosures, resales and new homes alike. The builders contributed, no doubt, but I don't see the kind of spec building right now you are declaring. I will trust my visual rather than any supposition right now.

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#2) On March 13, 2008 at 11:55 AM, cabuilderboy (84.78) wrote:

Of coarse, I meant mid 2007.

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#3) On March 13, 2008 at 12:10 PM, alstry (< 20) wrote:

Take a look at SPF's spec under contruction in its most recent earnings report.  It is still running  at around the same level it ran for much of last year.  Right now SPF has about as many specs under construction as it does backlog.


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#4) On March 13, 2008 at 1:06 PM, EScroogeJr (< 20) wrote:

B..t. Even with a paltry 5% drop in 2007, prices are still way higher than in the beginning of 2004, and much higher than in any preceding year. According to your logic, we should all be living in caves because 2005-2006 was the only period in history when you could build a house and break even.

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#5) On March 13, 2008 at 1:31 PM, alstry (< 20) wrote:

I don't think you get my point.  My concern is not for today.  It is what things are going to look like in 6 months.

Right now we have record price declines, record foreclosures and record vacant inventory.  We have this very early in the cycle.  In addition, simultaneously we have NON housing related expenses exploding and median income contracting making housing unaffordable for many.  It is just that the reported numbers fail to account for non housing related expenses.

As if that wasn't enough, now the economy is slowing.  Layoffs notices are increasnig weekly.  Chrysler today announced it is going to shut down for a couple weeks to save money.  State sales tax revenues are negative.  States and Municipalities are imposing wage cutbacks and job cutbacks.

My beef with public builders is that those that continue to build specs are putting additional downward pressure on house prices.  This downward pressure is causing serious harm to individuals and the financial system in general.  LTCM was a $4 Billion dollar issue and everyone went nuts, Carlyle is a $20 Billion dollar issue and no one seems to care.

Candidly, I am not sure what it is going to take for people to wake up......$5 per gallon gas, 10% unemployment, who the mean time just party on.

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