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alstry (35.98)

HB Absorbtion Rate.....What Absorbtion?

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May 17, 2008 – Comments (0)

Aborbtion rate is the number of houses a builder sells per community.

The number of homes sales are slowing dramatically for builders.  Take a look at their pathetic backlogs following the normally busy Spring selling season.  Going into Q2, revenues for many builders is going to slow to a trickle as backlog and standing spec count are at very low levels.

The problem many builders are facing right now is foreclosures are starting to dictate the market.  Home prices are falling faster than builders can cut costs.  As more and more homes get foreclosed in the areas where builders concentrate their selling efforts, soon it could become almost impossible for a builder to sell his house for cost of construction (sticks and bricks only), even if the builder throws in the lot for free.  At that point, new homebuilding becomes a cashflow negative venture for every house sold.

In the most extreme cases, you could have so many foreclosures congregating in a specific area that you pratically get into a no bid environment.  Right now, those areas are generally confined to undesireable neighborhoods.  However, we are starting to see it migrating in areas where new homebuilding was concentrated in recent years.

Fort Meyers/Cape Coral is the perfect example.  Right now there are so many bank owned newer homes for sale on the market, almost every builder has shut down operations as a home can't sell for construction costs.  We are starting to see this issue migrating to California, Arizona, Nevada, and now Texas.  Guess what, that is where the bread and butter is for many public homebuilders.

Pretty soon, many builders will simply shut down, mothball operations and wait it out until they can sell homes for a profit in many of their markets.  Revenues will be practially nonexistent as more and more foreclosures keep flooding the market.  Just wait until Q2 numbers come out in a few months. 

Those builders with cash in the bank and little debt will survive, those builders with debt obligations will likely be forced to shut down.  How many public builders do you think have solid enough financials to survive the upcoming financial tsunami?  3, 4, maybe 5?

We havn't even addressed the issue of additional housing excess if families have to start moving in together because of the increasing cost of non housing related expenses.  You think I am kidding, the articles are just starting trickle out. 

Could you imagine, the next 10 years of housing inventory in America is already built out......heck, we have 20 years of condo inventory about to come online in Miami already.

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