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alstry (< 20)

Homebuilder Crash....Banks Shutting Them Down Finally



March 09, 2008 – Comments (1)

DHI liquidating homes for 50% off.  When you are selling homes at that price, you are not making a dime.  There is little chance that any sane homebuilder would take an order in this environment on a money losing sale, and then risk it may cancel to boot.  There is even less chance a buyer would order a home at a profitable price when he can buy a liquidated spec at 50% off just ready for the picking from a number of builders in his area.

Don't let anyone fool you, homebuilders are liquidating spec inventory and liquidating land to practically anyone who will make an offer.   In many cases, homebuilders are selling $4 dollars of assets for every dollar of cash they raise.  You can't do that for too long before running out of assets. 

It is so obvious that many public homebuilders are inflating the values of assets on their books but being honest about the billions in debt.  A very toxic combination that can get may a builder executive in deep deep trouble.

The writing is on the wall.  Public and private homebuilders have started shutting down around the counrty.

And don't fall for the homebuilders have cash baloney.  Most HBs cash a joke compared to the billions in debt.  It is like saying someone has $10,000 in their checking account but they owe $100,000 thousand on their credit cards.  How long can that last when you not only have no income, but losing millions and millions every day.  Simply a transparent slight of hand show that will quickly fade.

Now the homebuilders' lenders are not falling for the deception anymore.  They are starting to clamp down on homebuilders whose executives are paying themselves millions just to lose money and destroy the values of homes in the neighborhoods they build. 

You think the banks like that?.....the banks own way more $$$ in mortgages secured by homes than they have HB debt.  The banks are getting their jewels squeezed partly due to excessive building forcing down the values of homes.  Here is a little snipit from Friday:

NEW YORK (Reuters) - Wall Street banks are facing a "systemic margin call" that may deplete banks of $325 billion of capital due to deteriorating subprime U.S. mortgages, JPMorgan Chase & Co (JPM.N), said in a report late on Friday.

THE LENDERS ARE STARTING TO CLAMP DOWN.  RESCAP, who has billions loaned out to builders, seems to be putting on the full court press:

"Besides its better-known subprime problems, ResCap has additional issues lurking in its homebuilder lending division. The company was a major supplier of credit facilities and model-home financing to homebuilder joint ventures during the housing boom.

Last year, ResCap hired ... a workout firm for the builder portfolio, and the two parties have sent out technical default notices to certain builders and their joint venture partners in recent months to pressure them to pay back loans, people familiar with the matter say."

Right now, in some markets there is years and years of inventory.  And inventory is climbing every month.  Don't let anyone fool are liquidating as quickly as they can.  The lenders are squeezing them at the same time.   Builder inventory values are crashing every day they hold.  The lenders are getting sick and tired of the BS....they want their money back before their security evaporates any further.

Anybody who tells you different is living in fantasy land or trying to deceive you.

Many builders have only a few quarters of vertical inventory on the books.  Some have even less.  Once that inventory is gone, do you think lenders are going to keep loaning money to builders to keep over building when inventory levels are already too high, house prices are crashing AND expected to fall even further, cancellations are commonplace, and borrowers are defaulting all around the country?

Not a chance.  They have started to cut them off already.  Big developers are going down as we speak.  Until the lenders stop the builders from overbuilding and destroying the value of homes accross our nation, the losses the lenders face from defaulting mortgages will be exponentially greater than any minor short term hit they get from calling builders on their nonsense.

Don't fall for the builders have cash nonsense.  Those with cash and little or no debt are OK.  Those with cash and ten times the debt are hosed (they have to keep building...exactly what banks and society DOESN'T WANT-just look at SPF, it has almost twice as many specs as backlog)....especially when they are losing hundreds of millions per quarter. 

You think the banks are just going to sit there and let there builders liquidate off their security while the exeuctives pocket a bunch of the cash for themselves and mislead shareholders along the way?  Lenders are accountable and have shareholdres too.

Fantasy is fun if you like to read Wall Street analysts reports.....welcome to reality.

1 Comments – Post Your Own

#1) On March 09, 2008 at 10:15 PM, alstry (< 20) wrote:

$0.16 CENTS ON THE DOLLAR.....The Liquidations Getting More DESPERATE DAY BY DAY!!!!!!!!!!!!!!!!!!!!

"Two of Sacramento's top builders have unloaded 250 acres approved for new homes in Rancho Cordova for 16 cents on the dollar -- the first major land sell-off in the capital area since housing sales collapsed last year."

This ain't no not never just raw land:

"The builders paid $50 million during the housing boom in 2004, then pumped millions more -- possibly as much as $30 million -- in site improvements into the venture, those sources said."

How far is sixteen cents from zero?  How long will the public builders keep lying to us about the value of the assets on their books?

BIG DEVELOPER DEFAULTING!!!!!!!!!!!!!!!!!!!!!!!!!

$74 million loan to Irvine-based developer SunCal Cos. for a major housing project in Shafter was foreclosed on Wednesday morning at a public auction on City Hall steps.

SunCal’s outstanding debt to national homebuilder Lennar Corp. had reached almost $86 million with interest and fees by auction time. Opening bids for the 515-acre site started at $10 million. No one made an offer, so the property went back to Lennar.

Sure the banks are just going to love to continue lending money to builders so they can keep overbuilding and driving the values of assets down even further.

Keep on reading Wall Street research....Mommy, why does this Kool-Aid taste funny?

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