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alstry (35.13)

Homebuilders GONE by Summer?

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March 10, 2008 – Comments (3)

CTX and PHM liquidating land at $0.16 cents on the dollar.

Builders selling specs for $0.50 cents on the dollar.

Most homebuilders are now losing money operating their businesses.  That means you are better off to stop building than losing money on every sale.

 

The joke is that people are going around saying everything is OK for the public builders because they have long term financing.  That is dead wrong.  Public HBs are not OK, they are in very serious trouble.  Why do you think they are liquidating assets so cheap?

Individual's houses have long term financing with their mortgages.  Do you think their mortgage lenders would let people sell off their garages, backyards, and kitchens at pennies on the dollar so they could make the monthly mortgage payments and pay Dad and Mom an income?

Do you think its any different with homebuilders right now?  Except their mortgages are in the billions.  And executive salaries are in the millions....many millions in some cases, and a bunch are demanding bonuses to boot as they loot the lenders and shareholders cash. 

Could you imagine someone borrowing a bunch of money knowing he is unlikely to ever pay it back, sticking it in his pocket or transferring it to his wife's name, and then declaring bankruptcy telling his creditors to go fly a kite?

The problem is HBs are running out of inventory fast......and they are getting more and more desperate to liquidate.  They are running out of ways to raise cash.  The buyers of their assets are  paying less and less as more and more builders' bluffs are called.  Some builders only have a few months of vertical inventory left.  And the land?  That is only worth pennies on the dollar based on recent sales evidence.

How much longer do builders have?  Those with small mortgages are OK.  Those with BIG mortgages have an ever contracting fuse.  Many are dropping right now.  Many more, including a number of publics will be gone or on life support by summer if current conditions keep moving forward.

Don't let anyone fool you, many people call liquidating assets at huge losses a "going out of business sale".............it's just some want to keep it their secret as they keep drawing big salaries and even bigger bonuses for sacking the company.

3 Comments – Post Your Own

#1) On March 10, 2008 at 12:36 PM, EScroogeJr (< 20) wrote:

A month ago our local contractor finished an 8-unit condo project. 900 ft^2 condos were priced at 500K. Half of the units are sold by now. No concessions or incentives were needed. And this is not even an upscale neighbourhood, a middle-class one at best.

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#2) On March 10, 2008 at 2:03 PM, alstry (35.13) wrote:

HOMES 50% OFF!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 

“The bright-green foreclosure bus pulled up Sunday afternoon to the bedraggled little house on Apple Street in San Carlos Park, victim of a real estate boom turned bad. In May 2005, near the height of Lee County’s real estate frenzy, it had sold for $153,000 — a bargain at the time.”

“Now the bank is asking only $59,900: 38 cents on the dollar.”

“For the most part, the houses he showed the investors were being offered by a bank at about 50 cents on the dollar for the prices paid in 2004 or 2005.”

Finished homes selling for 50 cents on the dollar.  Improved land selling for 16 cents on the dollar.  I am sure some are selling for more and some are selling for less. 

The problem is that as builders keep building more specs, and as more homes get foreclosed, adding additional inventory to an already oversupplied market place will drive prices down further.

As prices keep falling, mortgage values will keep declining, banks will lose billions more, more houses will get forclosed, and the vicious cycle will only keep spiraling out of control.

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#3) On March 10, 2008 at 4:59 PM, alstry (35.13) wrote:

HOV 'Going Out of Business" Sale?

From Tonight's Earnings Report:

Total land position decreased by 5,683 lots compared to October 31, 2007, reflecting owned and optioned position decreases of 1,308 lots and 4,375 lots, respectively, over the same time period.  As of January 31, 2008, the Company had 31,729 lots controlled under option contracts and owned 27,372 lots.  The total land position of 59,101 lots represents a 51% decline from the peak total land position at April 30, 2006.

THIS IS ABSOLUTELY NUTS.

THE COMPANY IS LIQUIDATING ASSETS AT AN AMAZING RATE AND DEBT IS RISING?  HOW MUCH ARE THE EXECUTIVES PAYING THEMSELVES?  WHERE IS THE MONEY GOING?

DO YOU WHAT THEY CALL AN ARMENIAN RUG STORE LIQUIDATING ITS INVENTORY AND NOT PAYING OFF ITS DEBTS?

A GOING OUT OF BUSINESS SALE!!!!!!!!!!!!!!!!!!!!

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