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alstry (< 20)

Housing Tsunami or simply rising water?



March 06, 2008 – Comments (6)

Americans' percentage of equity in their homes fell below 50 percent for the first time on record since 1945, the Federal Reserve said Thursday. Homeowners' portion of equity slipped to downwardly revised 49.6 percent in the second quarter of 2007, the central bank reported in its quarterly U.S. Flow of Funds Accounts, and declined further to 47.9 percent in the fourth quarter -- the third straight quarter it was under 50 percent.

That marks the first time homeowners' debt on their houses exceeds their equity since the Fed started tracking the data in 1945. The total value of equity also fell for the third straight quarter to $9.65 trillion from a downwardly revised $9.93 trillion in the third quarter.

Moody's estimates that 8.8 million homeowners, or about 10.3 percent of homes, will have zero or negative equity by the end of the month. Even more disturbing, about 13.8 million households, or 15.9 percent, will be "upside down" if prices fall 20 percent from their peak.

The latest Standard & Poor's/Case-Shiller index showed U.S. home prices plunging 8.9 percent in the final quarter of 2007 compared with a year ago, the steepest decline in the 20-year history of the index.

I took this from Mish's blog. 

Think about this folks.  We are only two years into the down cycle.  Normally down cycles last five to seven years.  Could 50% of American homeowners be upside down on their mortgages.  What about 50% having zero or negative equity.

Believe it or not, a few years ago some of us saw this coming.  Well it is now here.  The problem is that NON HOUSING expenses are exploding.  People have less and less money to spend on housing.  When you have to choose between eating and shelter....eating wins every time.  It is much easier to double up on housing than it is to hold off swallowing, even if all you are eating is footlongs.

Just think what is going to happen once the inevitable layoffs start picking up as governments have to adjust to lower tax revenues and business adjusts to lower sales.

Mommy, why is the water splashing on our balcony.....isn't this the third floor?

6 Comments – Post Your Own

#1) On March 06, 2008 at 4:13 PM, floridabuilder2 (98.21) wrote:

its hard keeping up with your posts buddy....  SPF is simply a trade right now... we are at about 85% on the fear meter hovering right over 12000 on the dow...  i have my ultrashorts in place to hedge my longs... this is a pure trading market, and I am playing both ways and also focused on stocks with big short interest....

with that said, SPF is the most volatile of all the builder stocks... that in itself makes it an attractive trade to me....

as far as how long it will last, who knows...  I pretty much keep my predictions to 3 month chunks because beyond that anything can happen and it gets more difficult to predict what the govt is going to do, the dollar, oil, etc..... everyone has their long term predictions, but I can't make money off that or have the patience...  i just play what the market gives me...

wci and spf both hammered today...  but i think you will find that wci is first in line for bankruptcy and there are no taking cuts....

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#2) On March 06, 2008 at 4:48 PM, EScroogeJr (< 20) wrote:

I simply used this opportunity to buy more TOL under 20.

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#3) On March 06, 2008 at 4:48 PM, alstry (< 20) wrote:

If SPF's bookvalue simply reflected its current fair market value, SPF would likely have the lowest shareholder equity of any publicly traded HB.

Excluding models, SPF ended the quarter with about $800 million of vertical inventory.  That is about two quarters worth of inventory.  If SPF wants to stay alive beyond Q2, it needs to borrow from its bankers to hope they can harvest cash out of the land.  In this environment, deteriorating day by day, and cancellations not letting up..........good luck convincing a banker with mgts track record to pony up a dime.

On March 30th, these guys will have likely done an excellent job liquidating inventory at huge losses.  The problem is that in order to generate cash going forward, they are going to need to go vertical and they are going to have to beg for forgiveness....for the FOURTH time.  How many times can you bend over for anyone?

The banks know that this company will never look as good down the road as it will on March 30th.  Any more money they give them will likely be money gone.  I know you think someone is sniffing them.....but the only sniffing I can see is a quick one on the backside before the odor causes them to run....unless of course they want a little piece of quickie.

WCI is simply liquidating.  It doesn't have to go to the trough for more water.  Not that it is in good shape, it just doesn't need to bite the hand that feeds it.  Both are dogs but SPF is a sniping shitzu that wants more and more and more and gives little in return...I am sure you can relate.

The management of this company knows exactly what is going on.  They dropped a bunch of foundations at the end of the quarter to transfer assets from land to WIP.  They bought an extra 90 days to build out WIP and liquidate as much as they can while taking nice CASH bonuses.

Yes, they will have some cash at the end of the quarter, but will they have enough to build more houses without dipping deeper into their bankers pockets?

These guys have providing misleading guidance for the past year while firing employees, sacking the dividend, and sucking cash out of the company.

The time for honoring themselves is coming to an end.



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#4) On March 07, 2008 at 3:33 AM, DemonDoug (31.01) wrote:

escrooge, i remember when i first started reading your posts, I thought you were a housing troll.  I don't think that anymore, but rather I feel you are misguided - TOL is in much worse shape than anyone believes.  It's KBH and NVR that will be the eventual winners of this thing, but that's a long way to go - TOL has a good chance of surviving, but is still very much at risk.

alstry, i'm with you man.  SPF is one dog of a stock.  they are done.  I think WCI will go bk beforehand because being concentrated in florida, their specific downturn came earlier in the cycle than the more cali-based SPF.  And some of florida's picks recently have me shaking my head - betting against oil is like betting on snake eyes at a craps table, with much worse odds.

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#5) On March 07, 2008 at 6:46 AM, alstry (< 20) wrote:

To me the oil bet is a coin toss.  Does less money mean less demand?  On the other hand supply interreruption seems to be a growing possibility due to various political pressures.

I have to watch on the sidelines on this one.

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#6) On March 07, 2008 at 12:15 PM, EScroogeJr (< 20) wrote:

TOL has a good chance of surviving? That's like saying that Buffett has a good chance to earn a few pesos. Of all builders, TOL is in the best finanical shape, sharing that spot with NVR and MDC only.

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