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alstry (35.16)

How will builders compete?

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9

February 26, 2008 – Comments (6)

“As builders try to unload finished inventory or secure sales contracts to build new ones, they increasingly are competing against homes they recently sold but have come back on the market as resales, either from people seeking to avoid foreclosure or from banks that have seized properties.”

“Lenders, anxious to rid their books of foreclosure homes, tend to slash prices significantly lower than what it costs builders to construct a similar home, said Jack McCabe, of McCabe Research & Consulting in Deerfield Beach.”

“‘This renders builders uncompetitive,’ McCabe said. ‘If you can buy a new home from a developer for $300,000, or a year-old foreclosure home just like it for $200,000, it’s a no-brainer. Especially when it’s in the same neighborhood.’”

“A 4-bedroom, 2,134-square-foot home built in 2005 is on the market in the Live Oak Preserve neighborhood in New Tampa. It’s in foreclosure. List price: $202,500. The builder, Engle Homes, has a similar, recently completed home in the same neighborhood on the market for $329,990.”

http://www2.tbo.com/content/2008/feb/23/na-foreclosures-force-competition/

This problem is playing out in a number of communities around the country.  If a new homebuilder is trying to compete with a bank who is selling a similar model for $100K less, why would a buyer even consider the builder's product?

Where things get really ominous is the the foreclosure rates are skyrocketing around the country.  Banks are taking in more and more inventory, not less.  This just seems like it is only going to add additional negative pressure going forward.  We will keep observing the data.

6 Comments – Post Your Own

#1) On February 26, 2008 at 12:41 PM, bellard (99.43) wrote:

Al;

Check out the SPF news. Another 600M in cash coming. Read my posts on Yahoo.  While I do not like this dilution, the opportunities look very positive. Many of the privates are going belly up - they can't finish there little subdivisions. Cash is king, and now SPF will have over 1B to play with......

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#2) On February 26, 2008 at 1:01 PM, alstry (35.16) wrote:

Bellard,

They did the exact same thing last year.  Never raised anything close  to the articulated offering.

You think it might of been done to avoid forcing its auditors to issue a going concern warning?

Have you ever heard of a company not disclose to its shareholders in a timely fashion that its CEO and CFO were named defendants in a class action lawsuit with a Pension Fund as the class plaintiff until its burried in the 10K over a month later?

If these guys were not able to raise capital last year on a similar S3, you think anyone is going to give them a dime this year now that conditions are much worse?  You may want to take a look at last year's S3.

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#3) On February 26, 2008 at 1:51 PM, QualityPicks (47.74) wrote:

It used to be that builders were more agressive pricing homes. Now it seems banks are the most agressive and then regular sellers are somewhat tied with builders. It used to be that regular sellers were way off base, with prices 10% over new homes. It was ridiculous.

Anyway, right now, the market got so oversold, that the worst sectors bounced hard, but now the best sectors have been rallying for a few weeks. So, if you are bearish, you will have to be patient and wait for good entries, as the market just seems to want to have a relief rally right here, we'll see how long this lasts.

 

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#4) On February 26, 2008 at 2:55 PM, bellard (99.43) wrote:

Yo Al;

The class action suit was over 6 months ago - it was public record. That being said SPF is a risky bet. I think your overall sentiment is correct for the next 3-5 months. This rally is short lived imho. I think the 600M for spf will help - but I am not buying any SPF common - I'll just let my June call options go to exp.....Keep your reb thumbs, they could be way in the money in  just a month.

 

 

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#5) On February 26, 2008 at 3:18 PM, alstry (35.16) wrote:

Yo Bell:

Actually, a complaint was filed against Andrew Parnes six months ago in August by a single defendant.  The company never made a disclosure about that complaint in any of the previous 10Qs. 

 Sometime between last August and January 23rd of this year, the complaint was amended to include Steven Scarborough (what a shock!!!) and all actions were consolidated and class representatives were appointed.  No disclosure was made to shareholders about the amendment, or consolidation of plaintiffs into a single class action.  You don't think that is material?

Now they issue a preliminary filing saying they want to raise $600 million?  FWIW, with my balance sheet I think I have a much better chance raising $1 Billion. 

These guys missed their nut last year by over $600 million.  This year, sales are slower and margins are thinner.  They likely can't even come close to missing by a billion.  It is SPF's HUGE nut that makes it different than any other public HB relative to their backlog and sales pace.  Any other public builder.

That said, who would want to sink a dime into a business that is currently bleeding as much as this one.  Why do you think they gave themselves such big bonuses in February?

 

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#6) On February 26, 2008 at 4:14 PM, bellard (99.43) wrote:

Al;

I googled the class action, and got prior hits. SPF may not have disclosed - I do not know why. These class actions are very common when a firms stock plummets 80%. Look at ETFC....These class actions have much less chance of making money then even  SPF has this Q! 

SPF biggest problem, as you have pointed out, Is there current operations. The backlog is terrible. New orders pathetic. The key will be the new orders SPF reports along with there dismal Q1 in April. I think this class action is totally irrelevant. 

 

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