alstry (35.53)

Only A Chump would buy a Home Builder

June 20, 2008 – Comments (3)

Or should I say Chimp?

When will the fools learn?  Right now, sales are slowing.  Prices are crashing.  Costs are skyrocketing.  And losses are mounting.  All on a backdrop that the foreclosure parade is just beginning. 

CTX says it is competing with foreclosure homes in its neighborhoods that have never been lived in!!!  Some people call that a new home.  SPF is liquidating entire communities in a day at over 40% off.  Some people call that desperation.

Guess what, little birdies are chirping that we may even be hearing about a few criminal indictments due to improper mortgage practices.

Turn around?  OK-how about 5-10 years away....by that time every public HB is bankrupct or near bankrupt if they are stupid enough to keep building in this environment.  Unless you are a custom builder with custom clients, or have a particularly desirable location, good luck making a dime on any house you build....especially with the insane overhead many of these publics maintain.  Is Ara Hovnanian still flying daddy's jet as the company is paying over 10% interest on debt?

Homebuilders remind me of Boston Chicken.  FWIW, I have a backgroud in the restaurant business as I was stupid enough to own one once and will probably lapse and buy another one in the not too distant future.  My wife hates me because whenever we go out to dinner, I break down the profitability of the operation within about 30 seconds.  If it take me longer than that to determine how much money the operation is making, then it is a BIG loser.

Boston Chicken was one of the best public subsidized eating establishments in American History.  For the quality and price of the portions, it was impossible for business to make any money.  Not only that, most had one or two registers so thruput was at a snails pace.  It was simply a model that could not generate enough gross profit dollars to sustain itself.  So what did Wall Steet do....it pumped it to no end as it expanded accross America building store after store.  I kept lauging to my buddies how much money they were losing as they reported profits. 

I looked like an idiot for about a year and a half as the stock rocketed over 100.  I was amazed, how a business destined to fail generate so much support?  But it did until the truth came out and reality set in.

The homebuilders are like Boston Chicken right now.  The more they build the more they loose.  Sure the publics may dominate the homebuilding landscape one day....its just that the current shareholders will likely not be along for the ride.

In coming months, you are going to see backlog drop, revenues contract, cancellation rates skyrocket, and bankruptcies filed at levels you have never seen before....so if you like bananas, go out and eat til your hearts content.

Its your choice, go out and be a chumpy chimp and just tell yourself you are kidding as you drink the kool aid....or be prepared for an environment that most of the citizens of our country have never experienced before.

If the banks can't lend, you can't borrow.  If the people can't borrow....commerce comes to a grinding halt....regardless how many bananas you eat.

Good luck to all.