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Tick, Tick, Tick...It's only a matter of time before a major homebuilder kicks the bucket

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February 24, 2009 – Comments (5)

Housing starts are lower than they have ever been in the United States, at least since records started being kept.  And rightfully so, the housing market is a mess and inventory is sky high.  The last thing we need at this point is buinders assing to the supply.  Low housing starts is good news for home prices.  I don't expect them to stabilize soom, but builders throwing more wood on the fire would just make things worse.

Of course, these stats are very, very bad news for builders.  It's only a matter of time before a major public builder goes bankrupt.  The only question is which one.  I kept my bet on the sector simple in CAPS and gave the old thumbs down to any one that I could find.

Deej

5 Comments – Post Your Own

#1) On February 24, 2009 at 7:13 AM, Gemini846 (58.14) wrote:

Just curious Deej. What's been proping them up for so long?

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#2) On February 24, 2009 at 7:14 AM, Constructor103 (< 20) wrote:

TMFD,

Based on the headline you created it feels a little like you are wishing for a home builder to go bankrupt...I'm all about shorting the markets so don't get me wrong and the management of some of these homebuilders ran this to the ground but dont forget the human element (like the carpenter who feeds his family)...I read your posts often so i mean this respectfully but again I just want to point out that sometimes we can't forget about the human side of all this mess..it just feels like bad karma to me..

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#3) On February 24, 2009 at 7:44 AM, TMFDeej (99.29) wrote:

Good point about the headline, Constructor.  I definitely am not rooting for ANY companies, even the worst run ones, to go bankrupt.  As someone who works in the auto industry and who has a wife who worked in mortgages and now real estate, I certainly don't need any bad karma.

To me, what happens to a poorly managed home builder doesn't have a lot to do with its skilled workers.  Either there's going to be demand for new homes and construction projects or there won't.  Any carpenter who's good at what they do should not have any trouble finding work if its out there.

I actually have so much trouble rooting against companies that I rarely short them in real life, much to my detriment.  I was heavily involved in shorting in mid-2008 and it just felt bad to root for people to be unsuccessful.  I covered most of my shorts with decent gains and have since been rolling the money into things that have decent yields and are as high up the capital structure as possible.  That doesn't mean that I can't use the technique to pick up CAPS points.

I apologize if my headline came off as being insensitive.  Sometimes the most sensational headlines get the most attention.

Deej

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#4) On February 24, 2009 at 7:53 AM, Constructor103 (< 20) wrote:

it's cool - I have had to lay off a few people lately (I'm a commercial GC/Developer) and it tears me up...the employment situation is bad here in Michigan so I now it is going to be a struggle for him - here I am looking at all this working capital (slowly getting bled off) and I have to tell a guy making 40k a year with a family that we don't have work for him right now...this me or him thing just is not fun...cause it always ends up being "him" not "me".  I'm losing my stomach for dog eat dog

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#5) On February 24, 2009 at 8:15 AM, OneLegged (< 20) wrote:

I am a contractor in the construction industry in NW Colorado.  Let's me just say the picture is grim.  I just came off of two months with zero contracts.  It has been an additional month of no contracts.  I finally found a job hanging drywall (desperation).  The job came with a 70% pay cut.  I am very happy to have work at all, but this is not going to cut it.  My cash reserves are about half gone and no relief on the horizon.  I'm hoping to be able to keep my house, but it's not looking good.  I have been very careful to live below my means, but with zero income there is no such thing.  To say that this industry is in the tank (at least locally) is an understatement.  I am hearing tales of 15 or more carpenters competing for one job (this is a town of 10,000 people, resort area).  At least a few of the bigger players here have already gone the way of the dodo.  Many companies have layed off their entire crews.  There are many projects that have come to to a grinding halt at various stages of completions due to finanacial difficulties.  The scary part of this is that most of the clients are very high end, second homeowners (read:wealthy).  If these folks can't fund their projects noone can.  I agree with the blog title; it is only a matter of time before a major, national builder goes belly-up.

Have a good day, all.

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