What Happens When Builders Fail [Housing Tracker]

Quote of the Day

 

"If that doesn't pan out, I've got the Washington County Fair." – Construction worker Paul West, who moved to Oregon in 2006 during the housing boom, and who now works at local carnivals. (The Oregonian, June 17^th)

Macro Effects of the Housing Slump

When Builders Go Broke.  “Homebuilders [who] have filed for bankruptcy in the past several months include Neumann Homes, Levitt & Sons (LEV), Tousa (TOA) and Kimball Hall… Still operating, industry leaders DH Horton (DHI), Pulte Homes (PHM), Lennar (LEN), and Centex (CTX) are losing money, too. Any turnaround seems far off… Home starts in May fell 32% from a year earlier… Neumann's creditors may never get their money back, subcontractors forced under by the failure of their biggest client, villages like Antioch, Ill. can no longer bank on property taxes from Neumann developments, [and] homebuyers who had hoped for a suburban community, instead find themselves in limbo.”  (BusinessWeek, June 18^th)

Worst Of Both Worlds.  “Rising energy prices are putting pressure on American wholesalers to try to raise prices, data for May showed Tuesday, but with the housing market mired in post- subprime doldrums and creating a drag on the overall economy, it will be increasingly difficult to make them stick. [More] evidence that the American economy has entered a period of stagflation, with recessionary and pricing pressures combining to squeeze consumers. [Now] the Federal Reserve, can neither raise rates to combat inflation without hurting growth prospects, nor lower them to aid the economy without hurting the dollar and putting upward pressure on prices.”  (Forbes, June 17^th)

Avoiding A Lennar Meltdown.  San Francisco: In June, a Lennar subsidiary that's working on redeveloping the Mare Island Naval Shipyard property filed for bankruptcy… Lennar's bond ratings continue to tumble… Can Lennar actually pull off this project? Or is it possible that after all of the political debate over the Lennar plan, the lack of adequate affordable housing, the future of the 49ers, the toxic contamination of the site, [etc.], the entire massive project could collapse because Lennar doesn't have the financial ability to finish it? Suppose Lennar… goes into bankruptcy. Would that city land be treated as a private asset and given over to Lennar’s creditors?” (San Francisco Bay Guardian, June 17^th) 

Oregon's Housing Slump Hits Home.  “Paul West left his Idaho sawmill job in 2006 for Oregon's promise of steady paychecks from a booming housing market… This summer, he's working the carnival circuit. West still puts in the odd day on the job with troubled builder Legend Homes. But with little construction work, West turned to an $8-an-hour job working games at the Rose Festival and Tigard balloon festival. Still, he hopes to get back to his $13-an-hour building job in a few weeks. West is among thousands of construction workers, suppliers and vendors who are trying to make a living in one of Oregon's worst housing slumps in a generation.”  (The Oregonian, June 17^th)

Bankruptcy Rising Among Seniors.  “American Association of Retired Persons’s [AARP] Consumer Bankruptcy Project: Swamped by debt and rising medical bills, elderly Americans have been seeking bankruptcy-court protection at sharply faster rates than other adults, a study to be released today indicates. From 1991-2007, the rate of personal bankruptcy filings among those ages 65 or older jumped by 150%. The most startling rise occurred among those ages 75-84, whose rate soared 433%... Elizabeth Warren, a Harvard Law professor and co-author of the Consumer Bankruptcy Project study: "In past generations, older Americans were more financially secure. Now, instead of going into retirement loaded with assets, Americans are hitting their retirement years loaded with debt."  (Big Builder Online, June 17^th) 

Single-Family Housing Permits Slide 4 Percent. “Census Bureau: Housing starts fell 3.3%, to a seasonally adjusted rate of 975,000, compared to the previous month. Year-over-year, total starts are running 32.1% behind May 2007. Permits, a forward-looking indicator of building activity, also slowed. Compared to April's figures, total building permits dipped 1.3%, to a seasonally adjusted annual pace of 969,000. This level of activity is more than one-third (36.3%) slower than April 2007... In terms of single-family numbers, those permits sank 4% to 623,000. That represents an (ouch) 41.4% year-over-year drop. Regionally, single-family building activity as measured by permits dropped everywhere but the West, which posted a 0.7% gain.”  (Builder Online, June 17^th)

Boomers Plan to Stay in Current Homes. “AARP study: The formerly vibrant new-home buyer market of empty-nesters has decided instead to feather their current nests. Nearly one-third of middle-aged and older Americans say they are making changes to their current homes so that they can live in those homes for longer rather than buy a new house or downsize to an apartment… This group does not appear to be worried about losing their homes, [rather] about the effects of the housing slump and foreclosure crisis on their neighborhoods (64%) and the U.S. economy (89%). A top concern: the risk of crime in areas with high numbers of foreclosed homes, which was on the minds of 69% of respondents.”  (Builder Online, June 16^th)

 

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Comments

[User 201843]

Anyone who would think of going into this RE market would indeed be mad. Best to let the dust settle first. There will be plenty of time to and choice out there over the next two years at least!
For quite a while to come it is going to be a buyers "hard ball" market. The banks, the Govt and the Fed have the short end of the stick now and they would love to dump what is in the pipeline onto someone else ... prices will come down MUCH More.
Don't fall for it.
Better to buy in a riseing market that trying to "catch a falling knife". Buyer Beware

[carey_jim]

Why, then, did the UltraShort Real Estate ProShares ETF (SRS) go from a high of about 138 down to a low of about 80 and is only now climbing back above 90?
Ah, the efficiency of markets: Adam Smith vs Karl Marx. Which economic modle will eventually win?

[carey_jim]

Economic "muddle" that is.

[notsosmart]

nobody knows anything. the few that are right(for now) are just lucky.what a mess. and now i will be called unpatriotic by some.

[Jane]

At least 4 yrs ago I could see this mess was going to happen and I was not alone. I think it's time the experts started paying attention to what's really going on out there instead of thinking they're insulated from it. Housing bubble blogs, consumer sites, some economists, and many others, all pointed out the bubble was unsustainable and not a good thing. Too many people thought of houses as 'investments' that never went down in value. There was a lot of push from the real estate industry and our own government to buy a house. Toxic loans were praised as "increasing homeownership" with no thought to the FACT many of these buyers could not afford it, and/or were flippers. Mortgage fraud was going on and still is. Without the industry complying with the sham, it could not have reached these proportions, and the industry created the toxic loan products, pushed them, approved them, and sold them as 'investments.' The FBI found two yrs ago that 80% of the fraud was being done by the industry. This industry shot itself in the foot. For anyone in the know to claim this wasn't predicted, wasn't predictable, is ludicrous. Even ordinary people with no special training saw this coming.

[jimsep]

The only ones that didn't see this coming were the National Association of Homebuilders and the CEO's of the public homebuilders, most of which still have their jobs and lucrative pay packages.