Homebuilder Trends: Another Private Builder Fails [Housing Tracker]

Quotes of the Day

“NAHB and our federation have a long tradition of providing disaster relief to communities across the nation, and we are committed to help our fellow citizens along the Gulf Coast in their hour of need. Toward that end, we are asking our Housing Industry Victims Relief Fund to provide whatever resources it can to help deliver aid to those in need.” - Sandy Dunn, National Association of Home Builders President, On Hurricane Gustav. (NAHB Press Release, Sept. 2) 

"The presumption is that, except for a few national and larger homebuilders, most, if not all, local and regional homebuilders are at, or near, insolvency because of land values and lack of business.” - Robert Kaplan, managing principal of Olympian Capital Group. (South Florida Business Journal, Sept. 2)

Homebuilder Trends

Oriole Homes Falls Victim To Real Estate Downturn. “Longtime Boca Raton-based homebuilder Oriole Homes Corp. has filed an assignment for the benefit of creditors in Palm Beach County, and plans to liquidate its assets. The action is an alternative to bankruptcy because it returns more money to creditors, said Phil von Kahle, managing director of Michael Moecker & Associates, an insolvency firm handling the action.” (South Florida Business Journal, Sept. 2)

Low New-Home Prices A Good Reason To Skip Bidding Wars, Repair Costs. Stockton, California: “KB Home (KBH) is reporting lookers and buyers who are checking out new homes because they were dissatisfied with the foreclosure market. Besides facing the prospects of taking over a foreclosure that may have been trashed by the previous owner, many prospective foreclosure buyers are nervous and concerned that the repossessing banks don't have to disclose faults and defects in the property. The company has introduced home models as small as 1,300-1,400-sf, with price tags starting at about $222,000.” (Record.net, Sept. 2)

Empty Homes Drawing Thieves Builder Folds, Leaving Easy Targets. Antoich, Calif.: “The thousands of unfinished and unoccupied homes in subdivisions scattered across the Northwest suburbs are an invitation to thieves who net hundreds of dollars at scrap-metal yards. Karen Blythe, executive director of the Construction Industry Crime Prevention Program based in California, said construction- site crooks will steal just about anything, and estimates the loss from tools, material and equipment at about $26 million a year nationwide.” (Red Orbit, Sept. 1) 

Attorney General Files Charges Against Home Builder. “A Rockville-based home builder and its owner have been charged with violating the Consumer Protection Act, according to Maryland Attorney General Douglas F. Gansler's office. The charges allege that contracts written by Smart Development/Premiere Homes L.C., which is owned by Edward Kevin Smart, contain illegal clauses that the company used to terminate those contracts with consumers without liability if it failed to build the promised houses.” (Maryland Gazette, Aug. 30) 

10: Georgia’s Integrity Bank Fails. "Integrity Bank, based in Georgia, was closed Friday afternoon by the Georgia Department of Banking and Finance…FDIC: The bank had $1.1 billion in total assets and $974.0 million in total deposits as of June 30. Alabama-based Regions Bank will assume all deposits... WSJ: Almost 50% of Integrity’s $668.4M in construction loans were nonperforming at the end of Q2; the bank also made 14 loans for a total of $83M to one borrower; that amount represented almost all of the bank’s available capital early last year, the Journal reported, and all 14 loans are now in default.” (Housing Wire, Aug. 29) 

Home Builders Slow To Grasp Green Ways Without Incentives.  “Industry experts: Most homebuilders are still scrambling to stay afloat amid a nationwide slowdown in the residential real estate market, and taking on the added costs of energy-efficient designs has not been a top priority. Maryland’s Public Service Commission recently decided not to back a package of [environmental] incentives aimed at homebuilders… Building to Energy Star standards, similar to U.S. Green Building Council’s Leadership in Energy and Environmental Design program but for homes, can cost more than a standard home. If buyers were willing to pay that premium, experts say, more builders would be inclined to meet the demand.” (Baltimore Business Journal, Aug. 29) 

A Different Kind of Bike Tour. “High gas prices and growing environmental concerns are making more homebuyers interested in bicycle-friendly neighborhoods…Aagents in many areas of the country are offering home tours by bike. Craig Della Penna of Murphys Realtors in Northampton, Mass., started the service more than a year ago when he realized it would help clients judge whether properties are easily accessible to bike paths. "Because of the bike niche, I have new calls coming in every week," he says. Mr. Della Penna estimates about half of his 18 closings last year came about because he emphasized homes near bike trails.” (WSJ, Aug. 22)

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Comments

[Builderman:]

The Banks are making bad situations for builders much worse, by draining builders of their available cash at the expense of subcontractors. Some builders are fighting this tactic by banding together. Check out pathtodefault.com for more information.

2008 Sep 03 11:31 AM

[Tom Lindmark:]

With regard to the section about borrowers skipping over foreclosures to buy new homes, I would take a bit of an exception. It is true that the banks sell the homes as is, but that doesn't mean that a buyer can't do their own due diligence and inspect the homes. A properly written contract will give a buyer the opportunity to walk and get their earnest money back if an inspection turns up unforeseen issues. Here is a link to a post I did some months ago on the subject. blog.metro-real-estate...

2008 Sep 03 11:56 AM

[jimsep:]

KB Homes joins the ranks of the few homebuilders to come to the amazing realization (for them) that lowering prices may be the way to reduce inventories which they built up in the face of a big decline in demand.

2008 Sep 03 12:10 PM

[notsosmart:]

a good honest house inspector cant be that hard to find.then reduce the bid to cover the damage.of course at this time in the usa it might be better to buy less house new.the lack of ethics & responsibility may be the nightmare you want to avoid in trying to restore a damaged house.

2008 Sep 03 02:02 PM

[WAKEUP:]

RE: "Empty Homes Drawing Thieves": I have written several comments to various Seeking Alpha articles regarding this unfolding phenomenon. I won't go into as much detail here, as previously, but here is the short version: I travel around the Southeast, as I have done for many years; I can report to you that it is very easy to see, even from the highways, that vandalism of houses is getting worse every month. There is an enormous amount of this damage evident. There are also a growing number of burned-out, or nearly burned-out houses sitting out there, from Atlanta to Memphis. There is no telling WHAT you are getting, if you buy a foreclosed house.

2008 Sep 03 06:38 PM

[HOBBorg:]

KB Home's Toughest Market Competition May be Its Owner
This is really remarkable! Let me see if I have this right, KB is in using this very odd promotional spin to compete with the “highly competitive foreclosure marketplace.”

A foreclosure market that most likely is glutted with the very same KB cookie cuter models, cheap!

If the housing and financial market collapse wasn’t such a far-reaching disaster I might fall off my chair in laugher reading this article. If I understand this unique advertising angle it sounds like KB Home is desperate to effectively compete with this giant competitor (85 percent of the market); the very same predatory lending foreclosure scam it was highly instrumental in creating.

My… my…KB’s creation is now its strongest competition?

2008 Sep 04 07:44 AM