Homebuilders Will Be Hurt by 20% Down Payment Rule [View article]
I can't swallow some of the self-righteous garbage written above as a response to this excellent article. Low down-payment FHA and VA loans worked fine for 40 years before the bubble. FORTY YEARS. If there was something so inherently "off" about extending affordability to people who couldn't cough up $20,000 - $100,000 for a 20% downpayment, don't you think the lenders would have figured that out before the bubble? There is nothing wrong with giving young families with good jobs a crack at owning a home.
So what really happened? Gatekeepers of the financial system threw away ALL the keys in an unmitigated grab for greed. Who's fault is it that a dog or cat could take out a $500,000 loan on a home in 2005? The dog's? The cat's? Who created trillion dollar packages of worthless mortgages - mortgages that were actively encouraged and created by people who knew better - and then bet the farm that they'd fail in thousands of quasi-illegal insurance scams (Credit Default Swaps).
The same parasites that have inserted themselves between doctors and patients, between retirees and their pensions, between students and their colleges, between constituents and their congressman, inserted themselves between homeowners, builders, and banks to crank-up a placid, plain vanilla business into a casino of gargantuan proportions.
The early chairman of the Federal Reserve got it right with the Glass-Stagall Act in the 1930s - keep Wall Street out of the banking industry, out of the insurance industry, and out of any other industry that wanted to save its hide before it got fleeced. Alan Greenspan - the 'Great Bubbleonian' - spent his career unwinding protections that careful men had created in Glass-Steagall so that the Great Depression wouldn't happen again.
What we are seeing on the ground in the SF Bay Area is 1.4 months of housing inventory and falling. There's already bidding wars in San Francisco and San Jose. Homes are going for median asking prices elsewhere, and those prices have risen about 10% from April through June, 2012.
As soon as someone has a job, they go look for a house because of the compelling opportunity you've outlined. In almost all cases it's cheaper than the rising rents around here. The rental market has become a shark pit. My home - Mello Roos taxes and all - costs me $2,700/mo to own. The rental cost in my neighborhood for the same thing is $3,500. I have never seen a time in CA where home ownership is cheaper than renting. Even in the mid 1990s, owning a home cost twice as much a month as renting. Today, owning can be as much as 25% CHEAPER. Plus - if you have the 3% for FHA downpayment - it's still cheaper than renting.
One fact the naysayers never say - people with stable jobs who are moderately underwater (15-25%) aren't putting their homes up for sale. They are riding it out. For the 90% of Americans with decent jobs and an underwater home, that shadow inventory is a meaningless statistic.
And what about the foreclosure inventory? Wall Streeters and cash buyers gobble it up for flips or rentals as soon as its available. Cash cost for that inventory is less than replacement cost (of new construction) by about 25%. Our post-bubble environment reminds me a lot of the post-S&L crisis, where that glut of homes was bought up from the Feds for a song at the beginning of the last real estate cycle (1990-95).
All this should put demand pressure on builders to provide inventory. I like KBH, the largest CA builder by volume.
Labor Shortages Underline The Housing Recovery [View article]
Great chance for a kid out of high school with a good sense of proportion and a strong work ethic to get in on the ground floor of a new business model. So much has changed in the last 6 years. Normal peak age for a productive construction worker is in their 30s. By the time they are in their 40s they need to be foreman, journeymen, someone more on the thinking, planning and overseeing side of things than the grunt side. They delegate the work, not do it.
Well....most of those guys, if they had families, have disappeared over the last 6 years. They are either too old, moved on, or gone. So it's a brand new game for a young guy; especially in CA where just last week the governor signed a bill allowing undocumented aliens under 30 the right to a drivers' license and a SS card. That should bring in a nice chunk of previously undocumented tax receipts, and allow a whole generation of young people the opportunity to drive to work to the construction site. You Latinos listening over there in "We don't want no foreigners Arizona"? Let the bellicose rot in their own sputum.
Come to California. Work for KB home. Viva La Raza!
What To Do With Your Homebuilder Stocks Now [View article]
Per the CFO's comments on the last CC
1) "...we do believe we'll add to our cash during the quarter and enhance our position even more. I think a couple of the other factors that sometimes investors miss, we do have $1.8 billion of inventory on our books. "
2) "...We ended the quarter with $467 million in total cash."
3) On a previous call he mentioned that the company's first $1BL in profits would be tax-sheltered.
So let's add it up, using Investopedia's definition of book value: "The net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities."
$2.517BL minus $1.78BL = $0.737BL (assets after liabilities deducted) KB has 77.13 ML shares outstanding
$0.737BL/77.13ML = $9.56/share is book value At $14/share, KB is trading at 1.46 x Book value (BV).
Taking the tax benefit into account and applying 2.05 x book as a reasonable valuation, $20 is a fair price for KBH.
++++++++++++++++++++++...
Without the tax benefit (which is real nonetheless), the book value is $6.31. At $14/share, KB is now trading at 2.2 x Book value (http://bit.ly/zeTEos), in line with the other builders.
Without the tax benefit, If they add $100ML to their cash in Q4 the BV rises to $7.61, and if they do the same thing again in Q1'2013, the BV rises to $8.90. As their inventory rises in value (which is happening), the BV will also rise. More cash + higher value of inventory = increase of book value.
By my pencil, the share price could continue to rise towards $20 without the ratio of BV to share price increasing much; remaining steady somewhere between 1.5 to 2.0
++++++++++++++++++++++...
On last week's CC, management admitted to Ivy Zelman's question that all of their land purchases for planned communities for 2013 - and half of 2014's - were already locked up. Land and land development are the single biggest cost for a builder. If those costs are now "fixed" (except for minor margin adjustments for supply costs and labor) then the road map to increasing profitability for the next 7 quarters become clear (Q4'2012, 2013, 1H'2014): higher ASPs for higher square footage houses in higher-demand geographic areas (CA, TX, NV) to more affluent buyers (who they called the "upper third" of first time buyers).
I'll stick by my 1.5 to 2.0 x book value and a share price of $20-22 before this run is over. I see no reason to go non-bullish on KBH just yet. Because it's primary market is the very expensive CA coastal area - where it takes years to get permits before finally breaking ground - and CA is also the last state historically to leave a recession (current unemployment here is still between 10-12%) - the CA housing market and KBH with it are just getting started.
Yeah...I agree...hold the champagne. The invites have just gone out. The party for shareholders is gonna be in Q1'2013. The last time we came out of a housing recession was 1990-1995. If you look back at the historical charts from 1990-94, you will see that way back then Pulte was the big performer too, leaping 400% in a very short time frame, but then - about 6 months later - along came KBH with the same out-performance. I think KBH's current under-performance is because of CA's vulnerability to recession, but that will soon be resolved as the labor market improves. It is already happening.
The Housing Market "Recovery" Is A Complete Myth [View article]
If there ever was a discrepancy between fiction and fact - or the degree to which a person's viewpoint can affect their judgement, this article is it.
As one responder put it, "Excellent analysis, I will keep my eye on LEAPS puts."
Translation: because of your inspiration, I am going to look for a long-term way to short the market (because it's soon to go down).
What if you're wrong? What if the Nasdaq at 12 year highs and the SPX, DOW and Russell at all-time highs are predictive of a new economic recovery and a new bull market? Maybe all those millions of professional investors have it right and you have it wrong?
For my own part - and because I have analyzed this market so much - I can tell anyone who will listen that a housing recovery is definitely underway - it is entirely supported by demographics - and I have a 600% return in 2012 to prove it.
The Housing Market "Recovery" Is A Complete Myth [View article]
I have to say that although this article makes many good points - and the charts are accurate BTW - real estate is about location, location, location. Poker Flats isn't the same as Laguna Beach. And the builders in the locations that I follow in CA have very strong demand, rising average selling prices, and multiple bids on properties. Maybe they are not "supposed to", but they do.
Also, a unique statistical ratio that is rarely looked at is new jobs/ to new housing permits. The ratio between jobs to permits traditionally hovers around 1:1.09, maybe 1:1.5. Right now in many CA communities, the new jobs numbers to permit ratio is as high as 12:1 and many communities in the 2:1 to 6:1 range (jobs/to permits).
So there's people out there in new jobs who are looking for homes too. Also, the cost of housing is always local, and in areas where the cost of housing has always been a higher percentage of disposable income than the norm, it has stayed that way even in the recovery. It is the relationship between the current prices - below the tradtional affordability levels and percentage of disposable income required to buy a home - which is driving new home purchases. I'll be writing an article on this shortly.
Lastly, I read through the postive comments posted here, and I would rate them close to 90% bearish on the future of a housing recovery over the next two years. I find that kinda bullish, and fully expect the CA builders to surprise to the upside.
Housing Today Is More Affordable Than At Any Time In History [View article]
Twenty-one (21) bears on this board and one (1) bull (excluding the author). Bullish. A good sentiment indicator that 2012's "run on the homebuilders" is going to continue well into 2013.
For what it's worth, the monthly cost of owning my home is 0.3% of its value, and only 1.3% of its equity. That includes the steep taxes I pay. I couldn't rent what I own anywhere near where I live for under $800/mo more than what I am now paying. I put 20% down three years ago; and yes, the first couple of years were rough, but the value of my home this year - minus the taxes too - increased my equity by 30% and the value of my home by 10%.
That's not a bad deal for anyone if you can afford it. But that's the key - can you AFFORD it? On this point - affordability (real world affordability) the posters are right, median income has remained flat with inflation. It's only the "real world" if you can actually afford to live in it. Many cannot; and it's a tragedy that the housing bust has destroyed an opening for so many families to buy a home.
Mortgage brokers could walk up to you on the street 7 years ago and say, "You wanta buy a home? I got half-million I'll give you for practically nothing. No docs, no down payment, no strings attached, come in and see me." Today he wouldn't give a family making over 6 figures even the time of day.
There is a guy I know - a lawyer - who had a Chapter 7 bankruptcy in 2004. In late 2005 he bought a home for $875,000. He borrowed the down payment from a credit union in Ohio after he had established a credit line with them based on his salary. With his down payment now in hand, he borrowed another $600,000 from a local bank. His skin in the game? Zero. When home prices fell, he walked away from the house three years later with no financial effect on his life; and he left behind a chewed-up home worth $575,000. The bank in Ohio lost everything on this guy. His kind of manipulation of the system is primarily why people today can't get a loan. I know, because I bought his house.
Requiring a 20% down payment for many folks is pie in the sky. Even the most recent insurance premiums that Fannie and Freddie are charging for 3.5% down payments are starting to freeze young buyers out of the market. It's not really the down payment that matters (insurance on the loan); the important thing is the couple's reasonable ability to pay.
Did Higher Rates Just Help Housing? [View article]
I'm sorry you're number 1 ranking in Real Estate has seemed to blind you to what's actually happening on the ground. After a blistering summer of sales, there are three to four weeks of available inventory left in CA . And that's in the 8th largest economy in the world.
After years of inventory and foreclosure overhang that seemed to languish on the market interminably, available inventory has quickly sold out and is almost gone. There's almost nothing left to buy today. That's why new construction - and especially the pace of it - has suddenly become so important. The large public builders are the only game in town, and it's a game that desperately needs to be played if buyers are to find homes. ASPs have risen about 15-20% since the beginning of the year. This sudden change had been hoped for years; but when it came to pass, it was like a blink of your eye.
If the public home builders don't expand their community counts feverishly this winter, there will be nothing left to buy in summer 2013 (again). Their profitability is limited only to how many homes they can build and how quickly they can bring them to market. The recent report by TOL (8/23/2012) is very indicative of what's happening on the ground in real estate today. You will see similar reports by KBH and SPF as we move into the Autumn. The next two quarters will be the biggest for the builders since 2007. Unlike the stock market, a trend change in real estate lasts for many years before it's exhausted. This is not a flash in the pan.
Read my recent article - Housing Starts Remain Bullish - and click on the research links provided by the Federal Reserve (local area housing starts and permits). Also read what Credit Suisse is garnering from real estate agents working in those actual locales (Credit Suisse Monthly Survey of Real Estate Agents, July, 2012).
Researching the real estate market in this manner is akin to visiting automobile factories in the U.S. to see what make and model and how many are being bought and sold. It is a factual rather than subjective (macro) approach to researching this important sector.
Cash Hoards On The Sidelines And The Great Rotation: Old Myths Meet A New Reality [View article]
Well okay...fair enough...I understand what you are saying now, and if you are right, the whole idea of "money coming off the sidelines" is probably (I can't prove it, but I can respect it) a mathematical misnomer (sounds good, but actually doesn't happen).
So ...just to add to your article...but if you could keep it simple that would be preferable too - what makes a secular bull market actually go "up". If it's not mathematics, is it only "belief"?
Cash Hoards On The Sidelines And The Great Rotation: Old Myths Meet A New Reality [View article]
I agree with many of the commentators - your article is way way way too long and complicated. I don't get it either. You can't repeal the law of supply and demand
If twenty people line up outside my house and they are ALL bidding on it to buy it, the price is going to go up, too.
You keep telling everyone who can't understand what you wrote that they "don't get it". I think the thing is, "You don't get it."
Housing Today Is More Affordable Than At Any Time In History [View article]
Ryanclarke - read the WHOLE 2012 zillow article you reference and you will see that although the home price to income ratio was still higher (+10%) than historical trends, the actual "cost" of a home in terms of real money (what you actually pay) was the most affordable in history because of the low interest rates the Fed has supplied. You have been too selective in your exegesis - only choosing the data that fits your argument.
In all but 2 cities (Honolulu & Boulder, CO), the actual amount of money required to buy a home in 2012Q1 was much less a percentage of median income (take home pay) than it had been historically. The previous historical trends which you so proudly quote also came with 6%, 7%, and 8% mortgage rates, which made the cost of owning a home a bigger burden on median income.
As long as interest rates stay low - and if median income increases just a smidge - home prices can rise, still be affordable, and eventually will reach parity with historical trends. Time is on our side; not against us. That is why Mr. Bernanke has pledged to keep rates low for at least another 3 years, if not longer. Recovery is a long, gradual process.
Markos - take a look at Credit Suisse's Monthly Survey of Real Estate Agents for November for "man on the street" foot traffic data. I think you will find it a little more bullish than the 36 you mentioned above. I kinda think what's happening now is the holiday season, winter snow on the ground, visiting relatives - things like that. Not looking at houses. I believe that will change dramatically as we move towards Feb/March. I employment improves, so will mobility. Inventory is still falling, interest rates will remain low (per the Fed's promise), buyers prefer new homes (no fixing up) and these homes come with better energy efficiency.
BTW...my favorite builder - KB Home (http://bit.ly/Ws2zLQ) - is snatching up finished lots in Austin, San Antonio, Raleigh and coastal CA. I expect these geographies will outperform the remainder of the U.S. in 2013. I don't see the dire demographics on the horizon that you do. Rather, I believe that 2H2013 will the time when we emerge from this long period of stagnation.
JB - Kinda hard to have a bubble if you can't get into one (like you described, above). The one thing that is worrisome to me is the student debt overhang that will effect an entire generation of home buyers.
Other than that, I'm not too worried. The housing crisis has severely crimped mobility. As prices gradually rise and those on the cusp of negative equity turn positive, the mobility in the society will return. New home starts need to rise toward 1.2 ML - and home equity needs to rise about 10% for underwater homeowners - before any kind of "stasis" is gained and a more normal homeowner market ensues. Until that tipping point of "normal", homebuilders will build up and into it. We are NOWHERE near that at 750K/annualized, and that figure is up 50% from the 2011 lows.
To con a phrase from Shakespeare about a rose, "O demographics, by what other name shall we call thee? 10,000,000 homes have been built in the U.S. every decade for as long as anyone can remember. From 2000 to 2010, 10ML homes were again built, it's just that 8ML were built in the first 6 years of the decade and a paltry 2 ML in the last 4 years of the decade. Normal, but just terribly skewed at the front (bubble) end. At 500K in 2011, we are woefully behind the pace for 2011-2020. So it is catch up time, and because of tight credit, the public homebuilders who have the cash and the equity offerings and the 3.5% interest rates as tail winds behind them - are the only game in town. A single glance at any housing starts chart from the last 10 years, especially the last 50 years, will clearly tell you the direction we are heading towards with our brand new 30ML extra citizens from the last decade. The bulls have been saying for years that demographics matter, and the bears have proudly retorted "Nah. Don't think so."
As we all know in investing, things can mean nothing for a long long time, until suddenly they do - which is where we are right now.
Latest Housing Price Data Confirm Housing Bottom Is Underway [View article]
As long as this kind of bearish sentiment is being expressed, the rise in homebuilder stocks ahead of the recovery will continue. It is hard for me to fathom how knowledgable people could still be this bearish on this sector after starts and permits have all doubled in a year.
Along with Dr. Duru, my favorite (at this point in time) still remains KBH, the leading CA homebuilder. See article "KBH as a Turnaround Play" on Seeking Alpha; and see also: http://bloom.bg/SGOaam?
The latter Bloomberg article is a good review of the CA residential home building market in terms of available inventory and developed lots. KBH, LEN, and TOL have been big buyers of finished lots in CA in 2011-12. The inventory of new, available lots is freakishly low in Coastal CA.
Homebuilders Will Be Hurt by 20% Down Payment Rule [View article]
So what really happened? Gatekeepers of the financial system threw away ALL the keys in an unmitigated grab for greed. Who's fault is it that a dog or cat could take out a $500,000 loan on a home in 2005? The dog's? The cat's? Who created trillion dollar packages of worthless mortgages - mortgages that were actively encouraged and created by people who knew better - and then bet the farm that they'd fail in thousands of quasi-illegal insurance scams (Credit Default Swaps).
The same parasites that have inserted themselves between doctors and patients, between retirees and their pensions, between students and their colleges, between constituents and their congressman, inserted themselves between homeowners, builders, and banks to crank-up a placid, plain vanilla business into a casino of gargantuan proportions.
The early chairman of the Federal Reserve got it right with the Glass-Stagall Act in the 1930s - keep Wall Street out of the banking industry, out of the insurance industry, and out of any other industry that wanted to save its hide before it got fleeced. Alan Greenspan - the 'Great Bubbleonian' - spent his career unwinding protections that careful men had created in Glass-Steagall so that the Great Depression wouldn't happen again.
U.S. Housing - A 20,000 Foot View [View article]
As soon as someone has a job, they go look for a house because of the compelling opportunity you've outlined. In almost all cases it's cheaper than the rising rents around here. The rental market has become a shark pit. My home - Mello Roos taxes and all - costs me $2,700/mo to own. The rental cost in my neighborhood for the same thing is $3,500. I have never seen a time in CA where home ownership is cheaper than renting. Even in the mid 1990s, owning a home cost twice as much a month as renting. Today, owning can be as much as 25% CHEAPER. Plus - if you have the 3% for FHA downpayment - it's still cheaper than renting.
One fact the naysayers never say - people with stable jobs who are moderately underwater (15-25%) aren't putting their homes up for sale. They are riding it out. For the 90% of Americans with decent jobs and an underwater home, that shadow inventory is a meaningless statistic.
And what about the foreclosure inventory? Wall Streeters and cash buyers gobble it up for flips or rentals as soon as its available. Cash cost for that inventory is less than replacement cost (of new construction) by about 25%. Our post-bubble environment reminds me a lot of the post-S&L crisis, where that glut of homes was bought up from the Feds for a song at the beginning of the last real estate cycle (1990-95).
All this should put demand pressure on builders to provide inventory. I like KBH, the largest CA builder by volume.
Labor Shortages Underline The Housing Recovery [View article]
Well....most of those guys, if they had families, have disappeared over the last 6 years. They are either too old, moved on, or gone. So it's a brand new game for a young guy; especially in CA where just last week the governor signed a bill allowing undocumented aliens under 30 the right to a drivers' license and a SS card. That should bring in a nice chunk of previously undocumented tax receipts, and allow a whole generation of young people the opportunity to drive to work to the construction site. You Latinos listening over there in "We don't want no foreigners Arizona"? Let the bellicose rot in their own sputum.
Come to California. Work for KB home. Viva La Raza!
What To Do With Your Homebuilder Stocks Now [View article]
1) "...we do believe we'll add to our cash during the quarter and enhance our position even more. I think a couple of the other factors that sometimes investors miss, we do have $1.8 billion of inventory on our books. "
2) "...We ended the quarter with $467 million in total cash."
3) On a previous call he mentioned that the company's first $1BL in profits would be tax-sheltered.
So let's add it up, using Investopedia's definition of book value: "The net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities."
$1.8BL + $0.467BL + $0.25BL (tax-benefit on profits, 2012-14) = $2.517 BL
LT Debt = $1.78BL
$2.517BL minus $1.78BL = $0.737BL (assets after liabilities deducted)
KB has 77.13 ML shares outstanding
$0.737BL/77.13ML = $9.56/share is book value
At $14/share, KB is trading at 1.46 x Book value (BV).
Taking the tax benefit into account and applying 2.05 x book as a reasonable valuation, $20 is a fair price for KBH.
++++++++++++++++++++++...
Without the tax benefit (which is real nonetheless), the book value is $6.31. At $14/share, KB is now trading at 2.2 x Book value (http://bit.ly/zeTEos), in line with the other builders.
Without the tax benefit, If they add $100ML to their cash in Q4 the BV rises to $7.61, and if they do the same thing again in Q1'2013, the BV rises to $8.90. As their inventory rises in value (which is happening), the BV will also rise. More cash + higher value of inventory = increase of book value.
By my pencil, the share price could continue to rise towards $20 without the ratio of BV to share price increasing much; remaining steady somewhere between 1.5 to 2.0
++++++++++++++++++++++...
On last week's CC, management admitted to Ivy Zelman's question that all of their land purchases for planned communities for 2013 - and half of 2014's - were already locked up. Land and land development are the single biggest cost for a builder. If those costs are now "fixed" (except for minor margin adjustments for supply costs and labor) then the road map to increasing profitability for the next 7 quarters become clear (Q4'2012, 2013, 1H'2014): higher ASPs for higher square footage houses in higher-demand geographic areas (CA, TX, NV) to more affluent buyers (who they called the "upper third" of first time buyers).
I'll stick by my 1.5 to 2.0 x book value and a share price of $20-22 before this run is over. I see no reason to go non-bullish on KBH just yet. Because it's primary market is the very expensive CA coastal area - where it takes years to get permits before finally breaking ground - and CA is also the last state historically to leave a recession (current unemployment here is still between 10-12%) - the CA housing market and KBH with it are just getting started.
Yeah...I agree...hold the champagne. The invites have just gone out. The party for shareholders is gonna be in Q1'2013. The last time we came out of a housing recession was 1990-1995. If you look back at the historical charts from 1990-94, you will see that way back then Pulte was the big performer too, leaping 400% in a very short time frame, but then - about 6 months later - along came KBH with the same out-performance. I think KBH's current under-performance is because of CA's vulnerability to recession, but that will soon be resolved as the labor market improves. It is already happening.
The Housing Market "Recovery" Is A Complete Myth [View article]
As one responder put it, "Excellent analysis, I will keep my eye on LEAPS puts."
Translation: because of your inspiration, I am going to look for a long-term way to short the market (because it's soon to go down).
What if you're wrong? What if the Nasdaq at 12 year highs and the SPX, DOW and Russell at all-time highs are predictive of a new economic recovery and a new bull market? Maybe all those millions of professional investors have it right and you have it wrong?
For my own part - and because I have analyzed this market so much - I can tell anyone who will listen that a housing recovery is definitely underway - it is entirely supported by demographics - and I have a 600% return in 2012 to prove it.
The Housing Market "Recovery" Is A Complete Myth [View article]
Also, a unique statistical ratio that is rarely looked at is new jobs/ to new housing permits. The ratio between jobs to permits traditionally hovers around 1:1.09, maybe 1:1.5. Right now in many CA communities, the new jobs numbers to permit ratio is as high as 12:1 and many communities in the 2:1 to 6:1 range (jobs/to permits).
So there's people out there in new jobs who are looking for homes too. Also, the cost of housing is always local, and in areas where the cost of housing has always been a higher percentage of disposable income than the norm, it has stayed that way even in the recovery. It is the relationship between the current prices - below the tradtional affordability levels and percentage of disposable income required to buy a home - which is driving new home purchases. I'll be writing an article on this shortly.
Lastly, I read through the postive comments posted here, and I would rate them close to 90% bearish on the future of a housing recovery over the next two years. I find that kinda bullish, and fully expect the CA builders to surprise to the upside.
Housing Today Is More Affordable Than At Any Time In History [View article]
For what it's worth, the monthly cost of owning my home is 0.3% of its value, and only 1.3% of its equity. That includes the steep taxes I pay. I couldn't rent what I own anywhere near where I live for under $800/mo more than what I am now paying. I put 20% down three years ago; and yes, the first couple of years were rough, but the value of my home this year - minus the taxes too - increased my equity by 30% and the value of my home by 10%.
That's not a bad deal for anyone if you can afford it. But that's the key - can you AFFORD it? On this point - affordability (real world affordability) the posters are right, median income has remained flat with inflation. It's only the "real world" if you can actually afford to live in it. Many cannot; and it's a tragedy that the housing bust has destroyed an opening for so many families to buy a home.
Mortgage brokers could walk up to you on the street 7 years ago and say, "You wanta buy a home? I got half-million I'll give you for practically nothing. No docs, no down payment, no strings attached, come in and see me." Today he wouldn't give a family making over 6 figures even the time of day.
There is a guy I know - a lawyer - who had a Chapter 7 bankruptcy in 2004. In late 2005 he bought a home for $875,000. He borrowed the down payment from a credit union in Ohio after he had established a credit line with them based on his salary. With his down payment now in hand, he borrowed another $600,000 from a local bank. His skin in the game? Zero. When home prices fell, he walked away from the house three years later with no financial effect on his life; and he left behind a chewed-up home worth $575,000. The bank in Ohio lost everything on this guy. His kind of manipulation of the system is primarily why people today can't get a loan. I know, because I bought his house.
Requiring a 20% down payment for many folks is pie in the sky. Even the most recent insurance premiums that Fannie and Freddie are charging for 3.5% down payments are starting to freeze young buyers out of the market. It's not really the down payment that matters (insurance on the loan); the important thing is the couple's reasonable ability to pay.
Did Higher Rates Just Help Housing? [View article]
After years of inventory and foreclosure overhang that seemed to languish on the market interminably, available inventory has quickly sold out and is almost gone. There's almost nothing left to buy today. That's why new construction - and especially the pace of it - has suddenly become so important. The large public builders are the only game in town, and it's a game that desperately needs to be played if buyers are to find homes. ASPs have risen about 15-20% since the beginning of the year. This sudden change had been hoped for years; but when it came to pass, it was like a blink of your eye.
If the public home builders don't expand their community counts feverishly this winter, there will be nothing left to buy in summer 2013 (again). Their profitability is limited only to how many homes they can build and how quickly they can bring them to market. The recent report by TOL (8/23/2012) is very indicative of what's happening on the ground in real estate today. You will see similar reports by KBH and SPF as we move into the Autumn. The next two quarters will be the biggest for the builders since 2007. Unlike the stock market, a trend change in real estate lasts for many years before it's exhausted. This is not a flash in the pan.
Read my recent article - Housing Starts Remain Bullish - and click on the research links provided by the Federal Reserve (local area housing starts and permits). Also read what Credit Suisse is garnering from real estate agents working in those actual locales (Credit Suisse Monthly Survey of Real Estate Agents, July, 2012).
Researching the real estate market in this manner is akin to visiting automobile factories in the U.S. to see what make and model and how many are being bought and sold. It is a factual rather than subjective (macro) approach to researching this important sector.
It's An Inventory Problem, Stupid! Not Another Bubble [View article]
When 6 are bullish and 1 is bearish - then it'll be time to sell. That's bearish.
Not now.
"When everybody thinks alike, everyone is likely to be wrong.”
Cash Hoards On The Sidelines And The Great Rotation: Old Myths Meet A New Reality [View article]
So ...just to add to your article...but if you could keep it simple that would be preferable too - what makes a secular bull market actually go "up". If it's not mathematics, is it only "belief"?
Thank you ---
Cash Hoards On The Sidelines And The Great Rotation: Old Myths Meet A New Reality [View article]
If twenty people line up outside my house and they are ALL bidding on it to buy it, the price is going to go up, too.
You keep telling everyone who can't understand what you wrote that they "don't get it". I think the thing is, "You don't get it."
Housing Today Is More Affordable Than At Any Time In History [View article]
In all but 2 cities (Honolulu & Boulder, CO), the actual amount of money required to buy a home in 2012Q1 was much less a percentage of median income (take home pay) than it had been historically. The previous historical trends which you so proudly quote also came with 6%, 7%, and 8% mortgage rates, which made the cost of owning a home a bigger burden on median income.
As long as interest rates stay low - and if median income increases just a smidge - home prices can rise, still be affordable, and eventually will reach parity with historical trends. Time is on our side; not against us. That is why Mr. Bernanke has pledged to keep rates low for at least another 3 years, if not longer. Recovery is a long, gradual process.
Homebuilder Tail Wags The Dog [View article]
BTW...my favorite builder - KB Home (http://bit.ly/Ws2zLQ) - is snatching up finished lots in Austin, San Antonio, Raleigh and coastal CA. I expect these geographies will outperform the remainder of the U.S. in 2013. I don't see the dire demographics on the horizon that you do. Rather, I believe that 2H2013 will the time when we emerge from this long period of stagnation.
Housing Sector Gains Will Continue [View article]
Other than that, I'm not too worried. The housing crisis has severely crimped mobility. As prices gradually rise and those on the cusp of negative equity turn positive, the mobility in the society will return. New home starts need to rise toward 1.2 ML - and home equity needs to rise about 10% for underwater homeowners - before any kind of "stasis" is gained and a more normal homeowner market ensues. Until that tipping point of "normal", homebuilders will build up and into it. We are NOWHERE near that at 750K/annualized, and that figure is up 50% from the 2011 lows.
To con a phrase from Shakespeare about a rose, "O demographics, by what other name shall we call thee? 10,000,000 homes have been built in the U.S. every decade for as long as anyone can remember. From 2000 to 2010, 10ML homes were again built, it's just that 8ML were built in the first 6 years of the decade and a paltry 2 ML in the last 4 years of the decade. Normal, but just terribly skewed at the front (bubble) end. At 500K in 2011, we are woefully behind the pace for 2011-2020. So it is catch up time, and because of tight credit, the public homebuilders who have the cash and the equity offerings and the 3.5% interest rates as tail winds behind them - are the only game in town. A single glance at any housing starts chart from the last 10 years, especially the last 50 years, will clearly tell you the direction we are heading towards with our brand new 30ML extra citizens from the last decade. The bulls have been saying for years that demographics matter, and the bears have proudly retorted "Nah. Don't think so."
As we all know in investing, things can mean nothing for a long long time, until suddenly they do - which is where we are right now.
Latest Housing Price Data Confirm Housing Bottom Is Underway [View article]
Along with Dr. Duru, my favorite (at this point in time) still remains KBH, the leading CA homebuilder. See article "KBH as a Turnaround Play" on Seeking Alpha; and see also: http://bloom.bg/SGOaam?
The latter Bloomberg article is a good review of the CA residential home building market in terms of available inventory and developed lots. KBH, LEN, and TOL have been big buyers of finished lots in CA in 2011-12. The inventory of new, available lots is freakishly low in Coastal CA.