Tuesday, October 30, 2007
NAR Statistics on Empt Homes in America - Vacancy Rate - Homebuilders Greed
17.9 million empty homes that nobody needed. 17.9 million empty homes that won't sell. 17.9 million empty homes that stand as a testament to American greed, largess and folly. 17.9 million empty homes for bitter renters to choose from. And 17.9 million reasons why this housing crash will be the biggest in US history.The Census Bureau report also found that a record 17.9 million U.S. homes stood empty in the third quarter as lenders took possession of a growing number of properties in foreclosure.The figure is a 7.8 percent gain from a year ago, when 16.6 million properties were vacant, the Census Bureau said. About 2.07 million empty homes were for sale, compared with 1.94 million a year earlier, the report said. With inventories of unsold homes piling up near record levels, housing prices will have to fall further, economists say.
Nostradomus said Orlando Housing Bubble is going to burst
Wow - This is so Great- Article from a blog in on May 19th 2005. This guy is my new hero. He saw the Orlando Housing Market crash a long time ago. Great article...it was a bit before the Orlando housing market crashes, and everyone saw it coming...but still they head it dead on...when the investors pulled out (in Orlando and everywhere) the issues started.
The Orlando Sentinel tells us that the RE market may be coming to a head. "'It's insane,' said Gary Balanoff, broker-owner of Re/Max Select. 'Where does it end? I don't know.' The 21-year industry veteran said he has never seen such price escalation."
"There was a sign that change could be coming, with April sales throughout the region falling nearly 5 percent compared with April 2004. That was accompanied by a 5 percent increase in the inventory of available homes."
"Barbara Vance said she is dealing with more investors than ever before, with many buyers quickly becoming sellers."This is a quote for the ages. "If there is a slowdown, Brenda Rogers of the Lake County Association of Realtors wouldn't mind: 'I kind of wish we would. We've been so busy.'"
The Orlando Sentinel tells us that the RE market may be coming to a head. "'It's insane,' said Gary Balanoff, broker-owner of Re/Max Select. 'Where does it end? I don't know.' The 21-year industry veteran said he has never seen such price escalation."
"There was a sign that change could be coming, with April sales throughout the region falling nearly 5 percent compared with April 2004. That was accompanied by a 5 percent increase in the inventory of available homes."
"Barbara Vance said she is dealing with more investors than ever before, with many buyers quickly becoming sellers."This is a quote for the ages. "If there is a slowdown, Brenda Rogers of the Lake County Association of Realtors wouldn't mind: 'I kind of wish we would. We've been so busy.'"
First Home Builders of Fort Myers Lays Off 200
Fort Myers-based First Home Builders announced Friday that it will lay off about 200 people across all sectors of the company effective Dec. 28.
“This is a painful action, but a necessary one to right-size the company,” said Tim Graney, vice-president of finance. “We are now positioned to operate more efficiently at a lower volume than we have enjoyed in the past few years.”
Despite the layoffs, First Home Builders will continue targeting first-time buyers for the sale and construction of new homes, according to a company press release.
Company spokesman Ray Casas said the layoffs are a reflection of a sluggish Southwest Florida real-estate market.
“The conditions are what they are, and this action had to be taken to right-size the company,” Casas said, adding that recalls remain a possibility in the future. “Obviously market conditions could change.”
Bill Berry, owner of WB Home Builders in Lehigh Acres, wasn’t surprised by First Home Builder’s announcement.
“The market is down for most builders, and First Home Builders built up so quickly that when the market crashed, I don’t think they were ready for that,” Berry said. “Right now, it’s a buyer’s market, and instead of building, people are snatching up foreclosures because they can buy them $20,000 to $30,000 less than what it costs to build.”
Sluggish market or not, Berry believes business could pick up quickly in Lee County.
“Lee County is such a fast-paced market that I think the market could correct itself pretty fast — stabilize and become normal in anywhere from eight months to two years,” he said.
Though operating on a much smaller scale than First Home Builders, Berry said he also recently had to let two employees go.
“I had to let a trade guy and an office lady go, mainly because work is so slow and there’s no work to give out right now,” he said.
That said, the slow building market hasn’t yet cast its shadow over the world of home-improvement sales, according to John Sandford, manager of the Lowe’s at 14960 S. Tamiami Trail in Fort Myers.
“We’re pretty happy with the way things are going now,” Sandford said. “There have been brisk sales in the remodeling portion of the business, with kitchen upgrades and upgrades of people’s current housing. Overall, the real-estate and building industry is down, but we’re happy with our business, happy with the average homeowner continuing to improve their home.”
“This is a painful action, but a necessary one to right-size the company,” said Tim Graney, vice-president of finance. “We are now positioned to operate more efficiently at a lower volume than we have enjoyed in the past few years.”
Despite the layoffs, First Home Builders will continue targeting first-time buyers for the sale and construction of new homes, according to a company press release.
Company spokesman Ray Casas said the layoffs are a reflection of a sluggish Southwest Florida real-estate market.
“The conditions are what they are, and this action had to be taken to right-size the company,” Casas said, adding that recalls remain a possibility in the future. “Obviously market conditions could change.”
Bill Berry, owner of WB Home Builders in Lehigh Acres, wasn’t surprised by First Home Builder’s announcement.
“The market is down for most builders, and First Home Builders built up so quickly that when the market crashed, I don’t think they were ready for that,” Berry said. “Right now, it’s a buyer’s market, and instead of building, people are snatching up foreclosures because they can buy them $20,000 to $30,000 less than what it costs to build.”
Sluggish market or not, Berry believes business could pick up quickly in Lee County.
“Lee County is such a fast-paced market that I think the market could correct itself pretty fast — stabilize and become normal in anywhere from eight months to two years,” he said.
Though operating on a much smaller scale than First Home Builders, Berry said he also recently had to let two employees go.
“I had to let a trade guy and an office lady go, mainly because work is so slow and there’s no work to give out right now,” he said.
That said, the slow building market hasn’t yet cast its shadow over the world of home-improvement sales, according to John Sandford, manager of the Lowe’s at 14960 S. Tamiami Trail in Fort Myers.
“We’re pretty happy with the way things are going now,” Sandford said. “There have been brisk sales in the remodeling portion of the business, with kitchen upgrades and upgrades of people’s current housing. Overall, the real-estate and building industry is down, but we’re happy with our business, happy with the average homeowner continuing to improve their home.”
Saturday, October 27, 2007
Homesales Nosedive in Las Vegas - Pulte and KB drop prices again
Looks like the once hot Las Vegas Housing market is declining as fast as the rest of the nation. Many builders were depending on the market, but now it looks like either Pulte or KB Home is going to pull out of Las Vegas. Below is an article from Brian Wargo - In Business Las Vegas
The number of new-home and existing-home sales in September fell to the lowest monthly total this decade as home prices continued to tumble, according to statistics released Tuesday by a Las Vegas research firm.
The release of the data by SalesTraq comes as a local housing analyst said Wall Street investment bankers are concerned that at least one and maybe other major public builders will pull out of the Las Vegas housing market.
Steve Bottfeld, executive vice president of Marketing Solutions, declined to name the builder analysts named, but said they are concerned because Las Vegas has been so profitable for builders.
The worry centers on the rising cost of land and a move toward mixed-use developments and mid-rises, Bottfeld said. A number of builders have sold their land holdings and aren't interested in urban villages, he said.
Builders didn't show much confidence in the Las Vegas housing market in September when they took out 591 housing permits. That's the lowest monthly total this decade, said SalesTraq's Larry Murphy.
"We have not reached the bottom of this market in either new homes or existing homes," Murphy said. "The short-term outlook for this market is not good. It will take another 12 to 18 months before we will see any significant improvement in my opinion."
New-home sales plummeted to 1,328 in September, down 52 percent from September 2006, when there were 2,565. The median prices fetched for new-home sales in September was $308,055, 13 percent below the market's peak in April 2006 when the price was $355,435.
As for existing-home sales, there were 1,466 in September, down 50 percent from September 2006 when there were 2,946. Of those homes that sold, the median price of $263,075 is nearly $27,000 or 9.2 percent below its peak of $290,000 in October 2006. That's the lowest median price since it was $263,000 in March 2005.
Some analysts have predicted existing-home prices could fall 20 to 30 percent from their peak as inventory remains at record levels with a 19-month supply.
The fall in prices comes as a credit crunch makes it harder for buyers to qualify for loans. Analysts said that's an even bigger problem in Las Vegas where there are a lot of first-time and second-time homebuyers. In addition, casino workers who in the past have relied on stated income loans aren't qualifying today.
The latest report is good news for buyers waiting for prices to drop even more before they jump in the market and bad news for those hoping to cash in on the appreciation of their homes from price increases 2004 and 2005.
Builders continue to offer substantial incentives ranging from bonus commissions to real estate agents to as much as $100,000 in free upgrades to buyers, Murphy said. Earlier this month, Lennar Homes dropped prices 25 percent in about 30 of its new-home subdivisions, Pulte had a sale advertising a 15 percent cut in prices while Astoria Homes had price cuts of $70,000 or more. KB Home has had major price reductions twice this year already, he said.
Despite the prices and sales continuing to nosedive, Bottfeld remains optimistic about the future of the housing market and suggested September may have been the bottom. One reason he cites is that the inventory of existing homes on the market in September at 27,417 virtually matched the August total.
"As far as a correction goes, what we have had is pretty mild," Bottfeld said. "If we are not at the bottom, then we will have one more bad month before we see it turn around. I am willing to bet that prices will go up at the end of this year, not down."
Despite his concern about the market over the next 12 to 18 months, Murphy said the housing market future remains bright with resort development along the Strip that will generate more jobs and need for housing.
As for a major builder or two pulling out of the market, Monica Caruso, spokeswoman with the Southern Nevada Home Builders Association, said she is not aware of any such plans, but she noted that builders could do that without an announcement. The number of builders in the market was 97 in 2005 and fell to 77 in 2006 and is expected to fall even further through consolidations, closings or pulling out of the market, Caruso said.
"It is a trend we have been watching and we believe with the decline in sales activity compared to 2005 and 2006, that many homebuilders are operating on reserve funds and that can only go on for so long," Caruso said. "Many if not all of the home builders have had layoffs and cut back expenses to make it through this period."
Many builders are counting on resort development, including developers like CityCenter, to generate more jobs and with it a greater demand for housing, Caruso said.
"We know there are many homebuilders who are holding out because of the opening of two major resort properties," Caruso said. "They feel it is going to create instant demand because of the thousands of new jobs created. People must live somewhere."
The number of new-home and existing-home sales in September fell to the lowest monthly total this decade as home prices continued to tumble, according to statistics released Tuesday by a Las Vegas research firm.
The release of the data by SalesTraq comes as a local housing analyst said Wall Street investment bankers are concerned that at least one and maybe other major public builders will pull out of the Las Vegas housing market.
Steve Bottfeld, executive vice president of Marketing Solutions, declined to name the builder analysts named, but said they are concerned because Las Vegas has been so profitable for builders.
The worry centers on the rising cost of land and a move toward mixed-use developments and mid-rises, Bottfeld said. A number of builders have sold their land holdings and aren't interested in urban villages, he said.
Builders didn't show much confidence in the Las Vegas housing market in September when they took out 591 housing permits. That's the lowest monthly total this decade, said SalesTraq's Larry Murphy.
"We have not reached the bottom of this market in either new homes or existing homes," Murphy said. "The short-term outlook for this market is not good. It will take another 12 to 18 months before we will see any significant improvement in my opinion."
New-home sales plummeted to 1,328 in September, down 52 percent from September 2006, when there were 2,565. The median prices fetched for new-home sales in September was $308,055, 13 percent below the market's peak in April 2006 when the price was $355,435.
As for existing-home sales, there were 1,466 in September, down 50 percent from September 2006 when there were 2,946. Of those homes that sold, the median price of $263,075 is nearly $27,000 or 9.2 percent below its peak of $290,000 in October 2006. That's the lowest median price since it was $263,000 in March 2005.
Some analysts have predicted existing-home prices could fall 20 to 30 percent from their peak as inventory remains at record levels with a 19-month supply.
The fall in prices comes as a credit crunch makes it harder for buyers to qualify for loans. Analysts said that's an even bigger problem in Las Vegas where there are a lot of first-time and second-time homebuyers. In addition, casino workers who in the past have relied on stated income loans aren't qualifying today.
The latest report is good news for buyers waiting for prices to drop even more before they jump in the market and bad news for those hoping to cash in on the appreciation of their homes from price increases 2004 and 2005.
Builders continue to offer substantial incentives ranging from bonus commissions to real estate agents to as much as $100,000 in free upgrades to buyers, Murphy said. Earlier this month, Lennar Homes dropped prices 25 percent in about 30 of its new-home subdivisions, Pulte had a sale advertising a 15 percent cut in prices while Astoria Homes had price cuts of $70,000 or more. KB Home has had major price reductions twice this year already, he said.
Despite the prices and sales continuing to nosedive, Bottfeld remains optimistic about the future of the housing market and suggested September may have been the bottom. One reason he cites is that the inventory of existing homes on the market in September at 27,417 virtually matched the August total.
"As far as a correction goes, what we have had is pretty mild," Bottfeld said. "If we are not at the bottom, then we will have one more bad month before we see it turn around. I am willing to bet that prices will go up at the end of this year, not down."
Despite his concern about the market over the next 12 to 18 months, Murphy said the housing market future remains bright with resort development along the Strip that will generate more jobs and need for housing.
As for a major builder or two pulling out of the market, Monica Caruso, spokeswoman with the Southern Nevada Home Builders Association, said she is not aware of any such plans, but she noted that builders could do that without an announcement. The number of builders in the market was 97 in 2005 and fell to 77 in 2006 and is expected to fall even further through consolidations, closings or pulling out of the market, Caruso said.
"It is a trend we have been watching and we believe with the decline in sales activity compared to 2005 and 2006, that many homebuilders are operating on reserve funds and that can only go on for so long," Caruso said. "Many if not all of the home builders have had layoffs and cut back expenses to make it through this period."
Many builders are counting on resort development, including developers like CityCenter, to generate more jobs and with it a greater demand for housing, Caruso said.
"We know there are many homebuilders who are holding out because of the opening of two major resort properties," Caruso said. "They feel it is going to create instant demand because of the thousands of new jobs created. People must live somewhere."
Is Now the Time to Invest in Homebuilders Stock? Um, no...
National home builders are suffering from lower stock prices right now and some investors might think it's time to buy buy buy.
Forget it. While Centex, KB Homes and Lennar Corp., all of which have developments in Polk County, are suffering, now might not be the time to invest."Any time you start sector betting, you're concentrating your risk in one area," said Laura Hawley, a financial planner and vice president of Allen & Company in Lakeland.
On a national level, the home market isn't showing any signs of rebounding.Just 5.04 million homes were sold in September, down 19.1 percent from 6.23 million in September 2006.
This past week's home sales reports, released by the National Association of Realtors on Wednesday, sent builder stock prices tumbling.
Centex shares dropped 37 cents to $24.27. DR Horton Inc., one of the nation's largest builders, fell 49 cents, or 3.9 percent, to $12.22, while Lennar Corp. slid 37 cents to $22.07. Beazer Homes USA Inc. had shares decline 11 cents to $9.69."It is really just buyer beware," she said.Hawley likened the scenario to the dot com market bust in 2000."A lot of those companies that were blue chip stocks never recovered," she said. "It doesn't mean these companies are going to come roaring back like they were."
And when it comes to building new homes, it doesn't get much better. The Commerce Department reported Wednesday that construction of new homes fell 10.2 percent in September to a seasonally adjusted annual rate of 1.191 million units. The decline was more than double the 4.2 percent drop that analysts had been expecting and it pushed activity down to the lowest level since March 1993.
"I think the real estate market in general isn't done," Hawley said. "I think we still have a lot of weakness there."But Polk County, Florida is some ahead of the building bust curve. Contractors across the county pulled 271 new home permits last month, which is an 8.1 percent decline from 295 permits in September 2006. And while it is still the 19th consecutive month permit totals have declined, the lower decrease is encouraging. For more than a year, builders have sought some relief to the sluggish housing market.
Forget it. While Centex, KB Homes and Lennar Corp., all of which have developments in Polk County, are suffering, now might not be the time to invest."Any time you start sector betting, you're concentrating your risk in one area," said Laura Hawley, a financial planner and vice president of Allen & Company in Lakeland.
On a national level, the home market isn't showing any signs of rebounding.Just 5.04 million homes were sold in September, down 19.1 percent from 6.23 million in September 2006.
This past week's home sales reports, released by the National Association of Realtors on Wednesday, sent builder stock prices tumbling.
Centex shares dropped 37 cents to $24.27. DR Horton Inc., one of the nation's largest builders, fell 49 cents, or 3.9 percent, to $12.22, while Lennar Corp. slid 37 cents to $22.07. Beazer Homes USA Inc. had shares decline 11 cents to $9.69."It is really just buyer beware," she said.Hawley likened the scenario to the dot com market bust in 2000."A lot of those companies that were blue chip stocks never recovered," she said. "It doesn't mean these companies are going to come roaring back like they were."
And when it comes to building new homes, it doesn't get much better. The Commerce Department reported Wednesday that construction of new homes fell 10.2 percent in September to a seasonally adjusted annual rate of 1.191 million units. The decline was more than double the 4.2 percent drop that analysts had been expecting and it pushed activity down to the lowest level since March 1993.
"I think the real estate market in general isn't done," Hawley said. "I think we still have a lot of weakness there."But Polk County, Florida is some ahead of the building bust curve. Contractors across the county pulled 271 new home permits last month, which is an 8.1 percent decline from 295 permits in September 2006. And while it is still the 19th consecutive month permit totals have declined, the lower decrease is encouraging. For more than a year, builders have sought some relief to the sluggish housing market.
Thursday, October 25, 2007
Neumann Homes of (Chicago, Denver, Detroit, Wisconsin) Files Bankruptcy
Neumann Homes Inc., a large homebuilder in Chicago, Denver, Detroit and Wisconsin, is filing for Chapter 11 bankruptcy protection because of the slump in housing markets.
The company said late Monday that it had been unable to secure adequate funding to operate its business and had closed its sales, production and customer service offices. It said it has laid off most of its employees, but did not give a number.
Chief Executive Kenneth Neumann blamed the situation on a "significant downturn" in housing markets in Detroit, Chicago and Denver.
"Even after the significant help we have received from our lenders this year, the company can no longer weather this storm," he said in a statement.
Neumann Homes expanded to the Detroit area in 2005 by buying Tadian Homes, an acquisition that made it the 35th-largest U.S. homebuilder at the time. But that market has been hard-hit since by auto industry layoffs, and the company said the move has cost it more than $60 million.
This year, the housing market nationwide has been battered by a steep drop-off in both price and demand.
Steven Hovany, president of the consulting firm Strategy Planning Associates Inc., said Neumann fell victim to an overaggressive and mistimed expansion into new markets. "As a result, they've got a lot of projects and few sales," he said.
Neumann has 15 active developments in the Chicago area, mostly in distant suburbs such as Antioch, Grayslake and Oswego.
The company said late Monday that it had been unable to secure adequate funding to operate its business and had closed its sales, production and customer service offices. It said it has laid off most of its employees, but did not give a number.
Chief Executive Kenneth Neumann blamed the situation on a "significant downturn" in housing markets in Detroit, Chicago and Denver.
"Even after the significant help we have received from our lenders this year, the company can no longer weather this storm," he said in a statement.
Neumann Homes expanded to the Detroit area in 2005 by buying Tadian Homes, an acquisition that made it the 35th-largest U.S. homebuilder at the time. But that market has been hard-hit since by auto industry layoffs, and the company said the move has cost it more than $60 million.
This year, the housing market nationwide has been battered by a steep drop-off in both price and demand.
Steven Hovany, president of the consulting firm Strategy Planning Associates Inc., said Neumann fell victim to an overaggressive and mistimed expansion into new markets. "As a result, they've got a lot of projects and few sales," he said.
Neumann has 15 active developments in the Chicago area, mostly in distant suburbs such as Antioch, Grayslake and Oswego.
Monday, October 22, 2007
State of the Orlando Housing Market - Real Opportunity Central FL is SICKENING
This is friggin sickening. Seriously. This is like some Nazi Germany style proganda. Let me explain: The Orlando Homebuilders Association (HBA) has developed new marketing campaign (TV and Internet) to sell more homes in a down market.
This Site RealOpportunityCfl.com is aimed at getting central florida homebuyers off the fence. It is a million dollar marketing campaign to, and I quote "serve only one interest - that of the homebuyer,". WHAT A LOAD OF BS. I mean seriously....don't you think if that was the interest it would be a consortium of Orlando or Central Florida homebuyers and not the Homebuilders Assosiation of Central Florida. Consider this blatant scare tactic by the Orlando HBA - "As a first-time buyer, should I wait until prices go lower to buy a home? No. If you continue to wait, you may never be able to afford to get into the housing market."
I am still involved with the homebuilding industry in Centrla Florida....as a marketer...and this is enough to make me want to puke. Yes, it is a down market and builders need to sell homes to survive. Layoffs are plenty. The Orlando HBA is trying to sell homes, but that statement is one of the biggest, whitest, blatant lies I have seen in my marketing career. The orlando real estate and homebuilding market is one of the 5 worst markets in the nation right now. Too much inventory, overpriced homes, etc. Same old story. This site is aimed to take advantage of PEOPLE and put money in the pockets of Orlando Homebuilders. Now, hey...if you need a home and the price is right, it very well MAY be a good time to buy. The builders are dopping their prices (and pants) to make sales, yet the safe bet is the market drops for at LEAST anoter year...and the builders know and are planning on this.
Maybe the Orlando Homebuilding Association think that they can help nudge the market in the right direction. Seems a bit lofty to me, but I respect the concept. The execution however resluts in just doing the same thing they have done for the past 5 years in a hot market....screwing nervous, undereducated homebuyers. More greed and self preservation.
I have no agenda other than to report on the current state of the homebuilding market. The Orlando market is very clearly in shambles....When I cool down I will edit this post to include the stats...
Anyways, more to come on this.
Stats on the Orlando Housing and Real Estate Market for August 2007:
This Site RealOpportunityCfl.com is aimed at getting central florida homebuyers off the fence. It is a million dollar marketing campaign to, and I quote "serve only one interest - that of the homebuyer,". WHAT A LOAD OF BS. I mean seriously....don't you think if that was the interest it would be a consortium of Orlando or Central Florida homebuyers and not the Homebuilders Assosiation of Central Florida. Consider this blatant scare tactic by the Orlando HBA - "As a first-time buyer, should I wait until prices go lower to buy a home? No. If you continue to wait, you may never be able to afford to get into the housing market."
I am still involved with the homebuilding industry in Centrla Florida....as a marketer...and this is enough to make me want to puke. Yes, it is a down market and builders need to sell homes to survive. Layoffs are plenty. The Orlando HBA is trying to sell homes, but that statement is one of the biggest, whitest, blatant lies I have seen in my marketing career. The orlando real estate and homebuilding market is one of the 5 worst markets in the nation right now. Too much inventory, overpriced homes, etc. Same old story. This site is aimed to take advantage of PEOPLE and put money in the pockets of Orlando Homebuilders. Now, hey...if you need a home and the price is right, it very well MAY be a good time to buy. The builders are dopping their prices (and pants) to make sales, yet the safe bet is the market drops for at LEAST anoter year...and the builders know and are planning on this.
Maybe the Orlando Homebuilding Association think that they can help nudge the market in the right direction. Seems a bit lofty to me, but I respect the concept. The execution however resluts in just doing the same thing they have done for the past 5 years in a hot market....screwing nervous, undereducated homebuyers. More greed and self preservation.
I have no agenda other than to report on the current state of the homebuilding market. The Orlando market is very clearly in shambles....When I cool down I will edit this post to include the stats...
Anyways, more to come on this.
Stats on the Orlando Housing and Real Estate Market for August 2007:
The latest real estate market numbers released today by the Orlando Regional Realtor Association reveal a rising inventory and mortgage rates alongside declining values and number of sales in Central Florida. The inventory as of the end of August stands at 26,313 homes on the market and average mortgage rates have jumped 40 basis points in the past 12 months to 6.6% vs. 6.2% 12 months ago. The median price has dropped from $250,000 12 months ago to $245,000 at the end of August. The more alarming number is that the number of sales sales have dropped more than 40% than a year ago. August 2006 recorded 2,249 sales while August 2007 sales were a mere 1,343. The inventory based on sales in the Orlando market is 19 months of supply.
Friday, October 19, 2007
K. Hovnanian Layoff Email From CEO - More Homebuilding Industry Layoffs
I found this on paper-money. It is an email from the K. Hovnanian CEO to his employees written earlier this month. (note...it was actually from last year....but um, who cares. K Hovnaian is really a trendsetter. Times are even worse now...need me to grab another memo for ya "strong"? Unfortunately, other homebuilding CEO's are preparing to write the same letters. So many in the industry have been layed off due to the greed of big builders. Private and public homebuilders alike continue to layoff staff at an alarming rate. I think at this rate K-Fed's rap career is more promising than K-Hov's future.
MEMORANDUM TO: All Associates
FROM: Ara K. Hovnanian
DATE: October 3, 2006
Fellow Associates,
A few months ago I wrote to you about the changing market conditions in our industry and our concerns about how long the downturn in homebuilding may last. Since that time, the market has slowed further still, representing one of the steepest declines in new home sales in our memory. Most of our markets have been affected, some severely. At this point, we are preparing for a long period of slower sales, at least through 2007 and perhaps beyond.
What does this mean for you and for our Company? These new market conditions have affected us in many ways and will continue to affect us in the months ahead. In the area of land acquisition we have been re-evaluating our current land positions and the contracts for new land in the light of these new conditions (Land Folks are half the reason for the new decline...although ultimately the builder executives approved the bad deals). Many of those contracts no longer make good financial sense when you factor in lower prices and a slower sales pace. In cases where we have been unable to renegotiate these contracts with more favorable terms, we are canceling them, at times forfeiting our deposit monies.
We continue to work on ways to reduce costs. We have also had to make adjustments to our pricing in order to make sales, either through added features, free options, waived premiums or outright base price reductions. In a market where our competitors are making dramatic pricing concessions, we must make similar adjustments in order to remain competitive. Obviously, this has a significant impact on our profits on those homes that we sell at a discount. The most difficult adjustment we have had to make to the changing market is in the area of staffing.
In many locations, including corporate headquarters, we have been forced to face the fact that we no longer have enough work for all of our Associates. We were hoping that normal attrition and a reduction in new hires would prevent us from needing to take further action. Those steps helped, but did not solve the problem of having too little work for our entire team. As a result, we have had to make staff reductions.
We consider this action to be a last resort, but business realities demand action in order for our Company to remain healthy and to maximize our performance in a difficult market environment.
MEMORANDUM TO: All Associates
FROM: Ara K. Hovnanian
DATE: October 3, 2006
Fellow Associates,
A few months ago I wrote to you about the changing market conditions in our industry and our concerns about how long the downturn in homebuilding may last. Since that time, the market has slowed further still, representing one of the steepest declines in new home sales in our memory. Most of our markets have been affected, some severely. At this point, we are preparing for a long period of slower sales, at least through 2007 and perhaps beyond.
What does this mean for you and for our Company? These new market conditions have affected us in many ways and will continue to affect us in the months ahead. In the area of land acquisition we have been re-evaluating our current land positions and the contracts for new land in the light of these new conditions (Land Folks are half the reason for the new decline...although ultimately the builder executives approved the bad deals). Many of those contracts no longer make good financial sense when you factor in lower prices and a slower sales pace. In cases where we have been unable to renegotiate these contracts with more favorable terms, we are canceling them, at times forfeiting our deposit monies.
We continue to work on ways to reduce costs. We have also had to make adjustments to our pricing in order to make sales, either through added features, free options, waived premiums or outright base price reductions. In a market where our competitors are making dramatic pricing concessions, we must make similar adjustments in order to remain competitive. Obviously, this has a significant impact on our profits on those homes that we sell at a discount. The most difficult adjustment we have had to make to the changing market is in the area of staffing.
In many locations, including corporate headquarters, we have been forced to face the fact that we no longer have enough work for all of our Associates. We were hoping that normal attrition and a reduction in new hires would prevent us from needing to take further action. Those steps helped, but did not solve the problem of having too little work for our entire team. As a result, we have had to make staff reductions.
We consider this action to be a last resort, but business realities demand action in order for our Company to remain healthy and to maximize our performance in a difficult market environment.
Thursday, October 18, 2007
Homebuilder Layoffs - St. Joe Company Lays Off 80% of Its Staff
The St. Joe Company, Florida’s largest private landowner, which has been afflicted by the worst housing slump in 16 years, plans to eliminate more than 75 percent of its work force, sell about 100,000 acres of land and scrap its dividend.
The retrenchment includes cutting 760 jobs, selling 190 homes and about 1,200 developed home sites, St. Joe (formerly Arvida), based in Jacksonville, Fla., said yesterday. This quarter’s earnings will be reduced by a $30 million charge. The company will also have $7 million in severance costs this year and next.
St. Joe is shifting from building homes in Florida, where sales plummeted 41 percent in the second quarter, according to the National Association of Realtors, to developing planned communities.
“This is not a fire sale,” the chief executive, Peter S. Rummell, said yesterday in a conference call. “We are not dumping stuff on the market and we are not going to make stupid decisions, but there are things that we believe have reached their height in pricing. I firmly believe that we would be doing this whether the market was good or bad.”
St. Joe shares fell 4 cents, to $34.11.
This is another example of a Florida builder that made huge mistakes. This company owns more land than the Florida govenment...miles and miles of beach. The locals in Florida's Panhandle, or as JOE wants to call it Florida's Great Northwest hates this company. They are developing pristine plats of preserve quality land. I think they are actually a pretty "green" builder. Anyways, this one is stunning...I don't care what Peter Rummell says. Laying off 80% of your staff IS a fire sale. I am stunned they didn't at least do it in phases where they didn't need to announce it.
The retrenchment includes cutting 760 jobs, selling 190 homes and about 1,200 developed home sites, St. Joe (formerly Arvida), based in Jacksonville, Fla., said yesterday. This quarter’s earnings will be reduced by a $30 million charge. The company will also have $7 million in severance costs this year and next.
St. Joe is shifting from building homes in Florida, where sales plummeted 41 percent in the second quarter, according to the National Association of Realtors, to developing planned communities.
“This is not a fire sale,” the chief executive, Peter S. Rummell, said yesterday in a conference call. “We are not dumping stuff on the market and we are not going to make stupid decisions, but there are things that we believe have reached their height in pricing. I firmly believe that we would be doing this whether the market was good or bad.”
St. Joe shares fell 4 cents, to $34.11.
This is another example of a Florida builder that made huge mistakes. This company owns more land than the Florida govenment...miles and miles of beach. The locals in Florida's Panhandle, or as JOE wants to call it Florida's Great Northwest hates this company. They are developing pristine plats of preserve quality land. I think they are actually a pretty "green" builder. Anyways, this one is stunning...I don't care what Peter Rummell says. Laying off 80% of your staff IS a fire sale. I am stunned they didn't at least do it in phases where they didn't need to announce it.
Uh Oh Beazer Owes Money, 68% Cancellation Rate, More..
Highlights Below.
Full article here.
Beazer Homes USA on Monday offered creditors cash for backing off demands that the company immediately repay $1.5 billion in debt.
Beazer already is battling bondholders in court over the issue, where it seeks to prevent trustees from demanding the money because the company has missed deadlines for filing required Securities and Exchange Commission reports.
Now the company wants creditors to adopt a covenant that obliges Beazer after May 15, 2008, to file reports with the SEC and deliver those reports to trustees. The covenant also would require Beazer to pay an additional 0.5 percent interest per year "if Beazer fails to comply with such obligations on a timely basis." Beazer, which offered to pay a "consent fee" for every $1,000 in principal outstanding, repeated its belief that it's not in default.
"If they thought they'd win (in court), why are they doing this?" said credit analyst Vicki Bryan of Gimmie Credit. "They blinked."
She predicted Beazer will strike a deal, similar to the arrangement KB Home struck with bondholders after the homebuilder was late filing an earnings report last year. The company delayed its filing to complete an internal review of its historical stock option grants and related accounting.
In a research note Monday, Bryan said Beazer's "most pressing issue is its dramatically poor performance in this weak homebuilding cycle, which is worsening by comparison to other builders that compete for the same buyer."
(Hey Look.....another big builder owned mortgage/loan scandal. Go figure.)
Last week, Beazer said it found evidence its employees violated unspecified federal housing regulations, "particularly in relation" to down-payment assistance programs for Federal Housing Administration insured loans dating to at least 2000.
Beazer said it would try to reach a settlement with regulators for between $8 million and $15 million.
Beazer also reported some financial results for the quarter ending Sept. 30. Home closings dropped 39 percent from the same time last year. New home orders declined 52 percent, "driven by an unusually high cancellation rate" of 68 percent, the company reported.
The revelations were part of an interim internal investigation, launched in April after the Observer published a series that questioned Beazer's business practices and its high foreclosure rate in the Charlotte area.
Beazer's mortgage subsidiary was among the most active in the Federal Housing Administration home loan program in the Charlotte area. Many foreclosures involved loans where an arranged gift from a charity or nonprofit was used to cover a borrower's down payment. The Observer found that Beazer incorporated the cost of the down payment into the price of some homes in Southern Chase, a Concord subdivision.
Full article here.
Beazer Homes USA on Monday offered creditors cash for backing off demands that the company immediately repay $1.5 billion in debt.
Beazer already is battling bondholders in court over the issue, where it seeks to prevent trustees from demanding the money because the company has missed deadlines for filing required Securities and Exchange Commission reports.
Now the company wants creditors to adopt a covenant that obliges Beazer after May 15, 2008, to file reports with the SEC and deliver those reports to trustees. The covenant also would require Beazer to pay an additional 0.5 percent interest per year "if Beazer fails to comply with such obligations on a timely basis." Beazer, which offered to pay a "consent fee" for every $1,000 in principal outstanding, repeated its belief that it's not in default.
"If they thought they'd win (in court), why are they doing this?" said credit analyst Vicki Bryan of Gimmie Credit. "They blinked."
She predicted Beazer will strike a deal, similar to the arrangement KB Home struck with bondholders after the homebuilder was late filing an earnings report last year. The company delayed its filing to complete an internal review of its historical stock option grants and related accounting.
In a research note Monday, Bryan said Beazer's "most pressing issue is its dramatically poor performance in this weak homebuilding cycle, which is worsening by comparison to other builders that compete for the same buyer."
(Hey Look.....another big builder owned mortgage/loan scandal. Go figure.)
Last week, Beazer said it found evidence its employees violated unspecified federal housing regulations, "particularly in relation" to down-payment assistance programs for Federal Housing Administration insured loans dating to at least 2000.
Beazer said it would try to reach a settlement with regulators for between $8 million and $15 million.
Beazer also reported some financial results for the quarter ending Sept. 30. Home closings dropped 39 percent from the same time last year. New home orders declined 52 percent, "driven by an unusually high cancellation rate" of 68 percent, the company reported.
The revelations were part of an interim internal investigation, launched in April after the Observer published a series that questioned Beazer's business practices and its high foreclosure rate in the Charlotte area.
Beazer's mortgage subsidiary was among the most active in the Federal Housing Administration home loan program in the Charlotte area. Many foreclosures involved loans where an arranged gift from a charity or nonprofit was used to cover a borrower's down payment. The Observer found that Beazer incorporated the cost of the down payment into the price of some homes in Southern Chase, a Concord subdivision.
Lennar is the Bomb...uhh, err I mean they are building on bombs
CF news 13 reports:
Work is starting Tuesday (October 07) morning to dig up dozens of yards in Orange County, Florida to search for old bombs.
On Monday, crews for Lennar Homes spent the day marking the neighborhood that sits on what used to be the World War II era Pine Castle Jeep Range.
All spots marked during the survey will be dug up. More than 50 homes could be affected.
So far, several old live munitions have been found nearby and close to Odyssey Middle School.
The work to find more bombs could take several weeks.
Lennar Homes told News 13 that they will dig up anything made of metal. The company said they are doing it to bring peace of mind to the people who live in the community.
They said it will take about two weeks to dig around 21 homes in the Lee Vista area.
Some people will have to leave the area while the work is going on.
Since July, the Army Corps of Engineers have been looking for bombs after the initial discovery near the school.
Previous article:
A home builder in Orange County (lennar) is searching under homes near Odyssey Middle School for unexploded bombs.
In July, two live bombs were found near Odyssey Middle School and a planned high-tech corridor, prompting a study by the Army Corps of Engineers. The school had been build on top of a former bombing range.
The home builder, Lennar Homes, will be using a machine to go through the Lee Vista Square and Warwick neighborhoods to make sure that there are no old bombs underneath the homes.
The machines are used to detect unexploded bombs that could be underground.
Lennar Homes said it was caught off guard by the news that the subdivision sits on a former Army bombing range. Now, the company is assuring residents they are trying to do everything they can to keep them safe.
What does this mean? In my opinion Lennar (like all of the big builders) rushed into another land deal. Obviously they did not budget to have to dig through all of the land to look for bombs. What a PR nightmare...and in this market. I am glad that someone caught this homebuilders mistake before either a worker or child was harmed. Whooopsie!
Work is starting Tuesday (October 07) morning to dig up dozens of yards in Orange County, Florida to search for old bombs.
On Monday, crews for Lennar Homes spent the day marking the neighborhood that sits on what used to be the World War II era Pine Castle Jeep Range.
All spots marked during the survey will be dug up. More than 50 homes could be affected.
So far, several old live munitions have been found nearby and close to Odyssey Middle School.
The work to find more bombs could take several weeks.
Lennar Homes told News 13 that they will dig up anything made of metal. The company said they are doing it to bring peace of mind to the people who live in the community.
They said it will take about two weeks to dig around 21 homes in the Lee Vista area.
Some people will have to leave the area while the work is going on.
Since July, the Army Corps of Engineers have been looking for bombs after the initial discovery near the school.
Previous article:
A home builder in Orange County (lennar) is searching under homes near Odyssey Middle School for unexploded bombs.
In July, two live bombs were found near Odyssey Middle School and a planned high-tech corridor, prompting a study by the Army Corps of Engineers. The school had been build on top of a former bombing range.
The home builder, Lennar Homes, will be using a machine to go through the Lee Vista Square and Warwick neighborhoods to make sure that there are no old bombs underneath the homes.
The machines are used to detect unexploded bombs that could be underground.
Lennar Homes said it was caught off guard by the news that the subdivision sits on a former Army bombing range. Now, the company is assuring residents they are trying to do everything they can to keep them safe.
What does this mean? In my opinion Lennar (like all of the big builders) rushed into another land deal. Obviously they did not budget to have to dig through all of the land to look for bombs. What a PR nightmare...and in this market. I am glad that someone caught this homebuilders mistake before either a worker or child was harmed. Whooopsie!
US Housing Crash Continues - Why It is a Terrible Time to Buy
US Housing Crash Continues It's A Terrible Time To Buy (a terrific post from patrick.net, echoes my last post)
Why? Prices still disconnected from fundamentals. House prices are still far beyond any historically known relationship to rents or salaries. In extreme bubble areas like California, yearly rents are 3% of purchase price. Mortgage rates are 6.5%, so it costs more than twice as much to borrow money to buy a house than it does simply to rent an equivalent house. Worse, total owner costs including taxes, maintenance, and insurance are about 9%, which is three times the cost of renting. Salaries cannot cover mortgages and loans are harder to get nationally. Anyone who buys now will suffer losses immediately, and for the next several years at least.
Buyers borrowed too much money and cannot pay the interest. Now there are mass foreclosures, and senators are talking about taking your money to pay for your neighbor's McMansion.
Banks happily loaned whatever amount borrowers wanted as long as the banks could then sell the loan, pushing the risk onto Fannie Mae (ultimately taxpayers) or onto buyers of mortgage backed securities. Now that it has become clear that a trillion dollars in mortgage loans will not be repaid, Fannie Mae is under pressure not to buy risky loans and investors do not want mortgage backed securities. This means that the money available for mortgages is falling, and house prices will keep falling, probably for 5 years or more. This is not just a subprime problem. All mortgages will be harder to get. A return to traditional lending standards means a return to traditional prices, which are far below current prices.
Interest rates increases. When rates go from 5% to 7%, that's a 40% increase in the amount of interest a buyer has to pay. House prices must drop proportionately to compensate. The housing bust still has a very long way to go. For example, if interest rates are 5%, then $1000 per month ($12,000 per year) pays for an interest-only loan of $240,000. If interest rates rise to 7%, then that same $1000 per month pays for an interest-only loan of only $171,428. Even if the Fed does not raise rates any more, all those adjustable mortgages will go up anyway, because they will adjust upward from the low initial rate to the current rate.
Extreme use of leverage. Leverage means using debt to amplify gain. Most people forget that losses get amplified as well. If a buyer puts 10% down and the house goes down 10%, he has lost 100% of his money on paper. If he has to sell due to job loss or an interest rate hike, he's bankrupt in the real world. It's worse than that. House prices do not even have to fall to cause big losses. The cost of selling a house is 6%. On a $300,000 house, that's $18,000 lost even if prices just stay flat. So a 4% decline in housing prices bankrupts all those with 10% equity or less.
Shortage of first-time buyers. The percentage of San Francisco Bay Area households who could afford a median-price house in the region plunged from 20 percent in July 2003 to under 10 percent in 2006.
Surplus of speculators. Nationally, 25% of houses bought in 2005 were pure speculation, not houses to live in, and the speculators are going into foreclosure in large numbers now. Even the National Association of House Builders admits that "Investor-driven price appreciation looms over some housing markets."
Fraud. It has become common for speculators take out a loan for up to 50% more than the price of the house he intends to buy. The appraiser goes along with the inflated price, or he does not ever get called back to do another appraisal. The speculator then pays the seller his asking price (much less than the loan amount), and uses the extra money to make mortgage payments on the unreasonably large mortgage until he can find a buyer to take the house off his hands for more than he paid. Worked great during the boom. Now it doesn't work at all, unless the speculator simply skips town with the extra money.
Baby boomers retiring. There are 77 million Americans born between 1946-1964. One-third have zero retirement savings. The oldest are 61. The only money they have is equity in a house, so they must sell.
Huge glut of empty housing. Builders are being forced to drop prices even faster than owners. Builders have huge excess inventory that they cannot sell, and more houses are completed each day, making the housing slump worse. The best summary explanation, from Business Week: "Today's housing prices are predicated on an impossible combination: the strong growth in income and asset values of a strong economy, plus the ultra-low interest rates of a weak economy. Either the economy's long-term prospects will get worse or rates will rise. In either scenario, housing will weaken."
Why? Prices still disconnected from fundamentals. House prices are still far beyond any historically known relationship to rents or salaries. In extreme bubble areas like California, yearly rents are 3% of purchase price. Mortgage rates are 6.5%, so it costs more than twice as much to borrow money to buy a house than it does simply to rent an equivalent house. Worse, total owner costs including taxes, maintenance, and insurance are about 9%, which is three times the cost of renting. Salaries cannot cover mortgages and loans are harder to get nationally. Anyone who buys now will suffer losses immediately, and for the next several years at least.
Buyers borrowed too much money and cannot pay the interest. Now there are mass foreclosures, and senators are talking about taking your money to pay for your neighbor's McMansion.
Banks happily loaned whatever amount borrowers wanted as long as the banks could then sell the loan, pushing the risk onto Fannie Mae (ultimately taxpayers) or onto buyers of mortgage backed securities. Now that it has become clear that a trillion dollars in mortgage loans will not be repaid, Fannie Mae is under pressure not to buy risky loans and investors do not want mortgage backed securities. This means that the money available for mortgages is falling, and house prices will keep falling, probably for 5 years or more. This is not just a subprime problem. All mortgages will be harder to get. A return to traditional lending standards means a return to traditional prices, which are far below current prices.
Interest rates increases. When rates go from 5% to 7%, that's a 40% increase in the amount of interest a buyer has to pay. House prices must drop proportionately to compensate. The housing bust still has a very long way to go. For example, if interest rates are 5%, then $1000 per month ($12,000 per year) pays for an interest-only loan of $240,000. If interest rates rise to 7%, then that same $1000 per month pays for an interest-only loan of only $171,428. Even if the Fed does not raise rates any more, all those adjustable mortgages will go up anyway, because they will adjust upward from the low initial rate to the current rate.
Extreme use of leverage. Leverage means using debt to amplify gain. Most people forget that losses get amplified as well. If a buyer puts 10% down and the house goes down 10%, he has lost 100% of his money on paper. If he has to sell due to job loss or an interest rate hike, he's bankrupt in the real world. It's worse than that. House prices do not even have to fall to cause big losses. The cost of selling a house is 6%. On a $300,000 house, that's $18,000 lost even if prices just stay flat. So a 4% decline in housing prices bankrupts all those with 10% equity or less.
Shortage of first-time buyers. The percentage of San Francisco Bay Area households who could afford a median-price house in the region plunged from 20 percent in July 2003 to under 10 percent in 2006.
Surplus of speculators. Nationally, 25% of houses bought in 2005 were pure speculation, not houses to live in, and the speculators are going into foreclosure in large numbers now. Even the National Association of House Builders admits that "Investor-driven price appreciation looms over some housing markets."
Fraud. It has become common for speculators take out a loan for up to 50% more than the price of the house he intends to buy. The appraiser goes along with the inflated price, or he does not ever get called back to do another appraisal. The speculator then pays the seller his asking price (much less than the loan amount), and uses the extra money to make mortgage payments on the unreasonably large mortgage until he can find a buyer to take the house off his hands for more than he paid. Worked great during the boom. Now it doesn't work at all, unless the speculator simply skips town with the extra money.
Baby boomers retiring. There are 77 million Americans born between 1946-1964. One-third have zero retirement savings. The oldest are 61. The only money they have is equity in a house, so they must sell.
Huge glut of empty housing. Builders are being forced to drop prices even faster than owners. Builders have huge excess inventory that they cannot sell, and more houses are completed each day, making the housing slump worse. The best summary explanation, from Business Week: "Today's housing prices are predicated on an impossible combination: the strong growth in income and asset values of a strong economy, plus the ultra-low interest rates of a weak economy. Either the economy's long-term prospects will get worse or rates will rise. In either scenario, housing will weaken."
How did the Homebuilding Market get so bad?
Just some thoughts on the current decline in the homebuilding market. Why is the market collapsing?
- When will it rebound. As far as the why, and how did we get here...In my opinion....GREED.
- Buiding too many houses with no buyers in a crappy market - GREEDY Homebuilders
- Financing unqualified home buyers to sell them a home - GREEDY Homebuilders
- Poor Planning and getting the money while the market is hot - GREEDY Home builders
- Buying ANY land they could get their hands on and making bad land deals - GREEDY Homebuilders
- Saturated Markets- Greedy Homebuilders
- No one can qualify for new home loans because of aforementioned fiancing games - Greedy Home builders
Anyone care to add more?
New Home Sales Hit 7 Year Low - Homebuilders Suffer a Down Market
Another article highlighting the current homebuilding market. New Homebuilders are sucking win and paying for their greed, and poor planning. Homebuyers and employees of these builders continue to suffer.
NEW YORK (CNNMoney.com) -- The mortgage bomb hit the demand for new homes even harder than expected in August, leaving the nation's builders with their weakest level of sales since the summer of 2000, when the nation was struggling with a stock market collapse, rising interest rates and a looming recession.
And the government's latest snapshot of the battered housing market, released Thursday, may actually be understating the problem: It does not account for the rising cancellation rates or sales inducements that builders have reported in recent months. New home sales hit a 7-year low in August in the face of problems in the mortgage market.
According to the Census Bureau, new homes sold at an annual pace of 795,000 in August, down 8 percent from the revised 867,000 sales pace in July.It was the slowest pace of sales since June 2000, as legions of buyers had trouble finding mortgages or selling their existing homes. Economists surveyed by Briefing.com had forecast that sales would fall to a pace of 825,000.
The report also showed the median price of a new home fell 7.4 percent from year earlier levels to $225,700 in the month, as prices were pressured by both the problems in mortgage finance and the excess supply of homes on the market. The inventory of new homes on the market rose to an 8.2 month supply, as the glut of completed homes without a buyer was near a record high, with 180,000 completed homes listed for sale, just off the record high of 182,000 set in May of this year. The July report wasn't the only month revised lower by the Census Bureau; it also dropped its sales estimates for May and June, leaving sales 34,000 below the previous estimates.
The decline in sales came despite a pickup in sales in the Northeast and Midwest compared to July. But the South, which accounts for nearly half of the nation's new home sales, saw a nearly 15 percent drop from July levels, while sales in the West declined more than 20 percent. Sales in each of the four regions were off more than 10 percent from year-earlier levels, and nationwide the pace of sales is down 21.2 percent from a year ago.
This is just the latest sign of trouble for the housing market. On Tuesday, a report from the National Association of Realtors showed the pace of existing home sales dropped in August for the sixth straight month to their lowest level in five years. And the new home sales report likely did a better job capturing the turmoil in the real estate market in August, as it is based on contracts for new homes signed in the month. The existing home sales figures are based on when a deal is closed, typically a month or two after the contract is signed.
The new home sales report, besides serving as a leading indicator of the overall housing market, is closely followed because of the importance of construction to the overall economy. The home building boom helped support the nation's economic and employment growth during 2003 to 2005. But economists are growing increasingly concerned that the current weakness could become a large enough drag on the economy to help tip the nation into recession. The latest report on gross domestic product, also released Thursday, shows investment in housing subtracted 0.6 percentage points from the nation's overall growth in the second quarter. Still, as weak as the new home sales report is, experts caution it could actually be masking other signs of weakness.
Builders have reported significantly higher cancellation rates for buyers who have signed a contract but then back out of the sale. So demand could be weaker than the report suggests. Also about three quarters of builders surveyed by their trade group report offering incentives, such as paying for closing costs or offering additional features on a new home for free, in order to maintain demand.
So the drop in prices could actually be more severe than the report indicates. The nation's major home builders have been hammered by the downturn in both home sales and prices in the last year. On Thursday, KB Home, the nation's No. 5 home builder, reported a loss in its most recent quarter, compared to a solid profit a year ago, as the company warned it expects conditions to worsen through 2008. Lenar, the nation's No. 1 home builder by revenue, posted a bigger than expected loss Tuesday. In addition, No. 2 homebuilder D.R. Horton and No. 3 Centex both reported losses far bigger than Wall Street had expected, while No. 4 Pulte Homes and No. 6 Hovanian Enterprises both have reported losses for the last two quarters and analysts project losses for at least the next year.
NEW YORK (CNNMoney.com) -- The mortgage bomb hit the demand for new homes even harder than expected in August, leaving the nation's builders with their weakest level of sales since the summer of 2000, when the nation was struggling with a stock market collapse, rising interest rates and a looming recession.
And the government's latest snapshot of the battered housing market, released Thursday, may actually be understating the problem: It does not account for the rising cancellation rates or sales inducements that builders have reported in recent months. New home sales hit a 7-year low in August in the face of problems in the mortgage market.
According to the Census Bureau, new homes sold at an annual pace of 795,000 in August, down 8 percent from the revised 867,000 sales pace in July.It was the slowest pace of sales since June 2000, as legions of buyers had trouble finding mortgages or selling their existing homes. Economists surveyed by Briefing.com had forecast that sales would fall to a pace of 825,000.
The report also showed the median price of a new home fell 7.4 percent from year earlier levels to $225,700 in the month, as prices were pressured by both the problems in mortgage finance and the excess supply of homes on the market. The inventory of new homes on the market rose to an 8.2 month supply, as the glut of completed homes without a buyer was near a record high, with 180,000 completed homes listed for sale, just off the record high of 182,000 set in May of this year. The July report wasn't the only month revised lower by the Census Bureau; it also dropped its sales estimates for May and June, leaving sales 34,000 below the previous estimates.
The decline in sales came despite a pickup in sales in the Northeast and Midwest compared to July. But the South, which accounts for nearly half of the nation's new home sales, saw a nearly 15 percent drop from July levels, while sales in the West declined more than 20 percent. Sales in each of the four regions were off more than 10 percent from year-earlier levels, and nationwide the pace of sales is down 21.2 percent from a year ago.
This is just the latest sign of trouble for the housing market. On Tuesday, a report from the National Association of Realtors showed the pace of existing home sales dropped in August for the sixth straight month to their lowest level in five years. And the new home sales report likely did a better job capturing the turmoil in the real estate market in August, as it is based on contracts for new homes signed in the month. The existing home sales figures are based on when a deal is closed, typically a month or two after the contract is signed.
The new home sales report, besides serving as a leading indicator of the overall housing market, is closely followed because of the importance of construction to the overall economy. The home building boom helped support the nation's economic and employment growth during 2003 to 2005. But economists are growing increasingly concerned that the current weakness could become a large enough drag on the economy to help tip the nation into recession. The latest report on gross domestic product, also released Thursday, shows investment in housing subtracted 0.6 percentage points from the nation's overall growth in the second quarter. Still, as weak as the new home sales report is, experts caution it could actually be masking other signs of weakness.
Builders have reported significantly higher cancellation rates for buyers who have signed a contract but then back out of the sale. So demand could be weaker than the report suggests. Also about three quarters of builders surveyed by their trade group report offering incentives, such as paying for closing costs or offering additional features on a new home for free, in order to maintain demand.
So the drop in prices could actually be more severe than the report indicates. The nation's major home builders have been hammered by the downturn in both home sales and prices in the last year. On Thursday, KB Home, the nation's No. 5 home builder, reported a loss in its most recent quarter, compared to a solid profit a year ago, as the company warned it expects conditions to worsen through 2008. Lenar, the nation's No. 1 home builder by revenue, posted a bigger than expected loss Tuesday. In addition, No. 2 homebuilder D.R. Horton and No. 3 Centex both reported losses far bigger than Wall Street had expected, while No. 4 Pulte Homes and No. 6 Hovanian Enterprises both have reported losses for the last two quarters and analysts project losses for at least the next year.
Builders and Their Own Mortgage Companies Fueled Housing Collapse
What is a homebuilder's #1 marketing tool in this new, soft, housing market? Enticing you with mortgages and deals that ONLY apply when you finance through the Mortgage company that they own. Just about all of the big builders own their own mortgage companies. It is what got them in trouble in the first place. It was in their best (SHORT-SIGHTED) interest to make sure potential homebuyers qualified for a loan on the houses they were selling. Henceforth overstating income, falsifying loan documents etc. Hundreds have been jailed for it.
Now, they are still using their mortgage companies. This time to offer sweet-looking deals, still getting underqualified buyers into homes with loans that will balloon in just a short year or two. It is a huge gamble as a new homebuyer. Be cautious. Do your homework.
Ruth Simon, Wall Street Journal Thinking of buying a new home in this softer market? Chances are your builder is going to try to sell you a mortgage. Builders have long encouraged their customers to use their mortgage affiliate for financing, and not just to make a little extra money. It also gives them control of the transaction, making it less likely that a mortgage snafu will create problems at closing. Now, as sales slow and cancellations rise, builders are increasingly rolling out special deals that may be tied to using their affiliated lender.
But you may well be able to find a better deal on your own. Builders' mortgage offers "clearly are worse in all the cases I've seen," says Jack Guttentag, professor emeritus at the University of Pennsylvania's Wharton School and founder of the mortgage-advice Web site www.mtgprofessor.com. When Randy Gowler, a Olathe, Kan., architect, wanted to buy a new four-bedroom home this year, the builder offered to pick up the first $8,500 in mortgage payments.
The catch: Gowler had to use the builder's affiliated lender and pay the full $287,000 asking price. Gowler crunched the numbers and turned down the deal. Instead, he went with an outside lender that offered a lower interest rate and paid $274,000.Unlike Gowler, most home buyers stick with the builder's lender. Pulte Homes Inc. says Pulte Mortgage provides financing for 90 percent of its buyers who need a mortgage. Centex Mortgage finances 80 percent of Centex Corp. customers. Most builders either have a mortgage affiliate or preferred lenders they work with.
Builders say their rates are competitive and that their mortgage affiliates give them more control over the sale. Indeed, getting a loan through your builder can be a plus if construction is delayed, says Greg McBride, a senior financial analyst with Bankrate.com, because a builder's mortgage unit is more likely to be flexible if there are construction delays. As the housing market has cooled, many builders have sweetened the pot with special deals. A September survey conducted by the National Association of Home Builders found sharp increases from last year in the number of builders offering to pay closing costs and other fees and in those reducing home prices.
In many cases, home buyers must use the builder's financing arm to qualify for these offers. That's particularly true if the incentive is mortgage-related, such as when the builder pays closing costs or picks up several months of mortgage payments. Buyers may also be required to use the builder's mortgage unit to qualify for a reduced purchase price, builder upgrades or other concessions. Some competitors say that these requirements put buyers at a disadvantage." They prevent consumers from shopping to see if there's a better deal out there," says Marc Savitt, vice president of the National Association of Mortgage Brokers. The savings from incentive programs are often illusory, he says, because the home buyer is charged a higher mortgage rate or more in fees and closing costs by the builder's mortgage affiliate.
The builders disagree. "This is really about special interests trying to limit competition - and increase their profits - by legislating home builders out of the mortgage business," the National Association of Home Builders said in a statement. Federal rules prohibit builders from requiring that home buyers use their mortgage affiliates. The rules also require that any discounts offered to buyers who use these affiliates must be true discounts and not made up through higher charges elsewhere.
The Department of Housing and Urban Development says it is getting more complaints not only from mortgage brokers, but also from consumers. One builder canceled a purchase contract and refused to return an $11,845 down payment after the buyer decided to use an outside lender. After HUD intervened, the builder's mortgage company agreed to buy down the rate to make the loan more competitive. Another builder agreed to waive $5,360 in mortgage-origination fees that a buyer was being required to pay in order to qualify for $13,450 in incentives.
To make sure you're getting a good deal, ask the builder not only for the mortgage rate, but also for details on closing costs, points, any fees that will be paid to the lender or third parties, and the terms of the loan. Prof. Guttentag advises comparing that offer to a quote for the same mortgage obtained on the same day from an online lender. He also suggests shopping for financing at the same time you look at houses. Whether the builder's deal is worth taking can also depend on how long you plan to stay put.
A slightly higher mortgage rate may not be a problem if you plan to move in a few years, but it could wipe out the benefits of any incentives if you plan to stay in your home longer. You should also check what comparable homes are selling for to determine whether the builder is offering a real discount. It can pay to negotiate. When Scott Lazaroff, an engineer, bought a new home in Lyons, Colo., in September, the builder offered to knock an extra $15,000 off the price if Mr. Lazaroff used its affiliated lender. He decided to use his own lender, but still convinced the builder to reduce the price by $10,000. Dan Gracey, another Colorado home buyer, said his builder came back with a lower mortgage rate after he "pushed back" on its original offer, which was higher than the competition.
Now, they are still using their mortgage companies. This time to offer sweet-looking deals, still getting underqualified buyers into homes with loans that will balloon in just a short year or two. It is a huge gamble as a new homebuyer. Be cautious. Do your homework.
Ruth Simon, Wall Street Journal Thinking of buying a new home in this softer market? Chances are your builder is going to try to sell you a mortgage. Builders have long encouraged their customers to use their mortgage affiliate for financing, and not just to make a little extra money. It also gives them control of the transaction, making it less likely that a mortgage snafu will create problems at closing. Now, as sales slow and cancellations rise, builders are increasingly rolling out special deals that may be tied to using their affiliated lender.
But you may well be able to find a better deal on your own. Builders' mortgage offers "clearly are worse in all the cases I've seen," says Jack Guttentag, professor emeritus at the University of Pennsylvania's Wharton School and founder of the mortgage-advice Web site www.mtgprofessor.com. When Randy Gowler, a Olathe, Kan., architect, wanted to buy a new four-bedroom home this year, the builder offered to pick up the first $8,500 in mortgage payments.
The catch: Gowler had to use the builder's affiliated lender and pay the full $287,000 asking price. Gowler crunched the numbers and turned down the deal. Instead, he went with an outside lender that offered a lower interest rate and paid $274,000.Unlike Gowler, most home buyers stick with the builder's lender. Pulte Homes Inc. says Pulte Mortgage provides financing for 90 percent of its buyers who need a mortgage. Centex Mortgage finances 80 percent of Centex Corp. customers. Most builders either have a mortgage affiliate or preferred lenders they work with.
Builders say their rates are competitive and that their mortgage affiliates give them more control over the sale. Indeed, getting a loan through your builder can be a plus if construction is delayed, says Greg McBride, a senior financial analyst with Bankrate.com, because a builder's mortgage unit is more likely to be flexible if there are construction delays. As the housing market has cooled, many builders have sweetened the pot with special deals. A September survey conducted by the National Association of Home Builders found sharp increases from last year in the number of builders offering to pay closing costs and other fees and in those reducing home prices.
In many cases, home buyers must use the builder's financing arm to qualify for these offers. That's particularly true if the incentive is mortgage-related, such as when the builder pays closing costs or picks up several months of mortgage payments. Buyers may also be required to use the builder's mortgage unit to qualify for a reduced purchase price, builder upgrades or other concessions. Some competitors say that these requirements put buyers at a disadvantage." They prevent consumers from shopping to see if there's a better deal out there," says Marc Savitt, vice president of the National Association of Mortgage Brokers. The savings from incentive programs are often illusory, he says, because the home buyer is charged a higher mortgage rate or more in fees and closing costs by the builder's mortgage affiliate.
The builders disagree. "This is really about special interests trying to limit competition - and increase their profits - by legislating home builders out of the mortgage business," the National Association of Home Builders said in a statement. Federal rules prohibit builders from requiring that home buyers use their mortgage affiliates. The rules also require that any discounts offered to buyers who use these affiliates must be true discounts and not made up through higher charges elsewhere.
The Department of Housing and Urban Development says it is getting more complaints not only from mortgage brokers, but also from consumers. One builder canceled a purchase contract and refused to return an $11,845 down payment after the buyer decided to use an outside lender. After HUD intervened, the builder's mortgage company agreed to buy down the rate to make the loan more competitive. Another builder agreed to waive $5,360 in mortgage-origination fees that a buyer was being required to pay in order to qualify for $13,450 in incentives.
To make sure you're getting a good deal, ask the builder not only for the mortgage rate, but also for details on closing costs, points, any fees that will be paid to the lender or third parties, and the terms of the loan. Prof. Guttentag advises comparing that offer to a quote for the same mortgage obtained on the same day from an online lender. He also suggests shopping for financing at the same time you look at houses. Whether the builder's deal is worth taking can also depend on how long you plan to stay put.
A slightly higher mortgage rate may not be a problem if you plan to move in a few years, but it could wipe out the benefits of any incentives if you plan to stay in your home longer. You should also check what comparable homes are selling for to determine whether the builder is offering a real discount. It can pay to negotiate. When Scott Lazaroff, an engineer, bought a new home in Lyons, Colo., in September, the builder offered to knock an extra $15,000 off the price if Mr. Lazaroff used its affiliated lender. He decided to use his own lender, but still convinced the builder to reduce the price by $10,000. Dan Gracey, another Colorado home buyer, said his builder came back with a lower mortgage rate after he "pushed back" on its original offer, which was higher than the competition.
Mortgage Brokers Being Jailed for Fraud and Overstating Income
Two sentenced in loan scheme Vance salesmen falsified applications, Andrea Weigl, News Observer Two Vance County mobile home salesmen were sentenced Wednesday to federal prison time for a $19 million mortgage fraud scheme.
Richard D. Meador and Donald Scott Carroll were both employees of Donald Wayne Gupton, a Vance County businessman who operated several companies that state and federal agents have been investigating since at least 2003.
Prosecutors have said Gupton and his employees used a half dozen illegal means to falsify loan applications so buyers with bad credit could get loans. Ultimately, the borrowers couldn't afford the mortgages, and the banks foreclosed on the homes. Gupton, a Henderson businessman, has already pleaded guilty to federal charges and is scheduled to be sentenced next month. Gupton owned Dynasty Homes of Henderson, Superior House Center and Creative Real Estate and Manufacturing Housing Sales Center.
Meador, a manager at one of Gupton's companies, was sentenced Wednesday at the federal courthouse in New Bern to four years and five months in prison, followed by three years of probation. He was ordered to pay $1.2 million in restitution. Carroll, also a manager, was sentenced to 2 1/2 years in prison and three years of probation, and ordered to pay $1.4 million in restitution. Meador's attorney, Lewis Thompson III, said the restitution has to be paid jointly by the defendants and Gupton's companies.
Prosecutors say the scheme's tactics involved using the same mobile home as a trade-in for nine different buyers and giving money to buyers to make it appear they had down payments when they did not. Gupton's employees also created fake letters from borrowers' relatives saying they had loaned money for down payments when they had not, prosecutors say.
Carroll has cooperated with investigators since 2004, according to court filings by his defense attorney, F. Hill Allen IV, and Assistant U.S. Attorney Banu Rangarajan, who both sought a lighter sentence for Carroll. Allen said the judge did not reduce Carroll's prison sentence. "Obviously, this is a sad moment for his family and Scott," Allen said. "We certainly respect the court's decision."
Richard D. Meador and Donald Scott Carroll were both employees of Donald Wayne Gupton, a Vance County businessman who operated several companies that state and federal agents have been investigating since at least 2003.
Prosecutors have said Gupton and his employees used a half dozen illegal means to falsify loan applications so buyers with bad credit could get loans. Ultimately, the borrowers couldn't afford the mortgages, and the banks foreclosed on the homes. Gupton, a Henderson businessman, has already pleaded guilty to federal charges and is scheduled to be sentenced next month. Gupton owned Dynasty Homes of Henderson, Superior House Center and Creative Real Estate and Manufacturing Housing Sales Center.
Meador, a manager at one of Gupton's companies, was sentenced Wednesday at the federal courthouse in New Bern to four years and five months in prison, followed by three years of probation. He was ordered to pay $1.2 million in restitution. Carroll, also a manager, was sentenced to 2 1/2 years in prison and three years of probation, and ordered to pay $1.4 million in restitution. Meador's attorney, Lewis Thompson III, said the restitution has to be paid jointly by the defendants and Gupton's companies.
Prosecutors say the scheme's tactics involved using the same mobile home as a trade-in for nine different buyers and giving money to buyers to make it appear they had down payments when they did not. Gupton's employees also created fake letters from borrowers' relatives saying they had loaned money for down payments when they had not, prosecutors say.
Carroll has cooperated with investigators since 2004, according to court filings by his defense attorney, F. Hill Allen IV, and Assistant U.S. Attorney Banu Rangarajan, who both sought a lighter sentence for Carroll. Allen said the judge did not reduce Carroll's prison sentence. "Obviously, this is a sad moment for his family and Scott," Allen said. "We certainly respect the court's decision."
KB Homes Taking a Big Hit as Sales Slump
LOS ANGELES (AP) - KB Home , one of the nation's largest homebuilders, swung to a loss Thursday, citing a deep deterioration in the housing market and warning the sales slump will likely extend into next year.
KB's financial results were released the same day the Commerce Department reported new home sales in August fell 8.3 percent from the previous month to the lowest level in seven years. "We expect housing industry conditions to continue to worsen through the end of the year and into 2008," said Jeffrey Mezger, KB's president and chief executive officer. "Our third-quarter results reflect the seriously challenging market conditions that prevail for homebuilders across most of the nation," he said. Los Angeles-based KB Home reported a loss of $35.6 million, or 46 cents per share, for the quarter ended Aug. 31, compared with a profit of $153.2 million, or $1.90 per share, in the year-ago period.
The company also said it took pretax charges of $690.1 million and $107.9 million to write down the value of unsold inventory and joint-venture holdings. KB shares rose 62 cents, or 2.6 percent, to $24.71. The homebuilding sector has been struggling as many would-be buyers wait for prices to drop further or struggle to qualify for mortgages that now carry tighter standards. That has left more homes on the market, forcing builders to lower prices and squeezing their profit margins.
KB's financial results were released the same day the Commerce Department reported new home sales in August fell 8.3 percent from the previous month to the lowest level in seven years. "We expect housing industry conditions to continue to worsen through the end of the year and into 2008," said Jeffrey Mezger, KB's president and chief executive officer. "Our third-quarter results reflect the seriously challenging market conditions that prevail for homebuilders across most of the nation," he said. Los Angeles-based KB Home reported a loss of $35.6 million, or 46 cents per share, for the quarter ended Aug. 31, compared with a profit of $153.2 million, or $1.90 per share, in the year-ago period.
The company also said it took pretax charges of $690.1 million and $107.9 million to write down the value of unsold inventory and joint-venture holdings. KB shares rose 62 cents, or 2.6 percent, to $24.71. The homebuilding sector has been struggling as many would-be buyers wait for prices to drop further or struggle to qualify for mortgages that now carry tighter standards. That has left more homes on the market, forcing builders to lower prices and squeezing their profit margins.
Chicago Homebuilding Market - Huge Downturn - Smaller Homebuilders May Go Out of Business
The local homebuilding industry’s freefall accelerated in the second quarter, as builders posted their biggest quarterly sales drop since the market peaked two years ago. Residential developers in the Chicago area sold 4,376 new homes in the quarter, a 37% drop from the year-earlier period and their poorest showing since 1994, according to Tracy Cross & Associates Inc. Conditions are especially grim in the suburbs, where sales fell nearly 41%, to 3,184 units — a level not seen since the recession of the early 1990s.
The market “hasn’t shown any sign of recovery at all,” says Tracy Cross, president of the Schaumburg-based real estate consulting firm. “It’s just a very lethargic market that isn’t reacting to anything.” Amid a downturn much deeper and longer than many predicted, suburban homebuilders have cut prices, slashed payrolls and reduced their land holdings. Kennedy Homes L.P. of South Barrington employs about 75 people today, down from a peak of 160 in 2005, says President William W. Kennedy. The firm is on track to sell 275 homes this year, compared with 350 last year and more than 700 in 2005. It’s conceivable that a few smaller, privately held homebuilders could go out of business before yearend, Mr. Cross predicts.
The slump so far has landed at least one homebuilder in Bankruptcy Court: Burnside Construction Co., a Downers Grove-based company that has built more than 28,000 homes since it was founded in 1911. In early May, Burnside filed a Chapter 7 petition in U.S. Bankruptcy Court in Chicago. “Projects didn’t go as anticipated. Nobody was buying,” says Kent Gaertner, the company’s attorney. “It’s as simple as that.” On a seasonally adjusted, annualized basis, sales totaled 16,378 units, down 36% from a year earlier and the lowest level since fourth-quarter 1994.
The slump began in late 2005 as rising prices and mortgage rates made homes increasingly unaffordable for buyers, many of whom opted to rent instead. Concerns about a housing bubble scared away speculators, curbing demand further. More recently, troubles in the subprime mortgage market have made it harder for buyers with marginal credit to finance home purchases. Although suburban builders are having their worst year since the early 1990s, the city market is in better shape. Developers sold 1,192 homes in the quarter, a 24% drop from second-quarter 2006, according to Tracy Cross. Still, on a seasonally adjusted annual basis, city sales are roughly equal to 2003 levels.
A growing glut of condominiums, however, could delay any recovery. Tracy Cross is tracking 172 active condo and townhome projects in the greater downtown area with a combined 7,814 unsold units. Mr. Cross estimates that two-thirds of the projects are under construction and will open up in the next 12 to 18 months. Unless demand picks up, some developers could get caught with unsold units, eating into their profit or even preventing them from paying off their construction loans. “It’s going to bring the strongest (developers) to the fore, and the weakest will really drop,” Mr. Cross says.
The market “hasn’t shown any sign of recovery at all,” says Tracy Cross, president of the Schaumburg-based real estate consulting firm. “It’s just a very lethargic market that isn’t reacting to anything.” Amid a downturn much deeper and longer than many predicted, suburban homebuilders have cut prices, slashed payrolls and reduced their land holdings. Kennedy Homes L.P. of South Barrington employs about 75 people today, down from a peak of 160 in 2005, says President William W. Kennedy. The firm is on track to sell 275 homes this year, compared with 350 last year and more than 700 in 2005. It’s conceivable that a few smaller, privately held homebuilders could go out of business before yearend, Mr. Cross predicts.
The slump so far has landed at least one homebuilder in Bankruptcy Court: Burnside Construction Co., a Downers Grove-based company that has built more than 28,000 homes since it was founded in 1911. In early May, Burnside filed a Chapter 7 petition in U.S. Bankruptcy Court in Chicago. “Projects didn’t go as anticipated. Nobody was buying,” says Kent Gaertner, the company’s attorney. “It’s as simple as that.” On a seasonally adjusted, annualized basis, sales totaled 16,378 units, down 36% from a year earlier and the lowest level since fourth-quarter 1994.
The slump began in late 2005 as rising prices and mortgage rates made homes increasingly unaffordable for buyers, many of whom opted to rent instead. Concerns about a housing bubble scared away speculators, curbing demand further. More recently, troubles in the subprime mortgage market have made it harder for buyers with marginal credit to finance home purchases. Although suburban builders are having their worst year since the early 1990s, the city market is in better shape. Developers sold 1,192 homes in the quarter, a 24% drop from second-quarter 2006, according to Tracy Cross. Still, on a seasonally adjusted annual basis, city sales are roughly equal to 2003 levels.
A growing glut of condominiums, however, could delay any recovery. Tracy Cross is tracking 172 active condo and townhome projects in the greater downtown area with a combined 7,814 unsold units. Mr. Cross estimates that two-thirds of the projects are under construction and will open up in the next 12 to 18 months. Unless demand picks up, some developers could get caught with unsold units, eating into their profit or even preventing them from paying off their construction loans. “It’s going to bring the strongest (developers) to the fore, and the weakest will really drop,” Mr. Cross says.
Ahh, Homebuilders were Flying High Just So Recently
This blog is geared to highlight current events in the homebuilding industry. It won't make the big homebuilders happy. That is not the point. It may make some people stiffed by the big homebuilders happy. That is not the point either. It is designed to highlight what many feel is a monumental dip in the new home starts, a very significant decline in profits and long-term viability of the nations biggest homebuilders and the housing markets. There are valuable lesson's to be learned regarding poor business decisions, economic trends and the value of long-term planning. Will the big homebuilders in the US rebound? Without question! Will they learn lessons? History shows probably not.
Wednesday, October 10, 2007
Lennar Homes Cuts Jobs, Posts Q3 Loss. Realtors Report Lennar Cuts Commissions to $10,000 Flat
In late septeermb, Miami-based Lennar Corp. reported a third-quarter loss of more than $510 million dollars. Lennar said it had cut its work force by 35 percent and warned it expected further job cuts.
The nation's second-largest homebuilder said on Sept. 25 that its results swung to a net loss of $513.9 million, or $3.25 a share, for the three months ending Aug. 31 from a profit of $206.7 million, or $1.30 a share, a year ago. Revenues from home sales fell 44% -- mostly on a 41% drop in the number of home deliveries and a 6% decline in the average sales price of homes sold. Lennar had to suck it up financially to move a lower number of houses. Gross margins fell to 14.0% from 19.5% a year ago due to a $10,100 hike in sales incentives to $46,000 per home, which was responsible for the lower average sales price.
And sagging home sales weren't the only nightmare for Lennar. The Miami-based company took an $847.5 million pretax impairment charge to write down the value of its assets. That included a $344.7 million loss on land sales, of which $242.5 million was for write-offs of deposits and pre-acquisition costs related to 15,000 home sites under options that Lennar decided not to buy.
This was the biggest writeoff Lennar has taken since the housing slump began and added to the $1.05 billion in write-offs the company has taken since 2006, Banc of America Securities said in a research note (BAS does investment banking with Lennar.)
New orders deteriorated from a 31% year-over-year decline in the second quarter and were worse than the 22% drop that BAS had expected, probably due to more challenging market conditions overall and tough comparisons with the high sales volume Lennar maintained throughout 2006.
One Realtor said "I stopped taking buyers to Lennar Homes, they cut off commissions to realtors. $10,000 flat commission, as opposed to the 5% other builders were offering. Bad move."
The nation's second-largest homebuilder said on Sept. 25 that its results swung to a net loss of $513.9 million, or $3.25 a share, for the three months ending Aug. 31 from a profit of $206.7 million, or $1.30 a share, a year ago. Revenues from home sales fell 44% -- mostly on a 41% drop in the number of home deliveries and a 6% decline in the average sales price of homes sold. Lennar had to suck it up financially to move a lower number of houses. Gross margins fell to 14.0% from 19.5% a year ago due to a $10,100 hike in sales incentives to $46,000 per home, which was responsible for the lower average sales price.
And sagging home sales weren't the only nightmare for Lennar. The Miami-based company took an $847.5 million pretax impairment charge to write down the value of its assets. That included a $344.7 million loss on land sales, of which $242.5 million was for write-offs of deposits and pre-acquisition costs related to 15,000 home sites under options that Lennar decided not to buy.
This was the biggest writeoff Lennar has taken since the housing slump began and added to the $1.05 billion in write-offs the company has taken since 2006, Banc of America Securities said in a research note (BAS does investment banking with Lennar.)
New orders deteriorated from a 31% year-over-year decline in the second quarter and were worse than the 22% drop that BAS had expected, probably due to more challenging market conditions overall and tough comparisons with the high sales volume Lennar maintained throughout 2006.
One Realtor said "I stopped taking buyers to Lennar Homes, they cut off commissions to realtors. $10,000 flat commission, as opposed to the 5% other builders were offering. Bad move."
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