Phoenix’s Joseph Carl Homes Gets a Strong Starts
We’re staying focused on a very positive story in home building right now. It’s not a big story. On the contrary, it’s rather a small one. Ten new-home sales small.
Still, those 10 homes sales are in four weeks. Multiply by 12 months–if the housing gods smile–and we’ve got ourselves another big builder. That’s the way it’s going to add up, if it does all add up.
Make no mistake, we’re not predicting a rising tide here that will lift all boats. We’re probably more in the camp of those who think like Meritage Homes CEO Steve Hilton, who believes that 2005 to 2015 may go down as new-home building’s “Lost Decade.” We’ll accentuate the positive even knowing there’s plenty of negatives.
The next couple of years may feel like a Red Queen period. You run as fast as you can to stay where you are. All the ingenuity, resilience, and know-how you can muster barely neutralize the headwinds.
But if a start-up builder can record 10 new-home sales in the first four weeks of opening up a brand new-normal community in the Estrella master plan in Phoenix it says something.
Ask Carl Mulac, who’s running the start-up Joseph Carl Homes with a big arm-around-the-shoulder deal with JEN Partners, what it says about the market, and he’ll tell you.
“When Steve Jobs was introducing the iPad, he said there are three things that had to be in place for any product he’s ever brought out: innovation, value, and demand. I figure we’ve had to have those three characteristics to get anything done in this environment,” says Mulac.
Mulac opened the CantaMia neighborhood the week after Super Bowl, and is still doing 490 or so traffic units a weekend. He says that each of his 10 sales associates in CantaMia, selling against 14 models and a lot of pressure, have four or five strong active adult prospects on the line, and they’ve had their first closing.
“We had the perfect combination this past weekend,” says Mulac. “A beautiful Saturday followed by a rainy Sunday. Those are the ones that set you up for great traffic.”
Mulac’s secrets? Well, as we’ve noted, the land-base came out of the wreckage of TOUSA’s Engle division, so the price out of the banks was cents-on-the-dollar for the 643 lots on 215 acres, plus 14 completed sales models.
So, the land-cost base gives him an opportunity to price a solar-and-thermal standard product in a fully “amenitized” community at a price that gives great value vs. a Pulte Del Webb and Shea Trilogy offering.
Still, even with the great jumpstart and the JEN Partners backing, nothing’s a cake-walk. A $2 million vertical construction line from National Bank of Arizona is a start, but not enough to ramp up and become a formidable player in the marketplace. So Mulac’s out shaking the regional and community bank bushes for more, and he’s finding that even with JEN’s guarantee, a sales backlog, and all the terms in the world about pre-sales, it’s not easy to come up with more lending.
Which may or may not account for one of the ingredients of Mulac’s “secret sauce” right now. Practically no overhead. Apart from the sales center at CantaMia, there’s exactly zero office expense for Joseph Carl Homes right now. The whole shebang happens out of his own home, and those of his controller and CFO, who work “mobile.”
“It helps that everybody on the team has worked together in the past, and we know each other through the years,” says Mulac. “So with technology, we can stay in touch on every detail we need to address.”
Even with Phoenix commercial office space offering historically attractive deals for potential tenants, Mulac says that saving $10,000 to $15,000 a month on corporate offices is no small potatoes, given his budget right now.
Still, you don’t pull off virtual overhead by doing everything virtually.
“One day a week, we have ‘no-email day,’” says Mulac. “That means anything you’re going to communicate that day, it has to be with a phone call. Emails sometimes have that unintended emotional tone to them that can distort their meaning. We have to be able to talk straight to one another on some issues.”
We’ll give you that secret for free.
Private Home Builders’ Moment of Truth Approaches with 2nd Half of 2010
Arguably the most important story of the year for the big home builder community is where are many private home builders going to get money to keep their lights on.
First an explanation of what we mean, then a take on why we’re saying it now.
If private home builders don’t get that money, many, many more of them will go dark. They need that money for two reasons. One is to build through houses they’ve either sold already or can sell if they’re ready. The other is to buy some of the lots with new price tags like the national, public builders are doing.
These two reasons are precisely the reasons banks are averse to handing it over right now. They’re averse doing anything that puts more exposure on their books. It’s the last thing many of these banks can tolerate.
Big banks are now profitable, but give it five minutes and the jig will show up as a jag. Small banks–many of them anyway–have so much exposure to the X factor that is real estate valuations that one can still only guess how widespread the damage is. One running count is that 644 banks are on the “Unofficial Problem Bank” list.
Private home builders are in a fix because most of them depend heavily on banks, and banks are in a fix. The recent increase in the Fed discount rate doesn’t mean a lot to most of us, but it certainly doesn’t bode well for businesses that draw on bank capital with the intensity that home builders do. If it’s more expensive for banks to borrow, it’s going to be more expensive for their commercial customers to do so, one way or another, and it will be in shorter supply.
Private home builders are already seeing reason to clump 2009 and this year, 2010, as the two worst years of the downturn. They’re already seeing the cost of the money they draw on go into the stratosphere. They’re already seeing that the hard-won ability they had to borrow money for their home building company without personal guarantees is rapidly going by the wayside. They’re already seeing capital sources developing virtually usurious interest rate tiers as reminders of what risk the banks are going to do any business at all with home builders.
This is short-sighted, no? The health of a bank lender ultimately will depend on its community of customers, including home builders, which pay back the money owed at interest, and hire people to build, who in turn stock the foodchain of consumer demand through the economy.
We see what has happened to construction spending. It’s down 61.4% since its peak this time in 2006. We know ourselves that home builder business units are a 30% shadow of what they were this time in 2006. We know that many good, smart people are out of work. Some of them saved their personal pennies for rainy days. Many of them have been out so long they’ve just lost their unemployment benefits.
Fact is, as soon as you name one way that private home builders are superior to public home builders, you’ll get an argument–a valid one, too–from a public builder that contests that. Still, private home builders are better at some parts of this business. Why else would public companies have paid so highly for them in bygone years?
We feel that private home builders are where home building culture, home building design innovation, and home building real time supply-and-demand knowledge occur at a superior level. Private home builders, in fact, are the reason some of the public home builders are as good at what they do as they are.
Here’s what Tom Lewis, founder and owner of 20-something year-old regional home building power in Phoenix, T.W. Lewis, told us about losing his No. 2 man, Kevin Egan, this month:
“It got so that there were too many chiefs and not enough braves. Kevin created an incredible, cohesive, collaborative organization focused on excellance here. That’s what we will miss.”
The industry can ill afford to see private home builders fall into a state of credit-lock paralysis for the next year to 18 months. Just as public home builders meet a need for housing at an affordable level, using highly iterative manufacturing techniques, scaled purchase of products and labor, and negotiating muscle on land prices, private home builders meet that need on a more zeroed in basis, in smaller tracts, in trickier circumstances.
The way it’s going, though, we’re not going to see very many private home builders around to meet that need very much longer unless there’s a break in the impasse on lending to home builders.
The nation’s most afflicted local economies need jobs to jam the negative feedback loop that has jobs, home defaults, declining asset values, lower earnings, and more layoffs locked in a vicious cycle. If banks become part of the solution of loosening credit to small businesses, the negative loop will begin to flow the opposite way.
It’s an industry problem–for both public and private home builders–if private home builders play through this year with two arms tied behind their back. We’re not saying they’re not willing to try.
But smarter people might see that collaborative competition might be a notion that will speed an improved outlook for everybody.
Lennar F.D.I.C. and Pulte Centex Game-Changer Plays: Opposite Routes to the Same Goal?
Recently, Housing Crisis got wind that there were as many as four large “entity acquisition deals” in the home building landscape in various stages on a path to lift-off. Whether we get news of them soon that any of them makes it to fruition is not guaranteed.
However, M&A or no, we feel that consolidation of home building capacity — Simply it is this: greater share of a smaller market for fewer players — is one of the lightning rod issues of 2010. It will underscore who gets to be in or near the black and who must malinger in the red, or worse, fail to make it beyond the doorway of this new decade.
Whether Lennar’s deal for an FDIC $3.05 billion real estate portfolio was one of the ones we’d been hearing about has not been confirmed. We did hear that at least two other public home building companies were in the running for the FDIC portfolio, but that Lennar-Rialto’s legacy strength in land work-outs clearly won the day.
Carl Reichardt, Wells Fargo managing director and senior research analyst for the home building sector, provides perspective on the magnitude and significance of the deal by saying it’s a “skeleton key,” a template for more transactions that look and act like this one. This particular plunge, he says, is less important in itself than the “philosophical notics that an historically successful and well-known distressed ‘player’ is back in the market.”
Lennar’s dead of winter coup highlights a fact sometimes forgotten or at least under-appreciated among observers of the housing market on a macro basis–not all public home builders are created equal in skill sets, profit models, even core businesses.
Fact is, we see a “fearful symmetry” when you look from a high-level at what Pulte Homes did last year in acquiring Centex Homes vs. what Lennar is doing with its distressed real estate portfolio play this year.
Both deals are “talk of the town” transactions, costing in the billions, ranking as “game-changers.”
They’re so different on the surface from one another, but we see the two as almost diametrically opposite routes to the identical place, the most important place for any new-home builder that expects to have its doors remain open into and beyond 2011: business unit profitability. For Pulte, adding Centex could provide faster and more scaled entree into the price-value sensitive entry-level and first-time buyer market.
For Lennar, it has decided that making more money amid the limbo of wide-scale deleveraging and marking assets down in price is the way to keep both its senior management talent and its construction operations infrastructure preoccupied as more of the dust settles on what anything of value is worth in dollars or cents right now.
One company’s master plan affirms a strategic combination with an operator whose geographical footprint and construction system add up to huge cost-out opportunities, the elimination of a key competitor in many of the same sub-markets, and a turn-key entry-level new-home brand platform.
The other company embraces a balance-sheet management play that suggests by its nature and scope that Lennar’s bandwidth and strategic ballast had best focus less on opportunistic home building operations and more on the margins of land asset re-pricing expected to flow through the financial system over the next two to three years.
That’s not entirely the case, of course. Lennar, like every builder, public, private, national, regional, or local, is working on managing it’s assets, shooting for first-time and value buyer opportunities, re-negotiating trade deals and materials contracts, and trying to remove non-value added steps from both SG&A and construction operations at every turn.
The making-money-by-losing-money days are done.
As one trusted divisional president from a top-10 public home building company told us, the fire-sale, sell at any cost period of the downturn cycle largely has run its course. “I told a customer who was in one of our new communities that I’d practically had to give away houses for three years, but I’m not doing that any more. There are real buyers at our price levels, so we’re going to keep at them. So he paid our full price.”
This division president went on to say that sales absorption rate projections for his communities come from the most conservative, reality based demand analyses imaginable, and that pro formas factor in zero price appreciation for the whole life-span of each community, whether it’s one year or four. “They’re penciled in as profitable no matter what comes next. If recovery is interrupted for any reason, we take a hit on margins, but our unit profitability is solid. We just have to get all our operating and business units there.”
Another insight from this division president flashes back to the question of similarities and differences in the Pulte-Centex merger vs. the Lennar echo-RTC asset work-out deal.
He says that today’s buyers are gravitating to communities they know have surfaced out of broken and repriced deals, now offering an altogether new package of values in this wary, toe-in consumer environment.
“You have to feel for those communities that got started toward a goal of 350 homes in 2005, and got 100 homes or more in before hitting a wall in late 2006,” he says. “Those communities are hanging out there with very little appeal because nothing’s been happening at them for more than two years. Whereas if you open a new community now at a newly reset land cost-base, then you can have the fresh appeal to buyers and the product and pricing they’re looking for now.”
What this means is that, for all the underwater homeowners there are out there, there’s at least proportionately as many underwater new-home communities that are going to need to re-price their way toward eventual sell-out.
So maybe Lennar’s FDIC portfolio acquisition is the company’s sequal to Net Operating Loss claw-backs of 2007, ‘08, and ‘09. The strategy may say: we can’t count on getting to business unit profitability on home building operations alone, because it’s still too full of uncertainties and possible set backs. But we can get to balance sheet improvement and a greater cash position if we jump into the Big Two-Thousand Teens Work-Out game and figure out how to play the margins well there.
Pulte, meanwhile, means to get to its corporate next step by continuing to flash its operational plan forward–driving down costs, rationalizing every land holding for its three- to four-tier brand platforms, and pulling home buyers–we know they’re there if we can get them “financeable” new home opportunities–from off the fences.
Questions for you:
- Are your 2010 opportunity areas more in the distressed land buying, marketing, and selling businesses, or do they focus more on your home building operations’ redesigned and reprice home offerings?
- Does purchasing packages of distressed or foreclosed homes or projects represent a viable bridge opportunity for your operation?
- Without the magnitude of NOL tax carry-back opportunity in 2010 that existed this past year, will the focus be on home building operations or non home building operations to generate cash and profitability at a corporate level?
- Does the Lennar plan to put value on and share profit in distressed properties reflect a smart plan in anticipation of the coming “Withdrawal of Federal Policy” moment housing faces after April 30?
Housing Market’s Fate is Tied to Jobs and Mortgage Finance
Like we needed another metaphor for housing’s deep freeze here in Washington, D.C…. now intrepid (or foolish) souls who venture out–as we did this morning–into the bleak icy tundra that is the nation’s Capitol need to tromp nary a block before they encounter some car or truck stuck, tires screaming, going nowhere at full speed.
Ice and snow paralyzed city streets….Wheels spinning futilely, hmmm, now what does all this remind us of? Here, verbatim, was the comment one of our best remote workers had when he learned our D.C. offices might be closed in synchrony with the human resources dictates of the Federal Government:
Hey….if the federal government shuts down, that means they can’t spend any money… BRING ON THE SNOW!
You’d have to question the intelligence, sanity, or desperation of the people who’d actually get in a car–especially an everyday two-wheel drive sedan–and try to get around Washington’s mean streets amid the historic blast of winter that has been D.C. over the past few days. Then again, you’d be questioning lots and lots of people. There they all are, stranded atop virtual burgs of ice or rocking from forward to reverse deeper and deeper into their personal snowbanks.
Whether or not it’s a case of a low IQ, an elevated degree of madness, or same extreme measure of urgency, we think each of the paralyzed drivers must have started their vehicle with the same thought: “Not me; others might get stuck, but I won’t.”
Isn’t this just like the mess so many of us have gotten ourselves into with our household balance sheets? Isn’t it also just like the boneheaded ways many of us try to get out of the mess, which only appear to make matters worse?
If 2009’s rabbit-out-of-hat economic development–both costly and hard-earned–left us with a nascent, entirely-too-fragile housing recovery, what we’ve got now is either an affordability-and-scarcity-based continuation of that baby-steps recovery, or we’ve got a relapse into full-scale housing deflation and misery.
Housing Bulls believe right now that historical affordability–monthly payment comparisons to market rate rentals, household income levels, and comparisons to peak pricing of 2006–and the gradual vanishing point of new-home inventory will catalyze demand beyond April 30, June 30, right through and into 2011 on a modestly upward trajectory.
Housing Bears believe right now that historically high levels of absolute house unit vacancies and scary rates of delinquencies and defaults will continue to smother any green shoots of demand with a tidal wave of supply.
What those in the know fear most about the fragility of recovery is not so much the expiration of home buyer tax credits, but the host of artificial supports and supply constraints that have buoyed housing for the better part of three years now, but which have also prevented assets from finding their own supportable floor.
So, policy’s double-edged sword is that the programs that are probably masking widespread insolvency in the financial system are also keeping the private investor sector from engaging in productive bid-ask dealings. The kind of catharsis that would truly cleanse both Wall Street and Main Street of all their respective financial shennanigans, would cripple too many parties too profoundly–or so the thinking goes.
Hence, the daisy-chain of interventions, some of them mere theories and ideas thrown against the wall to see if they’ll stick. Treasury’s HAMP hasn’t.
Sheila Bair plunged head-first into trying to get her agency to lever FDIC powers among member banks to play nice and HAMP distressed homeowners with more tolerable monthly payment terms. The FDIC’s focus on enabling mortgage modification brought with it a series of consequences, one of which has been a massive stalling of the resolution of properties around newly viable bid-and-ask transactions.
Just talk to a few veterans of the home building world, and many of them will tell you it’s still “too soon” to find opportunistic, franchise-making plays in the market place.
What residential real estate continues to deal with is a bunch of “wished fors” that we should have been more careful about wishing for in the first place.
We’re in limbo because “strategic non-foreclosures” — a term we borrow from The Big Picture financial blog — have become the banks’ answer to “strategic defaults.” If there’s little or no negative consquence to the pervasive “extend and pretend” environment, then what incentive might there be to work through the problem and concede on some portion of each dollar at stake that one wants.
What current dynamics and actual transactions tell us with eloquent brutality is that the residential real estate dollar is no longer worth a dollar (or, rather it was never worth a dollar but everyone thought it was).
In exchange for our 2006 dollar we get a series of difficult choices: 1) a few pennies and a lot of righteous indignation; 2) a few more pennies and a willingness to cooperate with so-called opposing interests; 3) the most pennies, the willingness to cooperate, and a go-forward plan that viably bridges a job-loss environment to a job-creation environment of the future.
Andrew Hede, a managing director for restructuring consultancy Alvarez & Marsal, worries that smaller, lending-reliant home building and development companies hold the short end of the stick when it comes to proving their viability for the long run in this inhospitable marketplace.
“Lenders look first at where they have the most to lose, the bigger companies, and they’re beginning to be willing to renegotiate and come to new terms,” says Hede. “They’re not so willing to do that with the smaller players, which doesn’t bode well for smaller players’ viability in the long run.”
“Extend and pretend” may keep foreclosures from erupting into Armageddon, and it may actually keep some lenders from foreclosing on some nonperforming communities and AC&D loans while everybody keeps vigil on the mood of the almighty prospective home buyer.
Some estimates are that the tangible net worth of the average renter right now is about $7,500. That’s 20% of less than $38,000, which is about one-third the cost of a modest new home.
So, the tailwinds necessary for the pro formas of any new-home construction business to make viable sense right now are 1) the opposite of job losses, and 2) the opposite of excessively tight lending standards. Anything aggressive in a home builder’s sales projections will still get a big red flag from any body with money at stake.
“Until there’s beginnings of a marketplace recovery, and you see job creation and easier access to mortgage finance, companies have to focus on fundamental balance sheet issues,” says Hede. “Liquidity, cash flow, preserving core fundamental assets, possibly exiting non-core communities or markets, and everybody needs concessions everywhere with partners, lenders, and other creditors.”
In other words, 2010 is one big work out. Or as New Yorker writer James Surowiecki phrases it in his piece, “The Populism Problem:”
“The only way out is through.”
What some drivers learn in Washington, D.C.’s ice and snow choked streets these days is that the more they gun the accelerator, the more likely it is they’re going to need more people and more time to push them out of the hole they’re in.
Too bad the government’s shut down, or some of them might learn something by walking through the Capitol’s streets on a Winter’s day that should be the start of housing’s Spring selling season.
Read it in the WSJ
SmartMoney contributing columnist James B. [don't call me Jimmy] Stewart writes this in this week’s offering for the Wall Street Journal.
In short, the data suggest that real-estate prices hit a bottom some time during the second quarter, and have now begun to rise. There’s no way to be certain that this marks the end of the long, painful correction that followed the real-estate bubble, but clearly prices are no longer in free-fall. That means if you’ve been sitting on the fence, it’s time to act.
Breathe. Breathe. Breathe.
OK, now, back to work.
A Dose of Realty
If you’re like us, you could spit your coffee watching this one. Hat tip The Big Picture.
| The Daily Show With Jon Stewart | Mon – Thurs 11p / 10c | |||
| Home Crisis Investigation | ||||
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Mish Calls Double Sticks–2011–Housing’s Pricing Bottom
It is Mike “Mish” Shedlock’s theory that as regards housing, all parabolas are created equal.
His post yesterday – “Housing Update: How Far to the Bottom?” — is a latter-day, chart-candied manifesto that says among other things, no matter what title Ben Bernanke has, he shouldn’t be trusted. Another takeaway from the post is this conclusion: Mish has been spot-on in every way since March 2005, whereas much more vaunted “experts” were speaking in self-interest, self-delusion, and self-service as they pronounced that fundamental positives would outweigh pesky negatives in the housing economy.
Click to enlarge. Courtesy of "Mish" blog.
At any rate, what you might care most about is that the fellow who’s been right all along is saying that 2011 is where home prices should bottom out.
His lead chart is Japan’s “lost decade” of the 1990s, which actually extends to 14 years. To give us a back-pat of encouragement, Mish grants that the pace of the U.S. meltdown is double that of Japan’s, which would mean we’ll ”cross the zero line” by 2011.
That’s roughly what a fair number of other folks are saying about home prices (nationally), although what many in real estate care about more right now are sales transactions.
A greater volume means a shift in two big areas that will preceed a home price bottom by several months to a year: 1) The doability factor, which means that prospective buyers can get financing in what will continue to be a risk-averse lending environment and consider the moment opportune to act on a home purchase; and 2) The psychology factor, which will indicate that a some level (unknown as yet) people won’t feel as if it’s an idiotic thing to do to buy the biggest ticket item of their current life and go on to regret it within 60 days.
Those are important differences that need to occur well before a house price bottom. “The bid,” if it’s in earnest will negotiate hard. “The ask,” will have fewer and fewer options but to cede.
The good news about more volume is an eventual stabilization in comps and a reduction in volatility indices, which are part of what make people so scared. Would you rather comp to one of two real estate deals, or one of 100?
The other good news is that we can all look forward to another year of quotes Mish will extract to illustrate just how wrong others can be, while he can plot new red arrows on the fever chart to show how he has predicted precisely what would happen all along. It’s reassuring to know that this ol’ world can fool some of the people all of the time, and all of the people some of the time…
Housing Crisis Gets Star Billing in New “Fresno” Documentary
“Let Us Now Praise Famous Men” teamed Fortune magazine writer James Agee and American photographer Walker Evans in a Depression era masterpiece about three poverty-stricken sharecropper families in America’s deep South in 1936.
“Fresno” is the work of documentary film maker Stephen Payne, who’s made a 70-minute piece that places the California city in one of the housing crisis’ ground zeros.
Reports the Fresno Bee.
[Steve Payne says] “My budget covers Fresno. By studying something small and understandable like Fresno, it makes it feel like you can get a handle on this.”
Fresno also fit the bill economically. A recent study by the Brookings Institution ranked Fresno seventh on a list of the largest 100 cities hardest hit by the recession.
Also, Fresno has the 14th-highest rate of home foreclosure in the country.
Payne says he made six trips to Fresno, starting three months ago and ended filming with about 35 hours of footage that he’s boiled down to about 70 minutes.
“I thought I could be done with this thing in two or three visits,” Payne says. “But as I got a little more into it, I realized I needed to spend a little more time on this, or else it wouldn’t do it justice.”
Asked how the finished product manages to weave the various stories together, he said: “It just does.”
“It’s one of those odd little things where if you tried too hard to make it work, it would look fake,” Payne says. “By just cutting between these things it just seems to flow. I liken it to a good cocktail. It’s like a Bloody Mary — on paper it doesn’t look very good. But actually on several Sunday mornings I would climb over my dead granny to get one.”
One of the stars of “Fresno” is Josh Peacock, who was at the center of all the news stories about the pool-raiding skateboarders.
He is currently being followed for another documentary produced by a Hollywood agency that’s behind numerous cable reality shows. Peacock also produced his own pool-skating video called “Cancer Dust,” that was mostly filmed in Fresno and is available at Herb Bauer’s Boardshop, SBI or his own Web site (www.fresnopools.blogspot.com).
The Skateropolis blog has posted this clip of the film’s trailer.
A Productive Take on the Housing Crisis
Generating more in an allotted amount of time has its rewards. More output in an hour causes more stuff for people, companies, and governments to buy. When it’s a widescale trend, it’s called productivity growth. The relationship between productivity growth trends and housing appreciation is a strong one.
When non-farm workers produce more output per hour, and the economy is cranking along, it’s normally accompanied by income growth. Now, income growth de-coupled with house price growth, but it was still enough to cause demand for houses, which drove up land prices, and made the bubble.
This is the theory in a new study from the Federal Reserve Bank of New York, namely from former New York Fed VP James Kahn, who is now an economist/professor at Yeshiva University in New York.
The Wall Street Journal’s take:
Lax lending standards and price bubbles caused the housing crisis? That argument alone is too simplistic, says a study released today by the Federal Reserve Bank of New York. Changes in productivity were a major factor in driving housing prices higher, economist James Kahn finds in his review of half a century of data.
Kahn’s theory actually affirms all of those home building CEOs who tracked “the fundamentals” right through 2006, and found them to be strong.
But this is one of those annoying issues of coincidence versus causality. Productivity growth occurs when demand is strong, and a virtuous loop of demand and greater output drives a wide swath of economic growth.
Amid a deleveraging of the economy and households, productivity will probably suffer as people cuts lag demand declines, and hiring lags demand increases.
Kahn’s theory may have some insight for residential real estate players in that it would correlate a recovery in productivity with a recovery in home price stabilization.
Monday Afternoon Housing Crisis Quote Quiz
Guess who’s quoted in answer to a question posed in July, 2007, asking “whether with hindsight he would have done things differently, starting in 2005 or 2006.”
I ask myself that all the time as C.E.O. … What should I have known and when should I have known it, and what should I have done about it?”
Answer can be found on this link.
In 2007, subprime defaults escalated wildly, and Wall Street bankers abandoned the mortgage-backed securities they had prized. In August, they cut off Countrywide’s short-term funding, which constricted its ability to operate, and in just a few months Mozilo was forced to choose between bankruptcy or being acquired. In January, 2008, Bank of America announced that it would buy the company for a fraction of what Countrywide was worth at its peak. Mozilo has reportedly been named a defendant in more than a hundred civil lawsuits and a target of a criminal investigation. On June 4th, the S.E.C., in a civil suit, charged Mozilo, David Sambol, and Eric Sieracki with securities fraud; Mozilo was also charged with insider trading. The complaint seemed to formalize a public indictment of Mozilo as an icon of corporate malfeasance and greed.
It’s the case so often with people whose rise and fall reach allegorical proportions: they believe they can outfox reality. Connie Bruck’s reporting for The New Yorker tells the story of the son of a butcher from the Bronx and his pathway to becoming a legend in his own mind.
In the process, the article visits one of the most complex business, economic, and cultural issues of our time: the seduction of emerging market populations into homeownership. Where did social conscience, business ambition, and greed cross paths? Read the story.