Consider the Source, but Also, Consider a Possibility
William Lyon Homes’ Southern California Divisions Report 39 New Homes Sold in Just Three Weeks Indicating A Possible Turn in the Tide
NEWPORT BEACH, Calif., March 17 /PRNewswire/ — At what just might be an indication of the tide turning for homebuilders, William Lyon Homes reports a phenomenal 39 new home sales in just three weeks at its Southern California neighborhoods. Division President, Brian Doyle noted that the company’s new lower 2009 pricing, generous State and Federal Tax Credits* and FHA** loan programs have generated the increase in traffic at William Lyon neighborhoods resulting in growing sales activity and demonstrating that the housing market could be at the pivotal point to recovery.
“When the tax credits were authorized, we began to see interest among those individuals who needed to have their confidence restored in order to return back to the housing markets where they have been absent from for so long,” explains Doyle. “In the past three weeks, we have experienced sustained momentum at our sales offices telling us that Southern Californians are feeling more comfortable and that the tax credits make a big difference in how they perceive real estate today. I sense we are seeing people who have waited on the sidelines for a year and they are anxious to get on with their lives, anxious to make the decision to buy now and feel good about it.”
Doyle is quick to point out that increased affordability is driving first-time and move-up buyers to take advantage of these historical opportunities. “We are excited to assist potential buyers as their interest level has accelerated, moving them out of the ‘wait-and-see’ mode. We stand ready to help every buyer find a home they love and financing that fits their needs so they too can achieve the American dream of homeownership.”
Both the State and Federal governments believe that the tax credits will spur sales, reduce inventories, stabilize prices and prompt new construction to aid in recovery of the housing industry and overall economy. The $100 million set aside for State credits is projected to cover about 10,000 homes on a first-come, first-served basis, based on when homes close escrow. “As sales continue to escalate, there is a sense of urgency for buyers to purchase now and benefit from these unheard of tax credits,” adds Doyle.
To benefit from new lower 2009 pricing, generous State and Federal Tax Credits and FHA loan programs, visit a William Lyon Homes’ Southland neighborhood for complete details.
An amenity-rich environment surrounds residents at the Columbus Square neighborhoods in the villages of Columbus in Tustin. Cambridge Lane‘s townhome-style residences start from the low $300,000s. Verandas‘ single-family detached floorplans present a great value at $569,990. Priced from the low $1 millions, Ciara is now selling its final two homes.
Priced from the low $200,000s, the gated Amador enclave in Rancho Cucamonga on Route 66 has attached triplex townhomes.
Priced from the low $200,000s, Adelina’s townhome designs in north Fontana offer one of the most affordable new home opportunities with private recreation.
Rosabella boasts a versatile collection of townhomes amidst gated Shady Trails in north Fontana with prices starting from the low $200,000s.
Residents of Sollara and Canela at Vintner’s Grove in Rancho Cucamonga enjoy gated privacy and exclusive recreation. Priced from the $300,000s, Sollara offers single-family detached homes, while the townhome style designs at Canela start from the low $200,000s.
Nestled behind dramatic entry gates, the townhomes of Serafina in Eastvale offer prices starting at $199,990.
With no Mello Roos, an extremely low 1.1% tax rate and access to great schools Vintage and Tradition at gated Arboreta offer the right financial savings in Glendora. Vintage’s townhome-style designs are priced from the high $300,000s, while single-level and two-story floorplans at Tradition start from the low $600,000s.
Priced from the low $400,000s, Sunset Cove’s attached floorplans in San Diego offer a central location near Mission Bay and downtown amenities.
Altair has the only new gated, attached tri-level townhomes in Santee and some of the most attainable new home opportunities in all of San Diego County at prices from the high $200,000s.
One of the last neighborhoods to be built at 4S Ranch in San Diego, Maybeck offers single-family detached designs priced from the low $600,000s.
*The State Tax Credit reservation is being allowed on a first-come, first-served basis, and funding is subject to be exhausted before the March 2010 deadline. William Lyon Homes is not responsible for confirming whether the state tax credit is still available, nor is giving legal, accounting or tax advice or consulting of any kind. The Federal Tax Credit applies to qualified buyers who close escrow prior to December 1, 2009. Please consult with your tax professional or attorney for complete details.
**FHA program guidelines and loan limits are subject to change. All loans subject to credit approval; restrictions may apply. Down payment, payment terms and rates vary based on market conditions and qualifying requirements.
William Lyon Homes’ recent news of mounting sales activity is an early indicator that California’s building industry is beginning to rebound. The company’s new lower 2009 pricing coupled with the State and Federal Tax Credits* and FHA** loan programs are three positive factors for home shoppers to consider as they return back to the housing market in the weeks and months ahead.
For more information on the variety of William Lyon Homes’ neighborhoods throughout Southern California, visit www.lyonhomes.com.
SOURCE William Lyon Homes http://www.lyonhomes.com
News Flash: Housing Starts Actually Go Up
It’s practically a moral dilemma for people who make a living reporting and analyzing real estate and housing news developments. Where skepticism is virtuous, it’s unholy to succumb to naivete or unmerited positivism.
Still, when one reckons with the fact that “headline risk” is in itself an economic catalyst, a factor that impacts consumer sentiment [not to mention professional sentiment and other workplace sentiments], which is a building block of leading economic indicators, a reporter’s or headline writer’s instinct to be skeptical comes up for question.
Take housing starts, for example. The Census Bureau issues monthly data, and for the first time in a series of months, the number DOES NOT GO FURTHER NEGATIVE. What happened is what typically happens when such a data even occurs.
The mainstream media–the very ones that report that the sky is falling 30 minutes earlier before the new data came out–now decide that it’s time to call the recovery, with headlines like Housing Starts Post Surpise Rebound, Up 22%.
Here are the Builder and Big Builder takes on the data, which avoid editorializing one way or another.
Then the ones who know better, the ones who make a living, eating, sleeping, and breathing the stuff say, “wait a minute folks, these underpaid overworked reporters don’t know what they’re doing when they talk that way.”
For instance, The Big Picture’s Barry Ritholtz has a totally amusing typo-filled “Bad Headline of the Day” critique of Reuters for getting it all wrong with the housing starts story today. He’s vicious toward no one in particular and toward stupid editors and journalists in general who don’t know the first thing about reporting about housing starts.
Reuters has this headline/story:
New U.S. housing starts unexpectedly rebounded in February, surging 22.2 percent, according to data on Tuesday that provided a rare dose of good news for the recession-hit economy and fractured housing market. The Commerce Department said the jump in housing starts to a seasonally adjusted annual rate of 583,000 units was the biggest percentage rise since January 1990. That was also the first increase since April last year, when they advanced by 1.6 percent. January’s housing starts were revised to a rate of 477,000, the department said.
Um, no.
There is a grammar problem with the headline: I suspect they meant “Housing Starts Rebounded from January Lows.” Any improvement form the record low levels last month — the worst since since 1960 — does not mean a US turnaround has begun.
That may be an unfortunate words choice on the part of Reiters. It is not “U.S. Housing – Starts Rebound” — its more likely “U.S. Housing Starts – Rebound.”
On to the data: If we look at the breakdown by unit types, the gains in starts were mainly in multi-family units; single family starts were little changed. And, February was still down nearly 50% from prior year. The past 4 months rank as the worst housing start figures since the data was collected. The past 2 quarters have 6 of the 10 worst seasonally adjusted figures. (more …)
This is analysis. This is not headline writing. However, translate this into newspapers, building trade journalism, and TV business news, and you’ve got good old “Headline Risk” entering the economic equation.
Fact is, who’d have thunk that reporting on lagging Census Bureau data of all things would count for a plus or minus in the consumer confidence factor that figures so importantly on what happens next in the economy? But it does.
So, Mr. Ritholtz, while your analysis is impeccable, and even your conclusion is probably correct–which is that homeownership percentages are headed back below 65%, your method of getting to these conclusions is flawed.
Plus, you’re missing one of the opportunities to spot a structural change that will impact the data from this transition point onward.
First, agreed, lending standards were lax, and homeownership as a goal was given disproportionate policy and business mission focus for the past dozen years or so, and it created legendary wealth, unbelievable crooks, and a legacy of pain, shame, and confusion.
Still, the reason homeownership percentage levels will revert to mean is less about a cultural, regulatory, and financial catharsis, and more about sheer numbers of human beings. As 78 million echo boomers become young adults and create their first households, the shift from owning to renting is a demographic phenomenon, not a moral correction. Get over it. It’s not people being smarter or more prudent in their financial engineering. It’s people being 20-something.
Now, as for starts, and what’s happening. Here’s what Calculated Risk concludes in his cat-who-ate-the-canary style.
Note that single-family completions are still significantly higher than single-family starts. This is important because residential construction employment tends to follow completions, and completions will probably decline further.
One month does not make a trend – and the graph shows this is just a slight increase in total starts (and single family starts are basically flat with the record low). However I do expect housing starts to bottom sometime in 2009.
For starts to bottom, two things will happen, partly because they will and partly because the economy needs them to. One is that headlines will need to shift from “the sky is falling” to “recovery is near.” It’s just going to happen, whether journalists and editors know anything about real estate or not.
The other thing that’s going to happen is that large builders — the biggest ones — will be where the earliest signs of recovery will become evident. They are the ones in single-family who are closest to the goal of managing their unsold inventories, and it’s more of them who are in the 1% uptick in housing starts than smaller builders, because they need to keep their pipelines of ready-to-deliver homes stocked for the hearty souls who are still buying homes these days.
So, we’ll take not horrible headline news as positive news, and more positive for the high production home building community than for most of the builder universe. Inventory–and absolute vacancies–is still the key enemy of housing recovery across all residential product lines.
Future Perfect Tense
Today, so few people are buying new homes for reasons other than that they’re not happy with them that it’s hard to learn what they’d want if those reasons for not buying suddenly disappeared.
Home builders are in limbo while forces they can’t control–a home price correction, a credit dislocation, a global recession–play out. But limbo is not what it used to be. It’s not a place for simply waiting passively while the wheels of the downward cycle grind slowly forward.
Some home builders are trying to see around the corner at what home buyers will want once glimpses of normalization return. Big Builder editor Sarah Yaussi has been featuring the work of such builders in her blogs of late, focusing on those who are looking to differentiate their home products from competitors so that once home buyers return, they’ll find what they want differs from the rest.
Last week, Sarah featured new home designs from Weyerhaeuser’s DC-metro area home building operation Winchester Homes, which has melded age-in-place universal design features together with energy efficiency home designs in its “Your Home Your Way” program. HousingCrisis linked video and a slideshow feature to accompany the analysis in the blog. Here’s the link.
In our next example, Yaussi’s lens turns toward energy efficiency the high production home builder way, as its being executed by Hovnanian Enterprises. She travels to Hovnanian’s Eagles Pointe community in Prince William County, Va., where there’s a work-in-progress showhome/showcase/museum of high-level energy efficient home building practices.
Rather than to typify the floor plans and merchandising prospective home buyers would see in a conventional model home, Hovnanian’s demonstration home is intented to give prospects a look inside the process and results of energy-efficiency built from the inside out for each home.
Yaussi’s blog’s promise is this:
Chip Merlin, the Landover Group’s vice president of operations, and Chris Payne, the group’s purchasing manager, were our acting tour guides.
According to Merlin, the demo home will be a museum of sorts. Visitors will be able to see how different products and systems work together to improve the energy efficiency of the home. It will also serve as a test bed for new technologies, providing the builder with information and insight about what works, what doesn’t. By getting to work with the technology in production setting, the builder finds out what products and processes could be imported over as a best practice in a traditional production building environment.
Big Builder toured the home right as the drywall was being installed. While we missed out on all the cool educational displays that will pepper the home once it’s finished, seeing the home mid-construction allowed us to literally get behind the walls to see the technologies at work. You can follow Big Builder’s footsteps with a two-minute slideshow. Just click here or on the picture above to get access. Be sure to roll your mouse arrow over the photo to see the photo caption or turn your computer speakers on for audio commentary.
Here below is a candid 1-minute plus soundbite from Chip Merlin on Hovnanian’s rationale behind the Building America program and the opportunities to work with the Department of Energy.
Wolseley–After Lightning Quick Ramp Up–Wants Less Stock in Trade
From PROSALES, By Andy Carlo: Here’s the headline: Wolseley Seeks To Sell or Dump Stock by Aug. 1, No. 2 U.S. LBM operation looking for a joint venture partner.
Click on image for access to current Wolseley share information.
Wolseley Plc revealed today that it is in the process of identifying a joint venture partner for Stock Building Supply, the second-largest U.S. pro dealer, or else will exit the business by Aug. 1. “A number” of unnamed companies are interested in acquiring all or part of Stock, the U.K.-based company said in a statement issued by Stock.
In a report released this morning, Wolseley said the decline in housing starts, coupled with a continued decline in lumber prices, have expedited the company’s decision to pursue a sale or joint venture, or to dispose or exit Stock Building Supply, by Aug. 1. Wolseley also announced that it will try to raise 1 billion pounds ($1.42 billion) in a rights issue.
“We are working very closely with Wolseley to identify potential partners that can help Stock Building Supply grow when the market recovers,” Stock Building Supply President Joe Appelmann said in a separate statement. “Our business model has fundamental differences from the remainder of Wolseley’s portfolio, and in these economic times it makes sense to explore other options.” (more)
Here’s Wolseley’s take on its “outlook,” from its statement today:
Outlook
The Board is confident that the measures announced today represent a comprehensive package to strengthen the balance sheet and strongly position the Group for the future.
The Board believes that the downturn in the UK, Irish and Nordic economies is likely to be generally more severe than that experienced in the remainder of Continental Europe.
If markets deteriorate further than anticipated, the Board will ensure further actions will be taken to mitigate the resulting impact.
Whilst actions will continue in our core businesses to reduce costs and generate cash, there will be a clear focus on margin management, serving the customer base and developing market opportunities.
This is a player that seemed to announce the purchase of another point of United States distribution every week, through 2006 and into 2007. The headwinds to Wolseley finding a deal are huge, given the domancy of home building, and horizon for recovery in starts activity that slides farther way by the day.
Capacity at the level Stock provides is a question. For home builders, who might have considered the network a prime way to ensure capacity when volumes were humming along, that type of verticalization is unheard of these days unless it translates into immediate cuts to direct costs on per square footage that can be translated into move-off-the-sideline new home prices.
Wolseley has its work cut out for them on this challenge.
Update: ProSales editor Craig Webb has produced a map of Stock locations as they were listed by the company from Jan. 09, and posted it in his blog.
Foreclosures: A Banker’s Perspective
The Charlotte Observer reports: Wells exec evaluates solutions for housing crisis.
Photo Courtesy of Charolotte Observer
In the nation’s collective brainstorm for how to solve the housing crisis, here’s another idea:
A federal provision that took effect Feb. 1 essentially helps state and local governments get into the real estate business, by offering $3.9 billion in grants to buy and resell empty foreclosed homes. Proponents of the measure, which was tucked into a housing bill passed last summer, say it will help stabilize uncertain markets as well as create affordable housing.
Joe Ohayon, a Wells Fargo & Co. executive who helps lead the default and retention team in Maryland, talked to the Observer recently about the new federal program, the bank’s efforts to solve the foreclosure problem, and why some ideas are working better than others.
The kicker As to the better Qs are here:
Q. What are the main reasons that people default on their mortgages? Is it because their interest rates are resetting?
The reasons for default are still the core traditional reasons. It’s unemployment, illness, marital problems. There’s been talk in the past around (interest rate) resets really contributing to default, but we didn’t really see that. The vast majority of loans that are in foreclosure were actually delinquent prior to the reset.
Q. Why haven’t any of the government’s big foreclosure-prevention plans worked?
There’s a lot of analysis that’s still being done as to why. Reasons range from (loan-to-value) caps to things such as junior lien holders having to approve the actions as well because they’ll be wiped out if modifications are completed. I don’t think any of the programs are the silver bullet, but when you take all those in aggregate is when you start to see a real impact.
As Toll Rolls, Others May Follow
There are bigger public home builders than Toll Brothers, and there are certainly ones with more mainstream product offerings and conventional business models. Why is it, then, that the financial markets and the media regard Toll as the canary in the coal mine among home builders?
For one, it’s arguably the best known brand name in home building. And if that point is debatable from a national perspective, it’s hardly in question when one shrinks the geography to the northeast corridor of the United States. There’s likely to be a significant correlation between owners of Toll Brothers homes and denizens of Wall Street. It’s a name that simply means home building for many of the investor breed. The world may be Freidman flat, but many of its residents are parochially focused, which still means that West of the Hudson is that wide unknown expanse that is like a foreign concept to many Wall Street players. Which makes Toll the go-to home builder.
What’s more, it has a fiscal year that gets out of the gate Oct. 1, so its financials always seem to be a step ahead of most of the rest of the class. Not to mention Bob Toll, the patriarch of the 42 year old company. Bob opens his mouth, and people listen. Why? He’s funny, and intellectual, and doesn’t seem to be afraid to say what’s really going on. So people listen.
This morning Toll Brothers first quarter financials are out.
The financial media, The Wall Street Journal and CNBC, each sounded the theme that Toll’s performance comped better year on year than the same period in 2008, which echoes the language of the company’s Q1 press release.
HORSHAM, Pa., March 4, 2009 — Toll Brothers, Inc. (NYSE:TOL) (www.tollbrothers.com), the nation’s leading builder of luxury homes, today reported a FY 2009 first quarter net loss of $88.9 million, or $0.55 per share diluted, which included pre-tax write-downs totaling $156.6 million. This compared to FY 2008′s first quarter net loss of $96.0 million, or $0.61 per share diluted, which included pre-tax write-downs totaling $245.5 million.
Excluding write-downs, FY 2009′s first quarter earnings were $9.6 million ($9.55 million of which resulted from the net reversal of a prior tax provision), or $0.06 per share diluted, compared to $57.3 million, or $0.35 per share diluted for FY 2008′s first quarter.
In FY 2009′s first quarter, revenues were $409.0 million, backlog was $1.04 billion and net (after cancellations) signed contracts were $127.8 million. These totals represented declines of 51%, 56%, and 66%, respectively, in dollars, and 45%, 51% and 59%, respectively, in units, compared to FY 2008′s first-quarter results.
The Company ended FY 2009′s first quarter with $1.53 billion in cash, compared to $956.6 million at FY 2008′s first-quarter-end. The Company’s cash position was down slightly from $1.63 billion at FY 2008′s fourth-quarter-end, principally due to the payment in 2009′s first quarter of previously accrued taxes and the retirement of purchase money mortgages and other debt. In addition, the Company had $1.32 billion available under its bank credit facility, which matures in March 2011.
The Company ended 2009′s first quarter with a net-debt-to-capital ratio(1) of 14.5%, its lowest level ever at first-quarter-end, compared to 26.8% at 2008′s first-quarter-end. Stockholders’ Equity at FY 2009′s first-quarter-end of $3.16 billion was down 2% compared to $3.24 billion at FYE 2008 and 7% compared to $3.41 billion at FY 2008′s first-quarter-end.
Big Builder offers a brief post-up of Q1 earnings, quoting the quotable CEO Robert I. Toll in his observation of the primary culprit for continued concern.
“We believe weak buyer confidence still impedes the market,” said Robert I.Toll, chairman and CEO. “We have not yet seen a pick-up in activity at our communities other than ordinary seasonal increases for this time of year.”
In UBS equity research analysis of the sector, analysts Eric Crawford and David Goldberg, note faint silver-lining observations in the data and explication from senior management.
As reported on 2/11, net unit orders -59% YOY, averaging just 1 per community for the Q. Despite this, we are encouraged to hear that mgmt is seeing early indications that pricing on land is becoming increasingly attractive, as we continue to believe this is an early indicator of a trough in housing. With its robust liquidity (the co’s net debt-to-cap was 15% at the end of F1Q), we believe Toll is well positioned to take advantage of these opportunities and gain market share from more capital constrained peers.
Michael Rehaut, executive director for JP Morgan equity research on home building punches the data into his Toll model, and out comes this topline take:
Following its 2/11 release of orders, can rate, closings, backlog, and a charges range of $100-200 mil., TOL reported a 1Q (Jan.-end) loss of -$0.55/share, below the Street’s -$0.41 and our $0.47E, featuring land-related charges of $157 mil., which we note was roughly at the midpoint of guidance, as well as core operating margin of only 1.0%, solidly below our 4.7%E and down sharply from the prior four quarters’ 9-11% range. Additionally, TOL noted that the recent pickup in activity was largely seasonal, which we point out is consistent with our view and most other builders’ view of the recent improvement in activity, and therefore is not indicative of a positive trend in the market, in our opinion. Lastly, it also reiterated limited FY09 guidance featuring ranges for closings (2K to 3K) and ASPs ($600 to $625K). Positively, we do note that TOL continues to maintain a strong balance sheet with strong liquidity. None theless, we continue to look for orders and pricing to remain highly challenged, and given our outlook for continued overall difficult conditions in the housing market well into 2009, we continue to expect large impairment charges for the company and the overall industry. Accordingly, we maintain our Neutral rating on TOL amidst our negative sector stance.
Independent housing and economic analyst, Calculated Risk, has a more stark assessment.
In summary: More losses. More write-downs. More cancellations. No guidance. No pick-up in activity.
Statements from Bob Toll himself focus investors on the company’s balance sheet management strength amid continuing headwinds. But he also took a swing for the political fences with remarks that indicate home building leadership has not by any means abandoned its goal for more decisive government policy intervention aimed at spurring demand for new residential housing.
Click on image for access to Big Builder profile.
“Many experts continue to believe we must first stem home price declines before we can resolve the nation’s economic and financial crisis. The recent stimulus bill shows that Washington is paying greater attention to our industry; however, we think more is needed. We advocate a buyer tax credit of $15,000 to be made available to all buyers of homes, not just first-time buyers: We must motivate the entire food chain of home buyers to stop the decline of home prices. Creating a sense of urgency is necessary to motivate buyers to act now; therefore the credit should only be available for a limited period of time.
“If home prices are stabilized, financial institutions, which today cannot value the mortgage-backed securities on their balance sheets, will once again be able to trade these securities; this, in turn, will help stabilize the financial system.
“Housing starts are at their lowest level since measurement began fifty years ago and the resulting job losses have been brutally damaging to the U.S. economy. The new home industry, combined with the related service, building products and home furnishings industries, are together, perhaps, the largest employer in the United States. If Congress and the Administration can effectively call the bottom and thereby put a floor under home prices, we believe the housing market will recover sooner, jobs will be created, bank balance sheets will improve, and millions of people will be able to return to the workforce.”
No doubt, we’ll hear a similar refrain from home building’s CEO breed as Spring financial results surface in the weeks ahead.
New Home Sales Numbers: Cognitive Dissonance
These numbers don’t lie. The question is what truth they tell.
Jan. 09 S.F. new-home sales – 309,000 [doesn't count cancellations]
Vs. Analysts’ Expectations — ↓4.6%
Year-on-Year Change — ↓48.2%
New-home inventory — 342,000 [13.2 months' supply, a record]
Median price — $209,000 ↓10% month-to-month; ↓13.5% year-on-year
Lowest Rate since 1963 — The year the U.S. Census begin calculating New Home Sales
Here’s what this looks like, per The Big Picture blog’s pick-up of Barron’s Econoday Report.
Builderonline senior editor Alison Rice reports on the data. Still the question is “what does it tell us?” Plus, how can home builders be reporting better sales and traffic in January when these numbers would seem to belie those assertions?
Calculated Risk notes, along these lines, that not-seasonally-adjusted 23,000 homes were sold in January 2009.
Were 15,000 home buyers–the difference between analysts’ expectations and actuals–waiting for Washington policymakers to get ‘em some bailout bounty?
Now, we know that public home builders were pulling out the stops on pricing and incentives in January in attempts to shed inventory, stick it to whichever private home building companies continue to teeter in markets where they compete for the one or two buyers a month who might still be trolling the communities. That “there-may-never-be-a-better-time-to-buy” mantra may continue to suffer fatigue as the months wear down, and new-home prices appear to want to party like it’s 2001 or 2000.
Here’s a topline take from JP Morgan executive director for home building analysis Michael Rehaut on what the numbers mean for at least the public bucket of home builders.
While absolute new home inventory continued to decline, months supply rose to a new record high. More importantly, however, we believe the core problem facing the housing market is still the highly elevated level of existing homes available for sale, which stood at 3.600 mil. in Jan., and is 10.5x the size of new home inventory. Accordingly, given our outlook for continued weak demand amid rising unemployment and low consumer confidence, tight credit conditions, and rising delinquency trends, we believe inventory should remain highly elevated over at least the next 6-12 months.
Citigroup home building analyst Josh Levin goes for the jugular in attempting to explain the difference between what home builders were reporting on traffic and sales, and what the Census Bureau was counting.
We note the disharmony between the government’s estimate of 1/09 NHS and what we heard from public home builders during the recent earnings season. Almost every public home builder stated that sales picked up in 1/09 when compared to late ’08. Most, but certainly not all, private home builders with whom we have spoken also reported a bump in 1/09 sales compared to prior months’ sales. Few private home builders indicated that sales in 1/09 were worse than in late ’08.
Looking for Explanations – We think there are at least two possible explanations for the aforementioned disharmony. First, a large proportion of “spec” sales in 1/09 could explain the difference. If a home builder sold a home in 1/09 that it had previously sold to another party sometime in ’08 and that party backed out of the sale before closing, the sale in 1/09 would not show up in government NHS data. Second, what home builders were seeing in 1/09 could have been nothing more than the usual seasonal uptick. The government’s data attempts to adjust for seasonality.
We feel that if government stops setting up expectations that there’s a program in the pipeline to put a false floor in new home prices, and if home builders can ride out and keep working through their inventory with home buyers who absolutely need to spring for their offerings, then stability will begin to show up in the market.
But we shouldn’t hold our breaths.
Meanwhile, for gallows humor yucks which are never in sufficient supply, check out the comments in CR’s post on Record Low New Home Sales for January. His motley crew of commenters are literally in prime [time] form. This is for starters:
NYCityBoy writes:
After reading this blog last night I had an idea to start my own cable channel. I worked to develop my new fall programming. Here are the ideas for the launch of my new network.The Dukes of Moral Hazard:
Follow our heroes, the cousins Barney and O, as they travel the backwoods of Kentucky in an orange Lexus taking out subprime and NINJA loans throughout the impoverished county. Watch as they bravely inflate their incomes and misrepresent their credit scores to score millions of dollars in 100% financing and government subsidized loans. Our heroes fight the tyranny of the market, and the long arm of the laws of economics, to snatch up houses and flip them from the front seat of their Lexus. Season 1 is sure to be a thrill ride, right to the steps of bankruptcy court.Season 2 will find our heroes underwater and in danger of foreclosure. Bravely they will fight to be bailed out and receive cram-downs from judges sympathetic to these victims of predatory lenders. Is Kentucky ready for Barney and O? Ask yourself, “am I ready for Barney and O?” Sit back and enjoy the wild ride.
BJ and the Sheila Bair:
Hit the road with our little monkey BJ, and his sidekick Sheila, as they load up the 18-wheeler and travel the country to find buyers for wayward banks. The trip is sure to be great fun for the whole family. There will be danger and resistance met along the way. But our heroes will not be kept from their mission of finding every defunct bank a new owner. They will sweeten the pot, make backroom deals, give out winks and backslaps to make sure that no bank goes without a buyer. You will laugh. You will cry. You will think that this little chimp and his sidekick are modern day matchmakers worthy of Fiddler on the Roof.Greenspan Acres:
Finding the city to be an inhospitable and unwelcoming place, now that he has helped to crash its economy, this big banker and his former news anchor wife flee the city to bask in the quiet and comfort of rural life. What they find is an adventure of foreclosed houses, foreclosed farms and meth labs as far as the eye can see. Our banker finds that the only friends he can make are with the 4-legged creatures that surround him. His wife, unable to find a plastic surgeon, tries to devise ever new and inventive ways to keep herself looking young. Join in each week as our city slickers find whacky adventures around every corner in Pottersville.
Cali $10K Home Buyer Tax Credit Raises Questions
Reporter Jim Wasserman of the Sacramento Bee had a couple of days to try to demystify details of a provision just passed into law in the California budget. He’s run into some stumbling blocks on information.
Hours after a new state budget produced a $10,000 tax credit for buyers of new, unoccupied houses in California, home builders began gearing up marketing campaigns around the surprise tax break hoping to spur new traffic to their models this weekend.
“We’re definitely getting the word out there as quickly as possible, and big as possible,” said Ian Cornell, a Sacramento spokesman for New Jersey-based K. Hovnanian Homes.
Builders and buyers alike also are trying to figure out exactly how the credit will work when it begins March 1. On Friday, as Gov. Arnold Schwarzenegger signed a state budget that eliminates a $40 billion deficit, it was still unclear whether the buyer or builder will process the request, what kind of paperwork it entails and what stage of the sales process a March 1 start applies to.
“It’s a little foggy right now,” acknowledged Mark Rowson, president of Costa Mesa-based Warmington Residential’s Northern California division. The firm has a development in Galt and is scouting Sacramento for new projects.
Whatever the initial uncertainty, builders say they’re thrilled. Unlike an $8,000 first-time homebuyer tax credit also approved by the federal government, the California version offers breaks for both first-time and move-up buyers. It also sets no limits on income, meaning even the most expensive homes qualify.
“It’s generated interest very quickly,” said Rowson.
The $10,000 tax credit surfaced late Sunday as part of Democrats’ state budget negotiations to win the vote of Rep. Roy Ashburn, R-Bakersfield. It gives anyone who buys a new house between March 1, 2009, and March 1, 2010, up to $3,333 off their taxes for each of the first three years after buying.
It’s generating excitement, but the devil’s in the details, and apparently one of them is a $100 million limit on the total credits to be awarded to home buyers for the program, as noted earlier by Calculated Risk.
Condo Phobia Grips MultiFamily Starts
From MultiFamily Executive, By Les Shaver: In the the single-family for-sale world, a certain level of speculative building practically needs to go on, seeing as how about half of the half-a-million intrepid souls a year who are still buying new homes want one that’s ready to move into.
That’s not the case with multifamily, where development and construction capitalization and business modeling are night and day different than for single family.
The starts that are still starting are ones that got funding well before credit became as rare as three-dollar bills, and before skittish prospective home buyers’ feet went from cold to frozen.
Multifamily Executive senior editor Les Shaver offers this analysis of multifamily housing starts as reported by the National Association of Home Builders.
The National Association of Home Builders (NAHB) reported yesterday that multifamily starts fell nearly 28 percent to a rate of 119,000 units-the lowest number the trade association has ever recorded.
To some, that news was better than expected. “I could have seen it [the decline in starts] being higher than that,” says Greg Bonifield, a principal with Woodfield Investments, based in Ashburn, Va.
Bonifield isn’t alone. In last week’s Multifamily Rental Market Index (MRMI) and Multifamily Condo Market Index (MCMI), which surveys builder confidence, market conditions fell to 22.4 for affordable apartments and 18.6 for market-rate apartments, compared to 45.3 and 40, respectively, at the same time a year ago.
On the condo side, the supply component fell 11 points from the fourth quarter of 2007, to hit a new record low of 7.8. (These quarterly NAHB surveys have a scale of 0 to 100, with a rating of 50 generally meaning positive and negative responses are the same level.)
The vaunted credit squeeze is behind the cliff dive in recent months, but it’s going to take longer than that to sort out normalized supply and demand levels.
California Steps Up Big Time on Home Buyer Tax Credit Plan
This is the post on the California Building Industry Association site:
A plan passed by the Legislature early Thursday to close a $42 billion budget gap included a homebuyer tax credit supported by CBIA.
SB 15XX, sponsored by Sen. Roy Ashburn (R-Bakersfield), contained CBIA’s tax credit concept. It had been introduced Saturday as the Legislature entered the final stages of putting a budget deal together and passed both the Senate and the Assembly by overwhelming margins. Though greater details on the homebuyer tax credit will be forthcoming, the following provides a brief summary of what SB 15XX authorizes:
• A tax credit of up to $10,000 (5 percent of home price or $10,000, whichever is less) for the purchase of a newly constructed, previously unoccupied home.
• Available starting March 1, and running until March 2010 or whenever the $100 million funding authority runs out.
• Allocated by the state’s Franchise Tax Board on a first-come, first-served basis (details still to be worked out).
• Paid out to home purchasers over three tax years in equal amounts (i.e. $3300 for 2009, $3300 for 2010, etc.).
• Purchasers must reside in the home for at least two years.
• There are no income limitations that have to be met by purchasers.
• There is no first-time homebuyer requirement.
• There is no repayment requirement (unless the purchaser sells or rents out the property before two years expire).
To help homebuilding companies prepare their marketing plans for the new tax credit, CBIA will soon be meeting with the Franchise Tax Board to iron out the mechanics involved in administering the program.
California’s one of the six to eight ground-zero states for new home builders, and a program that potentially catalyzes new-home purchases from among discretionary buyers who’ve been parrying on the sidelines waiting to seize the right moment could function as a pump primer and an example, perhaps, for other states.
Here’s what UBS home building analyst David Goldberg top-lined on the California program this a.m.
Credit Will Drive New Home Sales
* Recently, we’ve hosted calls with builders in the 4 main CA mkts. A consistent theme has been that prices were being driven down toward foreclosure levels, where profitability was close to zero or negative. Given that this credit is only available for new construction, it should significantly ease pricing pressure should this be signed into law.
We Continue to Forecast a 2H09 Trough
* That said, we believe the benefits from this plan won’t be sufficient to overcome the negative impact on consumer confidence from rising job losses. We still expect housing to trough (nationally) in 2H09, as the economic downturn slows.
Michael Rehaut, senior home building analyst at JP Morgan, also believes the upside effects of the program will be constrained by a dismal jobs and broader economic outlook. Here are some notes he’s recorded on the measure.
We believe this represents only a modest positive and does not materially alter, in our view, the overall negative trends currently in place in CA, led by high foreclosure levels and rising job losses, as well as weak consumer confidence, which should further push home prices downward. Critically, we note that the credit, which is received by homebuyers over three years, only applies for newly built, previously unoccupied homes, and therefore does not help move foreclosures or existing home inventory, which we believe is the core of the supply problem. In addition, the funding authority has a limitation of a $100 million budget, which, divided by $10K/home, results in only 10K homes being impacted at the most. Accordingly, while we believe this might provide a modest positive boost to homebuilders with above-average CA exposure, including KBH (N) and SPF (UW), overall, we do not believe this credit to be material enough to change our ratings on these names, and from a broader view, our negative sector stance.
Yes, we think housing’s price correction is not finished; and yes we believe that consumer confidence tied to job insecurity will govern behavior. But, we also believe in a counter-fear possibility. If people start to believe they will miss the opportunity of a generation to buy a new home, and they can attain the financing to do it, this type of incentive may be what the doctor’s ordered.
It’s worth trying. Standing inventory and deteriorating communities are a growing enemy, not only economically but from a morale standpoint.