That is an interesting story - I am keen to get a hint of how things are going for Hovnanian - particularly due to observations made by Robert C. and MoM on an earlier thread regarding the systemic risk for new home purchase levels for the rest of the year if these events do not deliver...which seems unavoidable to me.
ShortCourage, I'm on the west coast - it's still early!
tj & the bear, it will be interesting to see if these heavily advertised promotions succeed in moving some inventory. I'm sure HOV will be asked how many homes they sold this weekend - and if they are smart they've already signed up some buyers (earlier in the week) to make sure this isn't an ugly event. We did this all the time at trade shows - hold a few contracts and have them signed at the show so we could announce deals at the show and try to create some buzz.
"Checks sent out by the troubled American Home Mortgage Investment Corp. to pay the property taxes of more than 70 homeowners in the Baltimore metropolitan area have bounced, local officials said yesterday.
...
If the problem isn't resolved and homeowners can't manage to pay the taxes themselves - for a second time - they "risk having their home go up for tax sale," Robinson said"
Along with all the default foreclosures, now we can add the tax sales from the failure of mortgage servicing.
It is an honor and delight to provide our beloved Tanta with her favorite business writer from the NY Times none other than the world class and gifted Gretchen Morgenson.
Fair Game - It's Just a Matter Of Equity (let the love fest begin!)
Website slowdown caused by high demand for "The Deal"
The K. Hovnanian Family of Builders has been experiencing unprecedented demand across our website. You may experience slower than normal response time as you look for your Deal of the Century.
My Dad was a broker / builder and he used to joke about how many brokers talked about the "Deal of the Century". In the real estate business, the "deal of the century" comes along almost every year!
Spot checking the Meritage flyer pinned builder costs around 3-8% less than the "was" price fwiw. I'm curious about typical builder costs. Anybody have rough numbers, maybe in $/ft2 and excluding land prices, for an entry level, mid-level, and high end homes. I would expect regional variation, but am just looking for rough numbers.
There is a HOV condo. project in oceanside, CA that I visited two month ago and price for plan 2 was $475K, Now the price is droped to $395K. Still it is toooooo expensive. These unites do not worth more than $150/sqft, which make them around 1550sqft X $150/sqft = $ 233K.
I think these so called SALES are going to be a bust.
By now it is clear that all "securatization" did was establish a new level of pricing in the hoising market. It did not made 'access to homes" easier it just made it pricier and thus less "accesable" over the long run (for example to anyone that is just starting out)
who else will fail because banks wanted to grow 15-20% a year ?????? (not just banks grow like that)
A 5,220 square-foot home, ready to move into immediately, is priced at $1.7 million in Morris Township, New Jersey, according to Hovnanian's Web site. The three-story house has five bedrooms and 6 1/2 baths and a three car garage.
In San Diego our contractor came in low with about $90 sq ft and the newspaper estimated up to 130 sq ft at the high end. We did some of the finish work ourselves.
I work for a builder in OC as a purchaser and I can build tracts homes out in the IE for $55 per SF all day long. K Hov's prices are probably better than mine.
From the website eurointelligence:
"FAZ on the real effects of the crisis
In an editorial, FAZ quotes a comment by ECB president Jean Claude Trichet that this banking crisis still has a few months to run. Nobody knows the exact extent of the extent to which banks will have to adjust their balance sheets, once they take on the debt of their conduits. The end-September bank balance sheets will give some clue as to the scale of the problem. So far the equity markets have shrugged any problems, as has the real economy, but this is unlikely to remain the case."
Northern Rock-"The article says the bail-out is a devastating blow for the bank, which has become one of the largest mortgage lenders in the UK, and whihc is now unlikely to remain independent."
why can't ppl in this world say things for what they are. It's unlikely to stay in business. which is to stay they will go bankrupt.
Jean Marc Vittori in Les Echos asks provocatively (or not) whether the market, where the interaction of supply and demand determines the price for a traded good, is still the appropriate concept for the world of international finance. While the market was efficient for large production industries of homogenous goods it is less clear in the financial world, with sudden supply shocks, a segmentation of clients and customized products. The great advantage of a market is that a price is established, the only question in finance is what the price reflects. "
this is so ridiculous. leave it to a financier/banker to redefine the mkt esp. when things aren't going their way. it no longer depends on supply/demand what u can fetch in the mkt prices. it's what we bankers say the value is. we know better than the mkt. u commoners just trust us.
agreed.
Vittori neglects the very real possibility that the supply or demand curve can shift so far that they DON"T intersect (or intersect at
In this case it is possible that the demand curve for many of these esoteric financial products has shifted all the way to the left, becoming a verticle line at $0. thus, it only intersects the supply curve at 0 units
(like this:)
*D*****S
||****/
||***/
||**/
||*/
||/_______
or the other possibility is that the supply curve has shifted to the right and demand has shifted to the left, so that the lines no longer intersect, or intersect at 0
the implications for the 2 are quite different.
In the first case, the demand is actually 0. This is what many of the Investment bankers have been claiming, when they say "there is no bid!" IF this is true, then the financial market is done, as there is no new demand.
the second case can be realigned with time. the bankers are hoping that the demand curve will shift to the right.. but it may be necessary for them to shift their supply curve to the left instead... this would of course cause huge losses for them, since they've set their supply curve based on what they "need" to get a profit (like many idiot homeowners trying to sell). it is also what is feared once the investment downgrades happen, and once that first sale occurs... suddenly everyone will need to write off their losses in the mark-to-mystery model they're using... which may unfreeze their supply curve. I imagine their curve looks like this: (with a floor on supply)
Entry Level homes (less than 2000 sq ft) are built for aprox. $44-$48 sq ft ex land. Our family tract home building company became a take-over target in spring 05 and I discussed cost figuers with ALL the big guys. I can only speak to entry level.
I am hearing from people in the know, that the banks that now own these mortgages (due to the Bankruptcies)are that the mortgages are all still being paid, the problem comes from the "forced sale's", due to by-laws in the SPV's. There are no buyers...or rather no buyers at a reasonable price as they know the banks MUST sell.
The K. Hovnanian Family of Builders has been experiencing unprecedented demand across our website. You may experience slower than normal response time as you look for your Deal of the Century.
Maybe they should sell advertising on their site and become the next Google?
As for the California "Sale of the Century!", I visited their overloaded web site (no performance problems for me) and saw that their sales is centered in and around the greatly distressed Sacramento market.
And of course other builders are doing the same as it is now they are all pretty much desperate to generate cash.
Thought your McMansion street would be full of soccer moms? Wrong-o - you just moved into a neighborhood of communes and multi-family housing
Diana Olick has a funny (sad-funny, not funny-funny) report from the scene of the Great-Hovnanian-Going-Out-of-Business-Sale, on a screwed Hovnanian homedebtor who not only lost $100,000+ by making the mistake of buying a Hovnanian home, but tells Diana to look around at who's living in his neighborhood's homes.
Soccer moms and future Harvard grads? Wine and cheese parties? You know, like the brochure?
Nope.
Communes of people pooled together with subprime loans. And you just know there's some grow houses in the 'hood too...
Ouch. That's gotta suck.
Hovnanian Homes: From Upscale To Communal Living?
These are all pretty big homes, out here in the middle of strip-mall nowhere land, and they boast many levels with many rooms. The houses are all in about the $400,000 range, so no jumbo loans necessary. Gregg seemed very upset about the "element" of people that are now filling these homes, especially since he says Hovnanian described this as an "upscale" community. He says that because the homes are so big, there are multiple families living in each home, which by the way is against the zoning laws here.
I looked around the driveways, and I have to say, there were an awful lot of cars in many of them for just one family. He claims very low-income families are pooling their money, much of which came, he believes, from subprime loans, and living communally.
Good luck selling anything besides trailers and meth in Victorville - easily one of the butt-ugliest places in California you'll ever come across.
Actually, one of the incentives on Hovnanian's "Model 2" 3 bed 5 bath house in their Buckingham Forests Victorville subdivision is a free "Lab Conversion" that adds a sink, gas hookups, and fume hood to the den.
And Ara Hovnanian believes we're very near a market bottom. When we're only a fraction of the way through the underlying cause, with most of the resets in front of us AND factor in a time delay, inventory still rising, HOW, how could someone wishing to retain their credibility make such a statement. Even Lenny from Mice and Men would realize such folly. Tell us about the bunnies again Ara, we'll believe you.
That's no jest? I'm a very gullible guy (fell for the urban myth story of the guy in the bathtub without his kidneys), so I really am wondering if that "added feature" you mentioned is stuck in a brochure somewhere.
That's no jest? I'm a very gullible guy (fell for the urban myth story of the guy in the bathtub without his kidneys), so I really am wondering if that "added feature" you mentioned is stuck in a brochure somewhere.
son of zinger | 09.16.07 - 10:37 am | #
You weren't kidding when you said you were gullible.
And Ara Hovnanian believes we're very near a market bottom.
Hovnanian has been saying this for at least 9 months. It was back at the beginning of the year when he made his (maybe not so famous) analogy to the market being like the outline of a boat. That the market had declined from the stem to the bottom of the boat and that now it would even out as it ran along the bottom.
Either he misjudged the height of the stem, or he failed to account for the keel.
At least his analogy didn't suppose a quick recovery. And he still doesn't. No one, not even a slick salesman, would make such a claim now.
I'm as big a housing bear as anyone, but that LA times article is getting too much "press." One reporter visiting one development in one city, does not a trend make.
For all we know based on the data out so far, Hovnanian has already sold 2,000 homes.
Looks like we're about on schedule. Many investors forgot the seasonality of RE. Next we're going to get the REO liquidation. Once all of the sellers in the high inventory locations REALLY SEE how prices aren't coming back, they will cave. Then the higher net worth investors, that have been running negative cash flow REALLY SEE how prices aren't coming back, will sell.
We are not going to get a REO liquidation. That's the real 800lb gorilla at this point. If Hovnanian or Countrywide or any other holder of large housing inventory starts selling because they've lowered prices to market clearing numbers they kill the remaining asset value. I've been watching one specific house near me owned by CFC and languishing on the market. Last month $1.2m. This month cleaned up and $949k. Placed on an auction site with unknown reserve price but unable to garner an opening bid in the $600s. This is one of the most expensive properties on the CFC REO site. If they explicitly marked to market with a 20% cut and haven't actual found a market there then it implies the other $2.5bn of inventory just took $500m off the asset value of CFCs holdings.
Same with HOV. If and when they close on any of these deals at these lower prices they've impaired future earning estimates and asset value a like amount. Not that their announcement tomorrow will have any value. Someone will need to see how many were actually contracted and just non-binding leters of intent and then follow carefully how many fall through or undergo price changes to get them actually closed. Don't forget to subtract out any "bulk" purchases. Those are not "sold" in the sense that they become housing until there's a minvan in the driveway.
<a href="http://sbbeachbubble.blogspot.com/2007/09/visit-to-standard-pacifics-village-on.html>I actually visited Standard Pacific's Village On Oak projects Bayberry and Acacia yesterday.
I would describe the interest level I saw as a "steady trickle."
"For all we know based on the data out so far, Hovnanian has already sold 2,000 homes."
Home builders work just like any other retailer: accumulation, mark-up, distribution, mark-down until we get this crap off of the books.
They aren't in the home building business they are in the money business just like GM isn't in the car business. The question one needs to ask is if this is such a great deal why do you want to sell it to me.
I went to the website,most of these developments seem to be in fringe or marginal areas with shaky economies and long commutes.roberts comment about what percentage of "sales" will actually close is important.$5 down and a signature is all that is needed to report a "sale".so what if it is a dishwasher earning $6 an hour with a 320 fico? KHOV can report a sale!lots of sales!! the market has turned!!! buy now or be priced out forever!!!! The Hosing market lives!!!!! yes I did mean HOSING.
I conclude that we will get an REO liquidation. It's a question of when. The numbers are growing to overwhelming proportions. Between the run rate and the bondholders wanting some principle back, the log jam will break free.
you should all ignore this one, i'm just amusing myself with an example of calculating points for note rates from HMBS (assumes you've already calculated the optimal GSE passthrough coupon for a 30yr fixed at 6%):
Servicing values:\t\t
Base servicing\t 1.00\t 1.00
(25 bps w/ 4x multiple)\t\t
Excess servicing
(net of 20 bps g-fee) 0.00\t 0.70
(20 bps g-fee, assumes
4x multiple)\t\t
G-fee buydown\t -0.60\t 0.00
(the 6.25% note must buy
down the g-fee, no
buydown required for the
6.625% b/c it can be paid
out of the note rate after
servicing)\t\t
Value of servicing and
buydowns 0.40\t 1.70
\t\t
Gross Value\t 101.40\t102.70
(MBS price +
Servicing value
+ orig. income)\t\t
Total costs\t 2.00\t 2.00
(origination, admin,
hedging, targeted profit)\t\t
Net Value\t 99.40\t 100.70
\t\t
Gross Points
(100 less net value)\t 0.60\t -0.70
Same with HOV. If and when they close on any of these deals at these lower prices they've impaired future earning estimates and asset value a like amount.
That's the next shoe to drop. If you look at the current price-to-book for almost all homebuilders, they are at levels well below what might be considered fair. HOV's pb is .36 fer cryin' out loud.
So why aren't investors snapping up shares? Because that "value" is predicated on inventories that have not been marked down to market. HOV has $3.8B in inventory.
Reduce that by 10 or 20 percent, as it should be, and the balance sheet ignites like a roman candle.
here is a great article from wash post re the effects of the housing downturn on a florida city. CR, if you take the home equity graph back to 2000 or 2001 levels, what $ are taken out of the economy? what if this level turns negative? this could happen as lenders foreclose on delinquent home equity lines.
I work for a builder in OC as a purchaser and I can build tracts homes out in the IE for $55 per SF all day long. K Hov's prices are probably better than mine.
lunatic fringe
So your calling HOV's bluff on there cost basis?
2000 sq ft cost @110k.
list at 439
discount @ 389
below cost @ 369
We'll $55 per foot it can be delivered to the back of YOUR truck. But that assumes whoever builds it has no overhead and doesn't pay for
the crane or parking lot or the guy who estimated it.
Land and fees can be over 1/2 of the price in some CA communities, model costs, sales, marketing, financing.
Its getting like chip manufacturing where teh cost of silicone is negligible.
Just check out their annual reports . . . losses = below cost.
Hah! My wife and I have seen "Aliso" in Southern California on sale for at least a year or maybe even 2. I can't believe anyone would buy after they've sat for so long.
Stan has it right: that LA Times article got way more circulation than it deserved. It said next to nothing of value and didn't even mention a current price range for tract houses, much less the changes that have occurred over the past few months.
In the Victorville area, some builders cut $100k off their prices a while ago and are still making a profit selling in the $250k range. They are selling less and building less, and building smaller (more 1800sf rather than 2500sf), but still in business.
My guess is that they will finish the tracts that have been started and adjust pricing as they go. I wouldn't expect any paper tracts to break ground.
FYI Hovnanian doesn't even have a tract in Victorville.
The Diana Olick syndrome is the future. I predict that by this time next year we will see the first story about a formerly upscale Homeowners' Association voting to purchase an old school bus so the homeowners can commute together to their daily business meetings at the Home Depot parking lot.
CR, if you take the home equity graph back to 2000 or 2001 levels, what $ are taken out of the economy? what if this level turns negative?
$4+T in equity gone, but all the debt remains. The average mortgaged homeowner will have zero or negative equity. Residential real estate will never be the same afterward.
Hi
On a radio station out the Walnut Creek, Calif area I just heard an ad that if you buy a house from this builder this weekend no payments for the 1st year. I missed the builders name but this sounds about right.
jo6pac
I can hardly wait for the day when you open a new bank account they give you house. At what ever bank is left standing.
The reason you need more bathrooms than bedrooms is because there will be 4 families living there to make the payment. 20-30 people need a lot of bathrooms.
Damn, you're up late tonight CR.
Not just HOV. As I posted earlier, Meritage is doing the same thing:
belowbuildercost.com
The more, the merrier!
That is an interesting story - I am keen to get a hint of how things are going for Hovnanian - particularly due to observations made by Robert C. and MoM on an earlier thread regarding the systemic risk for new home purchase levels for the rest of the year if these events do not deliver...which seems unavoidable to me.
and tj & the bear!
ShortCourage, I'm on the west coast - it's still early!
tj & the bear, it will be interesting to see if these heavily advertised promotions succeed in moving some inventory. I'm sure HOV will be asked how many homes they sold this weekend - and if they are smart they've already signed up some buyers (earlier in the week) to make sure this isn't an ugly event. We did this all the time at trade shows - hold a few contracts and have them signed at the show so we could announce deals at the show and try to create some buzz.
Best Wishes.
American Home Mortgage is bouncing checks for tax payments
"Checks sent out by the troubled American Home Mortgage Investment Corp. to pay the property taxes of more than 70 homeowners in the Baltimore metropolitan area have bounced, local officials said yesterday.
...
If the problem isn't resolved and homeowners can't manage to pay the taxes themselves - for a second time - they "risk having their home go up for tax sale," Robinson said"
Along with all the default foreclosures, now we can add the tax sales from the failure of mortgage servicing.
It is an honor and delight to provide our beloved Tanta with her favorite business writer from the NY Times none other than the world class and gifted Gretchen Morgenson.
Fair Game - It's Just a Matter Of Equity (let the love fest begin!)
It’s Just a Matter of Equity - New York Times
CR: a typo: "Hovnanian" not "Hovanian"
New Home Builders - K. Hovnanian® Homes®
I like the quote at their web site:
Website slowdown caused by high demand for "The Deal"
The K. Hovnanian Family of Builders has been experiencing unprecedented demand across our website. You may experience slower than normal response time as you look for your Deal of the Century.
DannyHSDad, thanks - I fixed the typo.
My Dad was a broker / builder and he used to joke about how many brokers talked about the "Deal of the Century". In the real estate business, the "deal of the century" comes along almost every year!
Best Wishes.
Centex is still offering 100% finacing to those with subpar credit. This game of chicken is still going on.
Spot checking the Meritage flyer pinned builder costs around 3-8% less than the "was" price fwiw. I'm curious about typical builder costs. Anybody have rough numbers, maybe in $/ft2 and excluding land prices, for an entry level, mid-level, and high end homes. I would expect regional variation, but am just looking for rough numbers.
Thanks,
There is a HOV condo. project in oceanside, CA that I visited two month ago and price for plan 2 was $475K, Now the price is droped to $395K. Still it is toooooo expensive. These unites do not worth more than $150/sqft, which make them around 1550sqft X $150/sqft = $ 233K.
I think these so called SALES are going to be a bust.
No news so far, but the stock found buyers.
who else do we know is grwoing at such rate ?
Why Northern Rock was doomed to fail - Telegraph
By now it is clear that all "securatization" did was establish a new level of pricing in the hoising market. It did not made 'access to homes" easier it just made it pricier and thus less "accesable" over the long run (for example to anyone that is just starting out)
who else will fail because banks wanted to grow 15-20% a year ?????? (not just banks grow like that)
Here a deal
A 5,220 square-foot home, ready to move into immediately, is priced at $1.7 million in Morris Township, New Jersey, according to Hovnanian's Web site. The three-story house has five bedrooms and 6 1/2 baths and a three car garage.
In San Diego our contractor came in low with about $90 sq ft and the newspaper estimated up to 130 sq ft at the high end. We did some of the finish work ourselves.
I work for a builder in OC as a purchaser and I can build tracts homes out in the IE for $55 per SF all day long. K Hov's prices are probably better than mine.
From the website eurointelligence:
"FAZ on the real effects of the crisis
In an editorial, FAZ quotes a comment by ECB president Jean Claude Trichet that this banking crisis still has a few months to run. Nobody knows the exact extent of the extent to which banks will have to adjust their balance sheets, once they take on the debt of their conduits. The end-September bank balance sheets will give some clue as to the scale of the problem. So far the equity markets have shrugged any problems, as has the real economy, but this is unlikely to remain the case."
article
Northern Rock-"The article says the bail-out is a devastating blow for the bank, which has become one of the largest mortgage lenders in the UK, and whihc is now unlikely to remain independent."
why can't ppl in this world say things for what they are. It's unlikely to stay in business. which is to stay they will go bankrupt.
"The end of the market
Jean Marc Vittori in Les Echos asks provocatively (or not) whether the market, where the interaction of supply and demand determines the price for a traded good, is still the appropriate concept for the world of international finance. While the market was efficient for large production industries of homogenous goods it is less clear in the financial world, with sudden supply shocks, a segmentation of clients and customized products. The great advantage of a market is that a price is established, the only question in finance is what the price reflects. "
this is so ridiculous. leave it to a financier/banker to redefine the mkt esp. when things aren't going their way. it no longer depends on supply/demand what u can fetch in the mkt prices. it's what we bankers say the value is. we know better than the mkt. u commoners just trust us.
"The three-story house has five bedrooms and 6 1/2 baths"
Okay... who the FUCK needs more bathrooms than bedrooms?
Jesus. No wonder this country's economy is in trouble. There's living well, and then there's idiocy.
idoc:
agreed.
Vittori neglects the very real possibility that the supply or demand curve can shift so far that they DON"T intersect (or intersect at
In this case it is possible that the demand curve for many of these esoteric financial products has shifted all the way to the left, becoming a verticle line at $0. thus, it only intersects the supply curve at 0 units
(like this:)
*D*****S
||****/
||***/
||**/
||*/
||/_______
or the other possibility is that the supply curve has shifted to the right and demand has shifted to the left, so that the lines no longer intersect, or intersect at 0
*D*********S
|********/
|*******/
|******/
|*****/
|____/______
the implications for the 2 are quite different.
In the first case, the demand is actually 0. This is what many of the Investment bankers have been claiming, when they say "there is no bid!" IF this is true, then the financial market is done, as there is no new demand.
the second case can be realigned with time. the bankers are hoping that the demand curve will shift to the right.. but it may be necessary for them to shift their supply curve to the left instead... this would of course cause huge losses for them, since they've set their supply curve based on what they "need" to get a profit (like many idiot homeowners trying to sell). it is also what is feared once the investment downgrades happen, and once that first sale occurs... suddenly everyone will need to write off their losses in the mark-to-mystery model they're using... which may unfreeze their supply curve. I imagine their curve looks like this: (with a floor on supply)
*D********S
|*******/
|******/
|******|
|******|
|______|_____
(sorry for astericks, couldn't figure out how to put a space in there)
ack...
haloscan deleted my demand curve...
well, hopefully that post made a little sense.
that said, it's ominous for Financials indeed that Haloscan just arbitrarily removed the demand curve!
Entry Level homes (less than 2000 sq ft) are built for aprox. $44-$48 sq ft ex land. Our family tract home building company became a take-over target in spring 05 and I discussed cost figuers with ALL the big guys. I can only speak to entry level.
Plasma?? So 2003...
Deal of Century (the remix):
Curated Felony
Encored Faulty
Acne Yodel Turf (Sandy Ego surf & turf)
Fecal Node Yurt (especially in the Inland Empire)
How about a special for speculators-buy one, get one free?
The slice of the market that wants to buy a house is very small.
Very few companies are lending to a fog-a-mirror customer.
Why would someone who resisted all of the real estate appreciation of the last few years buy now at the beginning of a down run?
How many could get out of their existing house and mortgage now and take on a new house?
How many people expect their income to be sufficient for the new mortgage rates ans rules?
Much further to go down.
I am hearing from people in the know, that the banks that now own these mortgages (due to the Bankruptcies)are that the mortgages are all still being paid, the problem comes from the "forced sale's", due to by-laws in the SPV's. There are no buyers...or rather no buyers at a reasonable price as they know the banks MUST sell.
Banker
Looks like someone will get a great deal.
is it time to start calling it the "hosing" market?
The K. Hovnanian Family of Builders has been experiencing unprecedented demand across our website. You may experience slower than normal response time as you look for your Deal of the Century.
Maybe they should sell advertising on their site and become the next Google?
As for the California "Sale of the Century!", I visited their overloaded web site (no performance problems for me) and saw that their sales is centered in and around the greatly distressed Sacramento market.
And of course other builders are doing the same as it is now they are all pretty much desperate to generate cash.
Good luck selling anything besides trailers and meth in Victorville - easily one of the butt-ugliest places in California you'll ever come across.
I am "short" RE. On East Coast.
Looking everything I see needs a 30% haircut to get me in the car to look.
North Rock online savings site is still down. This doesn't sound like a technical glich.
I'm now worried about my online only savings account as in Ing Direct.
"There are no buyers...or rather no buyers at a reasonable price"
Sometimes zero is the reasonable price, value is in the eye of the beholder.
Thought your McMansion street would be full of soccer moms? Wrong-o - you just moved into a neighborhood of communes and multi-family housing
Diana Olick has a funny (sad-funny, not funny-funny) report from the scene of the Great-Hovnanian-Going-Out-of-Business-Sale, on a screwed Hovnanian homedebtor who not only lost $100,000+ by making the mistake of buying a Hovnanian home, but tells Diana to look around at who's living in his neighborhood's homes.
Soccer moms and future Harvard grads? Wine and cheese parties? You know, like the brochure?
Nope.
Communes of people pooled together with subprime loans. And you just know there's some grow houses in the 'hood too...
Ouch. That's gotta suck.
Hovnanian Homes: From Upscale To Communal Living?
These are all pretty big homes, out here in the middle of strip-mall nowhere land, and they boast many levels with many rooms. The houses are all in about the $400,000 range, so no jumbo loans necessary. Gregg seemed very upset about the "element" of people that are now filling these homes, especially since he says Hovnanian described this as an "upscale" community. He says that because the homes are so big, there are multiple families living in each home, which by the way is against the zoning laws here.
I looked around the driveways, and I have to say, there were an awful lot of cars in many of them for just one family. He claims very low-income families are pooling their money, much of which came, he believes, from subprime loans, and living communally.
Good luck selling anything besides trailers and meth in Victorville - easily one of the butt-ugliest places in California you'll ever come across.
Actually, one of the incentives on Hovnanian's "Model 2" 3 bed 5 bath house in their Buckingham Forests Victorville subdivision is a free "Lab Conversion" that adds a sink, gas hookups, and fume hood to the den.
And Ara Hovnanian believes we're very near a market bottom. When we're only a fraction of the way through the underlying cause, with most of the resets in front of us AND factor in a time delay, inventory still rising, HOW, how could someone wishing to retain their credibility make such a statement. Even Lenny from Mice and Men would realize such folly. Tell us about the bunnies again Ara, we'll believe you.
gng | 09.16.07 - 10:22 am | #
gng,
That's no jest? I'm a very gullible guy (fell for the urban myth story of the guy in the bathtub without his kidneys), so I really am wondering if that "added feature" you mentioned is stuck in a brochure somewhere.
I do forsee a the mariuana and meth prices dropping significantly in the next year. Is there any way to short that market? I am already long Sudafed.
That's no jest? I'm a very gullible guy (fell for the urban myth story of the guy in the bathtub without his kidneys), so I really am wondering if that "added feature" you mentioned is stuck in a brochure somewhere.
son of zinger | 09.16.07 - 10:37 am | #
You weren't kidding when you said you were gullible.
And Ara Hovnanian believes we're very near a market bottom.
Hovnanian has been saying this for at least 9 months. It was back at the beginning of the year when he made his (maybe not so famous) analogy to the market being like the outline of a boat. That the market had declined from the stem to the bottom of the boat and that now it would even out as it ran along the bottom.
Either he misjudged the height of the stem, or he failed to account for the keel.
At least his analogy didn't suppose a quick recovery. And he still doesn't. No one, not even a slick salesman, would make such a claim now.
I'm as big a housing bear as anyone, but that LA times article is getting too much "press." One reporter visiting one development in one city, does not a trend make.
For all we know based on the data out so far, Hovnanian has already sold 2,000 homes.
Sta
Looks like we're about on schedule. Many investors forgot the seasonality of RE. Next we're going to get the REO liquidation. Once all of the sellers in the high inventory locations REALLY SEE how prices aren't coming back, they will cave. Then the higher net worth investors, that have been running negative cash flow REALLY SEE how prices aren't coming back, will sell.
The negative feedback loop is initializing...
We are not going to get a REO liquidation. That's the real 800lb gorilla at this point. If Hovnanian or Countrywide or any other holder of large housing inventory starts selling because they've lowered prices to market clearing numbers they kill the remaining asset value. I've been watching one specific house near me owned by CFC and languishing on the market. Last month $1.2m. This month cleaned up and $949k. Placed on an auction site with unknown reserve price but unable to garner an opening bid in the $600s. This is one of the most expensive properties on the CFC REO site. If they explicitly marked to market with a 20% cut and haven't actual found a market there then it implies the other $2.5bn of inventory just took $500m off the asset value of CFCs holdings.
Same with HOV. If and when they close on any of these deals at these lower prices they've impaired future earning estimates and asset value a like amount. Not that their announcement tomorrow will have any value. Someone will need to see how many were actually contracted and just non-binding leters of intent and then follow carefully how many fall through or undergo price changes to get them actually closed. Don't forget to subtract out any "bulk" purchases. Those are not "sold" in the sense that they become housing until there's a minvan in the driveway.
<a href="http://sbbeachbubble.blogspot.com/2007/09/visit-to-standard-pacifics-village-on.html>I actually visited Standard Pacific's Village On Oak projects Bayberry and Acacia yesterday.
I would describe the interest level I saw as a "steady trickle."
"For all we know based on the data out so far, Hovnanian has already sold 2,000 homes."
Home builders work just like any other retailer: accumulation, mark-up, distribution, mark-down until we get this crap off of the books.
They aren't in the home building business they are in the money business just like GM isn't in the car business. The question one needs to ask is if this is such a great deal why do you want to sell it to me.
I went to the website,most of these developments seem to be in fringe or marginal areas with shaky economies and long commutes.roberts comment about what percentage of "sales" will actually close is important.$5 down and a signature is all that is needed to report a "sale".so what if it is a dishwasher earning $6 an hour with a 320 fico? KHOV can report a sale!lots of sales!! the market has turned!!! buy now or be priced out forever!!!! The Hosing market lives!!!!! yes I did mean HOSING.
Robert Coté,
I conclude that we will get an REO liquidation. It's a question of when. The numbers are growing to overwhelming proportions. Between the run rate and the bondholders wanting some principle back, the log jam will break free.
you should all ignore this one, i'm just amusing myself with an example of calculating points for note rates from HMBS (assumes you've already calculated the optimal GSE passthrough coupon for a 30yr fixed at 6%):
Note Rate:\t 6.25\t 6.625
Optimal passthrough
coupon:\t 6.00\t 6.00
MBS passthrough price:\t101.00\t101.00
Servicing values:\t\t
Base servicing\t 1.00\t 1.00
(25 bps w/ 4x multiple)\t\t
Excess servicing
(net of 20 bps g-fee) 0.00\t 0.70
(20 bps g-fee, assumes
4x multiple)\t\t
G-fee buydown\t -0.60\t 0.00
(the 6.25% note must buy
down the g-fee, no
buydown required for the
6.625% b/c it can be paid
out of the note rate after
servicing)\t\t
Value of servicing and
buydowns 0.40\t 1.70
\t\t
Gross Value\t 101.40\t102.70
(MBS price +
Servicing value
+ orig. income)\t\t
Total costs\t 2.00\t 2.00
(origination, admin,
hedging, targeted profit)\t\t
Net Value\t 99.40\t 100.70
\t\t
Gross Points
(100 less net value)\t 0.60\t -0.70
oops wrong thread, sorry
Same with HOV. If and when they close on any of these deals at these lower prices they've impaired future earning estimates and asset value a like amount.
That's the next shoe to drop. If you look at the current price-to-book for almost all homebuilders, they are at levels well below what might be considered fair. HOV's pb is .36 fer cryin' out loud.
So why aren't investors snapping up shares? Because that "value" is predicated on inventories that have not been marked down to market. HOV has $3.8B in inventory.
Reduce that by 10 or 20 percent, as it should be, and the balance sheet ignites like a roman candle.
here is a great article from wash post re the effects of the housing downturn on a florida city. CR, if you take the home equity graph back to 2000 or 2001 levels, what $ are taken out of the economy? what if this level turns negative? this could happen as lenders foreclose on delinquent home equity lines.
Sunbelt City in Grasp of Housing Undertow - washingtonpost.com
I work for a builder in OC as a purchaser and I can build tracts homes out in the IE for $55 per SF all day long. K Hov's prices are probably better than mine.
lunatic fringe
So your calling HOV's bluff on there cost basis?
2000 sq ft cost @110k.
list at 439
discount @ 389
below cost @ 369
that's still quite a gap
How about a special for speculators-buy one, get one free?
Put up a little partitioned kiosk in the nearest K-mart and sell them K-Mart style: BOGO-50 (Buy one, get one 50% off).
A 25 pct haircut should be just about right for some of these places.
We'll $55 per foot it can be delivered to the back of YOUR truck. But that assumes whoever builds it has no overhead and doesn't pay for
the crane or parking lot or the guy who estimated it.
Land and fees can be over 1/2 of the price in some CA communities, model costs, sales, marketing, financing.
Its getting like chip manufacturing where teh cost of silicone is negligible.
Just check out their annual reports . . . losses = below cost.
Hah! My wife and I have seen "Aliso" in Southern California on sale for at least a year or maybe even 2. I can't believe anyone would buy after they've sat for so long.
Stan has it right: that LA Times article got way more circulation than it deserved. It said next to nothing of value and didn't even mention a current price range for tract houses, much less the changes that have occurred over the past few months.
In the Victorville area, some builders cut $100k off their prices a while ago and are still making a profit selling in the $250k range. They are selling less and building less, and building smaller (more 1800sf rather than 2500sf), but still in business.
My guess is that they will finish the tracts that have been started and adjust pricing as they go. I wouldn't expect any paper tracts to break ground.
FYI Hovnanian doesn't even have a tract in Victorville.
Lets look at a tract already started. . .
Land - paid for
Streets/improvements - paid for
Fees - paid for
Model complex - paid for
Financing - 1/2 paid for
All they need to do is spend a few more % of the hard cost budget and then they can recover the outflow with sales.
The only way most of these will show profits now is with the sunk costs written down to current market.
The Diana Olick syndrome is the future. I predict that by this time next year we will see the first story about a formerly upscale Homeowners' Association voting to purchase an old school bus so the homeowners can commute together to their daily business meetings at the Home Depot parking lot.
CR, if you take the home equity graph back to 2000 or 2001 levels, what $ are taken out of the economy? what if this level turns negative?
$4+T in equity gone, but all the debt remains. The average mortgaged homeowner will have zero or negative equity. Residential real estate will never be the same afterward.
Hi
On a radio station out the Walnut Creek, Calif area I just heard an ad that if you buy a house from this builder this weekend no payments for the 1st year. I missed the builders name but this sounds about right.
jo6pac
I can hardly wait for the day when you open a new bank account they give you house. At what ever bank is left standing.
jo6pac, that's Pulte. They also have a an advertisement in this weekend's SF Chron.
Of course, anyone with a room temperature IQ will know that you will only get this "deal" if you pay full price for the home or condo.
The reason you need more bathrooms than bedrooms is because there will be 4 families living there to make the payment. 20-30 people need a lot of bathrooms.