Single Family Homes: Comparing Starts and Sales
Submitted by
CalculatedRisk on Sun, 05/18/2008 - 12:21pm (17 comments)
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Yeah!!
I guess the party is with Tanta today.
For David Simon, chief executive of Simon Property Group (SPG.N: Quote, Profile, Research), the largest U.S. owner of malls and shopping centers, retail property may be less about dress this year and more about distress.
Real estate experts said they do not expect to see an overall fallout in retail real estate. But new construction and shopping centers that were either a part of a new residential development or were built to support one may not fare well. Properties in once-hot residential markets of southwest Florida; the California's Inland Empire areas, such as Riverside and San Bernardino; Phoenix; and Las Vegas are of particular concern.
Retail properties dressed for distress
| Reuters
Don't walk, run.
CR,
What does this mean for homebuilders? We have managed to avoid significant bankruptcies so far amongst homebuilders although you have posted of some homebuilder land deals under distress.
Mike Morgan via Mish:
Today I am convinced we are headed towards a Depression, and I dont see any means to avoid it.
Decession or Depression?
With all the doom and gloom,buyers were camped out at a new development in Phoenix last year so they could have first shot lots. Remember this is Phoenix, one of the most toxic housing markets in the country. Here's a link to a short article I wrote this morning about it-http://blog.metro-real-estate.com/. I can't quite figure out what it means, if anything. Possibly real buyers seeing value but shunning trashed foreclosures?
Slightly OT, for the Canadians that frequent here to marvel at the spectacle of the US housing debacle;
A Canadian couple engaging in the national pasttime of drinking excessively. Talk about too much time on your hands:
Canadian pierces lover's heart in botched sex game... Both had been drinking heavily and engaging in rough sex when he asked the woman to carve the symbol, the paper said.
Canadian pierces lover's heart in botched sex game
| Reuters
Baron, Liz, and others with an interest in condo documentation:
A few weeks ago I mentioned that some panelists at a conference had raised the issue of unit owners in flopped condos being forced out for less than they owed on the mortage.
After looking at a few Florida documents I did not come across any startling changes in the loan documents themselves. The project lenders recorded normal mortgage releases at the close of each unit sale.
The change appears to be in the condo declaration provisions for termination of the condominium. A project that was funded in 2005 and recorded its declaration in 2007 has the following termination provision:
The condo shall continue until terminated by casualty loss, condemnation, or "such time as withdrawal of the Condominium Property from the provisions of the Act is authorized by a vote of no less than 90% of all Voting Interests, by the Institutional First Mortgagees of Units to which at least sixty-seven percent (67%) of the voting interests of Units subject to mortgages held by Institutional First Mortgagees are appurtenant, and by a unanimous vote of all owners of Commercial Units."
The proposed declaration for a project that was funded in late 2006 and has not yet recorded its declaration has the following termination provision:
"At any time following the Declarant Control period, the Unit Owners may terminate the Condominium by an affirmative vote, the written consent, or combinations thereof, of Unit Owners who hold at least sixty-seven percent (67.00%) of all of the Voting Interests."
It appears to me that the termination provisions got much looser, and my impression is that this was how the lenders wanted it. A lender taking control of a project that had sold only 10 or 20% of units would have a pretty much unlimited ability to terminate the condo and force a partition, pushing out the individual unit owners at whatever price the market would bear. The lender could then convert to an apartment, a hotel or whatever offered the best return.
Thoughts?
The chart on starts looks like it declined 65% in 1980 and now.
Difference is interest rates were 15% in 1980 and 6% now and they still can't sell them.
Barely, yes we like to marvel but here where I live in Vancouver B.C. we have inventory skyrocketing, sales cliff diving, a price income ratio of about 15 to infinity for SFH, a complicit REComplex MSM pundit/economist symbiosis, ads for HELOCS constantly on the radio, all new employment created in the last few years a result of easy credit and construction with a simultaneous gutting of the real manufacturing economy ie. forestry (thanks Max Bauccus for the pure evil protectionist hypocrisy that you practice at our expense, maybe we should throw a 20,000% export tax on oil from the tarsands for an hour or two to remind you of what tit for tat is all about), our equivalent of Fannie and Freddie, CMHC, recently guaranteeing 0% down loans and 40 year terms with my tax dollars, a clueless sense of denial and "It's different here" pervading the air, two years worth of condos under construction as we speak, innovative financial products galore from all of the US mortgage shops that have set up here recently, get rich quick speculative mania all the rage, declining median real wages, and declining nominal under median wages.
Sound familiar.
There are many more similarities, so many more.
I could mention that Robert Shiller, back before he sold out (see previous thread), calling Vancouver BC the bubbliest city in North America.
I have been reading this site for a couple or three years now, I just want to have a better idea what's coming down the pike for us.
p.s.sorry about the runon sentence(s)
Hmmm. I just went to a conference and I think they said the Fla legislature had changed condo termination again. Didn't listen to that part too hard.
However, a condo dec must be filed in order to pass title. And you have the right to recind if they make
material changes to the condo, for, 15 days, I think.
That said, it used to be nearly impossible to terminate a condo, and
this was changed after that caused a problem after the destruction of hurricane Andrew. So the change was not for nefarious reasons at all, but I can see how evil or destroyed developers/lenders could take advantage of it.
I would argue that Institutional First Mtgees were intended to be meant, not construction acquisition or development lenders. I don't know if the condo statute--718, if anybody cares--defines Institutional First Mtgees, but that's how it's meant in typical in most condo docs.
If you read the whole declaration, I think you'd find this meaning supported.
On the other hand, a construction lender could certainly plausibly argue that it's institutional and first still on many units.
The law is being strained by circumstances that no one ever contemplated happening.
So you'd have to have no more than 10% sold, and 2/3rds of institutional first mtges. . .
Interesting Albrt.
Noble, even if starts are nearing the bottom, the homebuilders are banking on some sort of "recovery" with home sales picking up substantially. I doubt that will happen.
Best Wishes.
Liz:
Yes, the 2007 declaration defines Institutional First Mortgagees as the individual unit lenders.
So on that project, you would need 90% of unit voters, plus 2/3 of their mortgage lenders, plus all the commercial unit owners in order to terminate.
On the later project all you need is two thirds of voting interests, and it is so loosely written that the developer can arguably terminate unilaterally before turnover. Of course, there is a provision saying that there can be no amendments to the declaration that materially affect the mortgagees, but I think termination is its own category and probably doesn't fall into amendments.
I don't know if any of these very loose termination rule declarations have been recorded yet, so I don't know if a title company would flag the issue. Since they're insuring subject to the condo declarations, I'm not sure they would care.
CR,
Must say, I am disappointed by the first graph. It does not go back far enough and distorts (under illustrates) the problem. 1999-2000 was the top of the housing cycle and 2001 to +-2006 was the top of the bubble. If you include LT numbers (30 years), your graph would jump out and show the extent of the overbuilding problem. Even adding just 1988 to 1999 would be helpful. However, because housing is always cyclical, showing the top of a cycle to the top of a atypical bubble and down toward the bottom does not properly illuminate the real problem with supply and demand for the audience. IMO, you need to go further back or you will always significantly underestimate the extent of the inventory overhang.
Just a little critical analysis to help you refine your numbers. This is the one area where I think you misjudge the problem.
Calculated Risk,
I'm not sure about this statement:
"... It now appears that starts are running below sales, and completions have fallen to the level of sales. Note: when adjusted for cancellations, completions are probably also below sales, and the inventory of New Homes is finally declining."
Since a lot of reported sales fall through before closing, sales would have to be significantly higher than completions for the inventory to decline.
In regards to Condo docs and terminations.., several pools of nonperforming condo notes have hit the market recently. Many would fit under the terms described above. 10-20 % sales and the rest unsold or rented to provide some cash flow. The cash flow from rentals is not enough to provide P&I at original notes levels, but would probably work in the .30-.50 cents on the dollar for note amount. Anyone here have a chance to check any of these out?