what a relevant post for me today.

First, we just recently closed (this week it was recorded) a $35MM bank loan to continue on developing lots for sale in a massive (1000+ unit) residential development.

each of the next phase are 'pre-sold' to a major builder with deposits on hand. but of course, they could default and walk from the money.

we're pushing out another 200+ lots over the next 18 months to be priced in the mid 300's and be lakeside. not bad!

then, just today i was on the court house steps watching an auction with great interest.

it was about 100 acres that had 11.5MM in debt against it (non recourse). the developer went belly up and the auction took place.

lots of people there but no bidders.

bank bid 8.9MM and took it with one sentence.

our target price is $2MM

no use even registering as a bidder when we all knew the bank was taking it back.

aint no way they were going to take a multi million dollar hair cut on the court house steps.

wild times!

"DALLAS (AP) -- Homebuilder Centex Corp. reported a loss of $911 million in its fiscal fourth quarter, as sales tumbled 37 percent and the company wrote down the value of unsold homes, reflecting the ongoing turmoil in the nation's housing markets."

Cancellation rate may have fallen, but Centex is still bleeding. A billion dollars is no flesh wound.

chickenlittle: they have made most of the big payments on their debt. next one is August but itbis smaller than April.

"Gotta love the SWFs! More watered down IB, anyone?"

As I've said, I'm a novice: why do the SWFs keep doing this? An assurance that Uncle Sugar will take care of their new investment, or what?

Novice Has A Question said: "I know that the interest rate for purchasing a home is connected with the 10 year bond ...but how. Could someone take a moment and tell how the two connect...or refer me to a site that would explain the concept."

There's considerable info and historical data on this site if you poke around a bit...

Mortgage Indexes: CMT, Treasury Bill, MTA, COSI, COFI, LIBOR, CODI, CD, Prime Rate

...with some specific info on 10-years and fixed-rate mortgages here...

Treasury Market and Mortgage Rates

Sebastia

almost a billion dollar loss for CTX, many times more for the banks, trillions lost in homeowners equity. consumer's got no money left to spend, and foreigners got burned badly buying our AAA securities and are reluctant to buy more.

My question is: where would the Dow be now had all this not happened - if subprime induced crises never ocurred and the economy just kept on growing 3%-4% a year? 18,000?

jackk asked: "My question is: where would the Dow be now had all this not happened - if subprime induced crises never ocurred and the economy just kept on growing 3%-4% a year? 18,000?"

What makes you think that's not going to happen anyway?

A serious question, considering the relatively mild impact the "crises" have had on the economy so far.

Sebastia

Note that what this and the situation dc1000 described imply is that, going forward, survivng home builders will be able to build and sell profitably at prices far below the bubble levels. This will hasten the price collapse.

The same thing happened in Japan in the '90s after their real estate bubble popped. In fact, they had a echo mini-boom based on pent-up demand from people who had been unwilling to buy at the insane bubble prices. (But sales volume then resumed decline for a decade.)

Note that many of the bailout plans have as an implicit side effect making it possible for people to sell for less than the price they bought at without pain. Thus they, too, will hasten the return of housing prices to pre-bubble levels.

The pattern years ago for land development was that the developer and builder were different parties. The developer could often expect a City to install streets and utilities (since they were, in theory, paid for from taxes). The developer often sold to builders but would not get paid until the finished house sold.
Cities quit participating and required more and more up-front infrastructure by the developer, including parkland dedication, stormwater retention, extension of trunk utility lines... and that moved the game over to larger scale developers and to the major homebuilders. They still don't get paid until the house is sold, but now they have a lot more investment hanging out until that day arrives.

Chicken Little

Actually, they generated $1B in liquidity this quarter. Debt was down by $530MM and cash was up by $525.

FWIW, I'm not long or short the stock. CR isn't saying anyone is out of the woods yet, but we may be seeing the second derivative in the new home market start to change. In other words, the speed of decline may be starting to moderate, which is the first precursor to things getting better. Hard to predict how quickly the curve bends toward flat, but as an investor, you need to pay attention to things like this.

To be sure, the pricing adjustment isn't over, particularly for land (and the banks that have lent against it have plenty of losses still to be recognized) but it seems like the builders are moving closer to a market clearing price level for new product.

"I agree. Cashflow to keep the creditors at bay, for now. Burning the furniture to heat the house only lasts until you have no furniture left. Then what?"
barely

Then you go live in the REO down the street whose utilities are still connected.

"We're already beginning to work with banks on securing some land positions for the future, but of course that's going to be a process that takes some time, and we expect the latter half of this year."

CR failed to include the follow-up to this question...

Analyst -- "OK, sure. And why do you want lots? Moreover, and forgive me for asking such a question, but where do you think you will get the money to buy these lots from the banks? Are you going to liquidate your office furniture to buy lots so you can build houses that no one wants? Does that really seem like a good idea to you?"

It means the lots hit puberty and now need bras.

Developed lots generaly mean that the utilities are stubbed to the property. Often, curbs and gutters are in, the lot is graded, and the street is in. They are essentially ready to build.

As approval can take several years, the pipeline of develop lots can vastly out number demand once the bubble pops. It is like mass producing the hottest fashion and suddenly the fashion is completely out-of-fashion. The makers (or lot developers) are screwed.

"there may still continue to be pressure on prices from just the credit side."

Very good friend is a realtor with 15 years of experience, she often works with doctors. She has been showing houses to this doctor in the 2 million range for the last 6 weeks, she has constantly asked him to detail how is going to pay for 2 million dollars he wants her to show him and his wife. This week they found a property and he wants to put in a bid. How are you going to finance it? Direct quote: "Oh, I'll just get one of those zero-down things from the bank." (!!!) She wouldn't submit an offer without a bank letter, today he called and admitted that, he cannot get a loan for 2 million.

Not everyone has gotten the memo about the housing bust and credit crunch!