It sounds like the elimination of down payment assistance is really scarring these guys...from today's conference call in response to a question abt recent trends involving DPAs:
"I think if you look at DPAs across the country they're a higher percentage because we're looking at a trailing two and three and four month percentage of our sales as being DPAs, and I think in the last three or four months the DPAs have become a bigger percentage. I think there's more weakness facing the industry simply because it's a bigger DPA number out there than most people realize."
earlier in the call he said 20% of last quarter's closings involved DPAs.
DR Horton was the poster child for over aggressive land purchasing at bubble prices. I think they had in excess of a 7 year inventory of land at the current bubble sales rates (much at bubble-logic, high cost bases)which probably equates to a 25 year inventory at todays sales rates. Now they are SOL. DR Horton, the mighty, will fall hard and it will be a coin toss whether they go BK.
Remember the 39% cancellation rate doesn't account for the absence of the DAP. Those will likely significanlty increase the Q4 cancellation numbers. If you want to lose a bunch of money, be a public homebuilder today.
and increase to 39% is bad from a particular perspective, but it clearly mashed analysts expectations of a 97% cancellation rate, therefore the stock is up, and a bottom is in sight...
I'm having a hard time trying to figure out why they WOULDN'T go bankrupt.
A 25 year supply of land? A 39 percent cancellation rate, which is likely to increase?
I think it's time to bring back the dotcom cash 'burn rate' analysis.
Or, start drinking more kool aid.
I'm surprised cancellations are up. The elimination of DAP just happened. And anyone interested in buying a house must already be aware of tightening credit, dropping prices, etc. In other words, who are these people who recently agreed to purchase a house, and then changed their minds or had their minds changed for them by lenders? If anything, I would expect cancellation rates to continue to decline, which I believe CR already predicted.
Big CFTC data revision raises oil traders' eyebrows
The big shift is all the more surprising, oil traders and analysts said, since the CFTC reclassified only one unidentified oil trader at the same time as the data revision.
"There may have been multiple 'positions' which were reclassified ... but they all appear to have been held by just one trader, and this was a very special trader, with an enormous concentration of positions in crude oil amounting to perhaps 460 million barrels, and not much interest in anything else," noted John Kemp of RBS Sempra Commodities.
Yossarian,
It was about a 25 year supply of land at today's sale rates. They have dumped some, but still have a huge inventory, and most of that inventory is probably worth much less than paid or wrote down.
Interesting info from Stanislaus County (California
Months Inventory based on sold homes 5.3 months (June 08 data)
Months Inventory based on pending sales 3.6 months
In close in DC months of inventory has been in the 4-6 month range for 2 years straight. Yet prices have not increased (then again, they havent decreased much either).
The real concern seems to be how are the neighboring counties doing. Once they are all in this 4-6 months range, you can probably expect price declines to abate.
"Interesting info from Stanislaus County (California
Months Inventory based on sold homes 5.3 months (June 08 data)
Months Inventory based on pending sales 3.6 months "
I'd like to know what's behind that. I did pick up the Modesto Bee back in the spring and read that rent rates and occupancy rates multi-unit properties were flat or declining because of the large number of SFHs being offered as rentals.
Have these been pulled off the market by flippers or REOs and rented out? Last summer I saw early-stage housing developments near Modesto that were basically abandoned. The developers had put up a couple of homes then gave up and just were trying to sell the improved lots.
LesIsMore, et al:
In Sacramento, an acquaintance is on the verge of purchasing one of the new downtown condos, priced around $400K. Due to cash-flow, he needs the DAP to qualify. He told me this week that the DAP still exists for another month, and he needs to close before September. If it doesn't, then he will bail on the purchase, and renegotiate a new price.
If DAP still exists, then we have not yet seen the impact of the DAP demise. We'll see it in the September sales data, late October.
RE cancellations:
possible parallel with the fact that price decline increases around the lowest sales seasons?
so indeed you would imagine more cancellations there too (psy)
so cancellation rate likely will increase next Q3 as well and beat last year's.
RE: low inventory in Stanislaus?
69.4 percent of sales in Stanislaus county were foreclosures in Q2. Surpassed by San Joaquin, (69.6) and Merced (73.3%) Perhaps not the preferred way to get rising sales, but apparently the banks are pricing them right.
There are those that say San Francisco is different; apparently true, only 5.1 % of SF sales were foreclosures.
( info from DataQuick)
It will be comical to see how a bunch of inbred hicks will "manage" their way out of this - bottom line - they have a lot of impairment yet to take and overhead to cut
There's an interesting phenomenon occurring in the bubble areas. Demand for housing was never the problem in bubble areas. The problem was ability to afford the payments and qualify.
Land is being re-cycled through the system and coming through the supply pipeline at prices 20-60% less than 2006 prices.
In high cost bubble areas land often comprises 50% or more of the cost of housing. Meanwhile construction costs have come down 15% from 2006 prices.
Builders today can buy land at the 2008 corrected prices, build houses, and sell them to consumers at prices 30-40% less than 2006 prices and still make a profit.
This will put downward pressure on values of existing supply in these areas. If you want to find out the cost for building in an area, there is a tool found at www.ushousingmeltdown.org
You enter in the zip-code, the quality level of house, Basic, Tract, Custom, or McMansion to get the cost per square foot for building. Once you have this add back the new corrected land costs and you'll have an idea of on where prices will settle in the area.
"Builders today can buy land at the 2008 corrected prices, build houses, and sell them to consumers at prices 30-40% less than 2006 prices and still make a profit."
New homebuilders can do this or ones that didn't take on any (or very little) land inventory. But, who will finance them in this market? Builders with existing inventory can write down the land to "make" a profit, but they are in fact losing money hand-over-fist. With demand low, prices falling, and lending standards tightening by the minute, this theory sounds good, but, in practice, doesn't work very often. Land investors, who are trying to raise money, are trying to sell this story to to get enough money to buy the land. Unfortunately, it is a story based on bad assumptions. The odds that they will be in a bad way when their leveraged land loan comes due is very high. 1 to 5 odds is worse than Vegas.
"KnotRP writes:
So it's a good time to buy or sell in Modesto?"
I'd say it's a good time to leave Modesto alone. If you need to live there, okay, jump in. But you could rent pretty cheaply there for a year or so to see if prices trend lower; I would price a large bet that they won't trend higher.
The only thing doing well out in Stanislaus is ag for food processing -- there isn't much else -- but most people in those lines of work don't make huge money, even in the front office. The housing market in Modesto will fill up when it's priced low enough for those people to afford to buy.
I know a realtor in Modesto who just made his first two sales in two years. The crash hit early in Stanislaus County. It was way overbuilt. Not everyone is willing to commute two hours each way in traffic to jobs in the bay area.
Re inbred hicks, my grandfather and father both grew up near Modesto. The ethnic mix is predominately swedish, armenian, portuguese, mexican, general anglo, often by way of Oklahoma, so Scotch-Irish-Indian, and many others. Give it 500 years and maybe they'll become inbred.
"Re inbred hicks, my grandfather and father both grew up near Modesto. The ethnic mix is predominately swedish, armenian, portuguese, mexican, general anglo, often by way of Oklahoma, so Scotch-Irish-Indian, and many others. Give it 500 years and maybe they'll become inbred."
My mom's people settled there, Portuguese. The extended family is Portuguese-Italian-Anglo-Mexican. In some ways the Swedes have receded into the background, but there are still plenty of Dunkerd (Anabaptist)women walking around in full dresses and headscarvees. And now you've got a lot of East Indians (Hindu, Sikh), Iranians and Iraqis, plus some Cambodias and Laotians.
Yes, there are plenty of old-school senior-citizen Fox-News-watching Okies and Arkies walking around, muttering darkly about how things have gone to hell (that's the other half of my heritage). That's partly because mostly their kids don't feel the way they do.
Life's not easy in Stanislaus, but it's way more multidimensional than it looks from a distance.
Thanks for the chart, CR. Horton's cancellation rate has been above 30% for 7 straight quarters. And if you throw in the 28-29% cancellation rate in 2Q 2006, that makes two whole years of much higher than Horton historical cancellation rates. It all appears to have started well before last year's credit crunch. And I also wonder - as another commenter mused - about the types of buyers right now who tried to buy a home in this environment but wound up cancelling the contract (39% in the last quarter!).
DHI has over $850M of cash and paid $59M of interest and $118M of dividends in the last quarter. If they cut the dividend, they can avoid BK for a long time. Of course, if some of their $3,668M notes payable are due soon, their lenders may force them off of life support. But, then how motivated are their lenders to take (admit to) more write-downs.
In southern Arizona, DHI is advertising "$500 moves you in".
CR - how prevalent is this type of offer and how is it impacting "sales" and cancellation rates?
DHI seems to be able to sell these mortgages as Mortgages held for sale decline from $523M on 9/30/07 to $246M on 6/30/08. When DHI sells mortgages that had "$500 moves you in" do they provide the buyer with recourse? Could DHI have a large off balance sheet liability for these guarantees?
"Of course, if some of their $3,668M notes payable are due soon, their lenders may force them off of life support. But, then how motivated are their lenders to take (admit to) more write-downs."
And what about their off balance sheet JVs? I imagine they have quite a few and they probably aren't performing well.
Please make your taxes made payable to DR Horton. Thank You.
The only way to get out of this mess is to build more at these low prices. Always dollar cost average your investment. Dont they listen to CNBC?
I do.
I do to.
Is there a clause in these contracts that allow the buyer a refund equal to the drop in value/equity after purchase.
It sounds like the elimination of down payment assistance is really scarring these guys...from today's conference call in response to a question abt recent trends involving DPAs:
"I think if you look at DPAs across the country they're a higher percentage because we're looking at a trailing two and three and four month percentage of our sales as being DPAs, and I think in the last three or four months the DPAs have become a bigger percentage. I think there's more weakness facing the industry simply because it's a bigger DPA number out there than most people realize."
earlier in the call he said 20% of last quarter's closings involved DPAs.
"earlier in the call he said 20% of last quarter's closings involved DPAs."
I had no idea DR Horton was a slumlord.
This is all well and good, but why is their stock down?
DR Horton was the poster child for over aggressive land purchasing at bubble prices. I think they had in excess of a 7 year inventory of land at the current bubble sales rates (much at bubble-logic, high cost bases)which probably equates to a 25 year inventory at todays sales rates. Now they are SOL. DR Horton, the mighty, will fall hard and it will be a coin toss whether they go BK.
WCI filed bankruptcy, I heard on NPR.
Time to bring back the DAP?
Lawyerliz,
If you were a true CR addict you would've heard it here first yesterday
...really scarring these guys
I'm not sure if that was a typo or intentional, but it works.
The elimination of DAP really seems to be a huge and painful first step to correcting the housing market.
CR, good post but why inject fundamentals and reality into a spin cycle pumping the XLF. That would be a downer news story, can't have that.
Remember the 39% cancellation rate doesn't account for the absence of the DAP. Those will likely significanlty increase the Q4 cancellation numbers. If you want to lose a bunch of money, be a public homebuilder today.
and increase to 39% is bad from a particular perspective, but it clearly mashed analysts expectations of a 97% cancellation rate, therefore the stock is up, and a bottom is in sight...
....man, this koolaid tastes like almonds...
Almond koolaid..........Love it!
I'm having a hard time trying to figure out why they WOULDN'T go bankrupt.
A 25 year supply of land? A 39 percent cancellation rate, which is likely to increase?
I think it's time to bring back the dotcom cash 'burn rate' analysis.
Or, start drinking more kool aid.
Wasn't it in May that DR Horton reported declining cancellation rates?
"Horton Hears a WTF"...
I'm surprised cancellations are up. The elimination of DAP just happened. And anyone interested in buying a house must already be aware of tightening credit, dropping prices, etc. In other words, who are these people who recently agreed to purchase a house, and then changed their minds or had their minds changed for them by lenders? If anything, I would expect cancellation rates to continue to decline, which I believe CR already predicted.
Big CFTC data revision raises oil traders' eyebrows
The big shift is all the more surprising, oil traders and analysts said, since the CFTC reclassified only one unidentified oil trader at the same time as the data revision.
"There may have been multiple 'positions' which were reclassified ... but they all appear to have been held by just one trader, and this was a very special trader, with an enormous concentration of positions in crude oil amounting to perhaps 460 million barrels, and not much interest in anything else," noted John Kemp of RBS Sempra Commodities.
Big CFTC data revision raises oil traders' eyebrows
| Reuters
If it smells like crap it probably is. GS
What are the developers going to about all these half-built Miami style condos popping up all over the country? Lets see them cancel those...
"Horton Hears a WTF"...
Welcome to WTFivlle...
half-built Miami style condo buildings
Yossarian,
It was about a 25 year supply of land at today's sale rates. They have dumped some, but still have a huge inventory, and most of that inventory is probably worth much less than paid or wrote down.
Interesting info from Stanislaus County (California
Months Inventory based on sold homes 5.3 months (June 08 data)
Months Inventory based on pending sales 3.6 months
Source: Trendgraphix
CA Builder,
Sounds like a good market. However, since the housing bust is systematic, I'd like to know how accurate those number really are.
blackhat,
oh that is darkly funny, man - a little NaCN sweetener for the koolaid!
somewhat OT:
The Shire
, a 31-home "Hobbit-themed" development in Bend, OR is being foreclosed. I'm sure Sauron's behind all this. Oh dear.
CA Builder
In close in DC months of inventory has been in the 4-6 month range for 2 years straight. Yet prices have not increased (then again, they havent decreased much either).
The real concern seems to be how are the neighboring counties doing. Once they are all in this 4-6 months range, you can probably expect price declines to abate.
"Interesting info from Stanislaus County (California
Months Inventory based on sold homes 5.3 months (June 08 data)
Months Inventory based on pending sales 3.6 months "
I'd like to know what's behind that. I did pick up the Modesto Bee back in the spring and read that rent rates and occupancy rates multi-unit properties were flat or declining because of the large number of SFHs being offered as rentals.
Have these been pulled off the market by flippers or REOs and rented out? Last summer I saw early-stage housing developments near Modesto that were basically abandoned. The developers had put up a couple of homes then gave up and just were trying to sell the improved lots.
So it's a good time to buy or sell in Modesto?
LesIsMore, et al:
In Sacramento, an acquaintance is on the verge of purchasing one of the new downtown condos, priced around $400K. Due to cash-flow, he needs the DAP to qualify. He told me this week that the DAP still exists for another month, and he needs to close before September. If it doesn't, then he will bail on the purchase, and renegotiate a new price.
If DAP still exists, then we have not yet seen the impact of the DAP demise. We'll see it in the September sales data, late October.
RE cancellations:
possible parallel with the fact that price decline increases around the lowest sales seasons?
so indeed you would imagine more cancellations there too (psy)
so cancellation rate likely will increase next Q3 as well and beat last year's.
Not mentioned by CR is that horton lost 400M, 80% more than analysts hoped... how long can this go on before BK?
RE: low inventory in Stanislaus?
69.4 percent of sales in Stanislaus county were foreclosures in Q2. Surpassed by San Joaquin, (69.6) and Merced (73.3%) Perhaps not the preferred way to get rising sales, but apparently the banks are pricing them right.
There are those that say San Francisco is different; apparently true, only 5.1 % of SF sales were foreclosures.
( info from DataQuick)
It will be comical to see how a bunch of inbred hicks will "manage" their way out of this - bottom line - they have a lot of impairment yet to take and overhead to cut
Isn't the DAP alive and well? I just receive an email solicitation this morning offering the DAP via Quicken loans
There's an interesting phenomenon occurring in the bubble areas. Demand for housing was never the problem in bubble areas. The problem was ability to afford the payments and qualify.
Land is being re-cycled through the system and coming through the supply pipeline at prices 20-60% less than 2006 prices.
In high cost bubble areas land often comprises 50% or more of the cost of housing. Meanwhile construction costs have come down 15% from 2006 prices.
Builders today can buy land at the 2008 corrected prices, build houses, and sell them to consumers at prices 30-40% less than 2006 prices and still make a profit.
This will put downward pressure on values of existing supply in these areas. If you want to find out the cost for building in an area, there is a tool found at
www.ushousingmeltdown.org
You enter in the zip-code, the quality level of house, Basic, Tract, Custom, or McMansion to get the cost per square foot for building. Once you have this add back the new corrected land costs and you'll have an idea of on where prices will settle in the area.
"Builders today can buy land at the 2008 corrected prices, build houses, and sell them to consumers at prices 30-40% less than 2006 prices and still make a profit."
New homebuilders can do this or ones that didn't take on any (or very little) land inventory. But, who will finance them in this market? Builders with existing inventory can write down the land to "make" a profit, but they are in fact losing money hand-over-fist. With demand low, prices falling, and lending standards tightening by the minute, this theory sounds good, but, in practice, doesn't work very often. Land investors, who are trying to raise money, are trying to sell this story to to get enough money to buy the land. Unfortunately, it is a story based on bad assumptions. The odds that they will be in a bad way when their leveraged land loan comes due is very high. 1 to 5 odds is worse than Vegas.
"KnotRP writes:
So it's a good time to buy or sell in Modesto?"
I'd say it's a good time to leave Modesto alone. If you need to live there, okay, jump in. But you could rent pretty cheaply there for a year or so to see if prices trend lower; I would price a large bet that they won't trend higher.
The only thing doing well out in Stanislaus is ag for food processing -- there isn't much else -- but most people in those lines of work don't make huge money, even in the front office. The housing market in Modesto will fill up when it's priced low enough for those people to afford to buy.
That's "ag or food processing"
I know a realtor in Modesto who just made his first two sales in two years. The crash hit early in Stanislaus County. It was way overbuilt. Not everyone is willing to commute two hours each way in traffic to jobs in the bay area.
Re inbred hicks, my grandfather and father both grew up near Modesto. The ethnic mix is predominately swedish, armenian, portuguese, mexican, general anglo, often by way of Oklahoma, so Scotch-Irish-Indian, and many others. Give it 500 years and maybe they'll become inbred.
"Re inbred hicks, my grandfather and father both grew up near Modesto. The ethnic mix is predominately swedish, armenian, portuguese, mexican, general anglo, often by way of Oklahoma, so Scotch-Irish-Indian, and many others. Give it 500 years and maybe they'll become inbred."
My mom's people settled there, Portuguese. The extended family is Portuguese-Italian-Anglo-Mexican. In some ways the Swedes have receded into the background, but there are still plenty of Dunkerd (Anabaptist)women walking around in full dresses and headscarvees. And now you've got a lot of East Indians (Hindu, Sikh), Iranians and Iraqis, plus some Cambodias and Laotians.
Yes, there are plenty of old-school senior-citizen Fox-News-watching Okies and Arkies walking around, muttering darkly about how things have gone to hell (that's the other half of my heritage). That's partly because mostly their kids don't feel the way they do.
Life's not easy in Stanislaus, but it's way more multidimensional than it looks from a distance.
Thanks for the chart, CR. Horton's cancellation rate has been above 30% for 7 straight quarters. And if you throw in the 28-29% cancellation rate in 2Q 2006, that makes two whole years of much higher than Horton historical cancellation rates. It all appears to have started well before last year's credit crunch. And I also wonder - as another commenter mused - about the types of buyers right now who tried to buy a home in this environment but wound up cancelling the contract (39% in the last quarter!).
"Red said...
There are those that say San Francisco is different; apparently true, only 5.1 % of SF sales were foreclosures."
Same thing here Red. 5.4% of Arlington VA sales were foreclosures - how long can this continue.
DHI has over $850M of cash and paid $59M of interest and $118M of dividends in the last quarter. If they cut the dividend, they can avoid BK for a long time. Of course, if some of their $3,668M notes payable are due soon, their lenders may force them off of life support. But, then how motivated are their lenders to take (admit to) more write-downs.
In southern Arizona, DHI is advertising "$500 moves you in".
CR - how prevalent is this type of offer and how is it impacting "sales" and cancellation rates?
DHI seems to be able to sell these mortgages as Mortgages held for sale decline from $523M on 9/30/07 to $246M on 6/30/08. When DHI sells mortgages that had "$500 moves you in" do they provide the buyer with recourse? Could DHI have a large off balance sheet liability for these guarantees?
Thanks for the all the info and education!
Anonymouse.
Strangely enough, sometimes I have to work. Sometimes I have to fight the additction.
"Of course, if some of their $3,668M notes payable are due soon, their lenders may force them off of life support. But, then how motivated are their lenders to take (admit to) more write-downs."
And what about their off balance sheet JVs? I imagine they have quite a few and they probably aren't performing well.
STOP BUILDING! WE NEED LESS SUPPLY MORONS!