But that's the point. During the boom land banking was a great business practice. Not only did it make their existing property appear more desireable but it froze out potential competition.
It just isn't a sustainable business model except in boom times and every single one of the homebuilders was sure they were the smartest guy in the room and could unwind first when the boom leveled off. They still think they are the smartest guy in the room and that with just a little more cash they can survive to scoop up the fallen market share of dead competitors.
I have suspicion that in many markets in California homebuilders could cut their prices by double digit percentages and still make a profit. Anyone know what kind of margin most builders "enjoy" - especially in the bubble markets?
Robert, i think the "land bank" was part of the story that gave the "smartest guys in the room" cover while they took the cash. Nearly all executives were selling very aggressively near the top. Maybe they were the smartest guys in the room.
Homeowners are almost always slower than builders to bite the bullet and cut their asking prices. That's why prices on sales for existing homes haven't dropped as precipitously as prices for new homes.
Homeowners, esp that large segment that is done paying mortgages, has little pressure to lower prices. This is the reason: they generally can afford to wait until they get their price, unlike the committed builders who are paying for that waiting period.
Homeowners have emotional baggage and are unable to dollar cost average unlike the HBs who are able to apply both to their advantage making it more difficult and more necessary for them to adjust price.
Profit margins for builders were running close to 40% in Northern California at the peak.They have some room.
Perhaps... depends on how much "leverage" they used for land, construction loans, etc., to amplify their gains while the good times rolled. 30%, even 20% off might kill off the weaker ones.
Does anyone remember the argument that homebuilders wouldn't suffer during the "next" (that is, this) downturn because they insisted on a big pre-payment before they built, rather than the "build-it-and-hope-they-buy" that was common in the last run-up?
Another beautiful theory slain by the ugly facts. Guess no-one pre-payed for the "land-banc". Where's the FLIC when you need it?
My momma knew that getting it over quickly was best. A professor at Rice University proved the same thing in relation to tax policy. My question is: If you get to the bottom and find out that everyone who wants one has a house, what will drive the market up?
I read the article in my hard copy of BW that came this afternoon. It's a cover story, so I wonder whether the cover story investors will use it as a signal to buy housing stocks.
The take home message for me is how hard this hits the recent customers of the builders. For a while the bulders used "incentives" to avoid hurting their recent customers. I think that this will really increase foreclosure rates. What happens when a builder starts selling the last few hundred homes in a big development at 100k less that most homes were priced at? This means that everyone is underwater and essentially no one can refinance or sell. The builders had better hope that they can sell the last homes quickly and get out of the area quickly.
And another thing (although somewhat OT) - can anyone explain to me how resets escape being a big bad thing for the economy. I mean either people make their payments and have less money for buying stuff to support the economy or they don't and lots of capital evaporates. It looks like a lose-lose to me. Am I missing something?
As an old military person there were a few places you never bought a house; even though living on base you gave up the tax free housing allowance which you could then pay on a mortgage and get a tax deduction.
But in some areas the building business, due to large land bank assets, was so routine and continuous that you knew in three years when it was time to sell you would compete with new houses.
The builders are competing with the sales of potential clienets.
20-30 year old employment is nowhere near expectations. Low salaries, meaningless service level jobs subject at any moment to tele-outsourcing, against rising cost of living which is far, far above Fed "CPI";
30-40 year old employment at salaries only a fraction of prior decades for same level of training and experience. Retiring principals are turning the screws on associates against flat-line mid-level job opportunities;
40-50 year old employment seems OK, there is more than enough retirement for them to step into the boomer's shoes, and a recognized shortage of people with quality job skills;
50-60 year old employment is being crushed, musical chairs, RIF's just pre-pension, a standard lament, become a howl, in the face of real cost growth and credit shrinkage.
The 20-30's are still living at home with 40-50's and late-starting 50-60's, which is nothing new, but becoming national pandemic.
And assisted-living is the fastest growing industry for new jobs and construction, in essence, a fine seine net set to capture the last effusion of wealth from the go-go 80's, before the tragedy of the dot-con debacle rears it's ugly head, Mom and Pop unable to retire, and Jr still stuck living at home.
I was thinking, man, if I could have 10 properties, I could just kind of retire ... and kick back and live off the income," says Rowberry, a nuclear safety inspector.
Please spell this out for me - I can't wrap my head around this concept after reading it from numerous sources.
Same as FBs selling off their toys to make their mortgage payment. When you need cash to survive, you sell whatever assets you have to get it -- usually at a loss.
The homebuilder took loans to purchase land, of late expensive land. Payments on this land must be made and the HB can't get rid of the land unless he builds houses on it. Really is anybody buying large tracts of land these days so the only way to turn the land is to build the parcels. Otherwise, the land loan bleeds the HB dry. The "land bank" concept only works if they purchased the land outright.
A friend related a second hand story to me. Earlier this year, a guy got a $100k mark down on a home purchase in Hampton Roads. The builder told the buyer he had to move the house before the bank would give him anymore money to start another. It's all about cash flow and the bank controls the spigot. Unfortunately, the banks are in the righty tighty mode.
We all knew the housing bubble was unsustainable. You simply cannot lend money cheap to everyone far in excess of affordability and expect it to last.
To me, the U.S. economy is just a larger version of the housing bubble -- completely unsustainable. High levels of debt, addiction to cheap credit, overspending/overconsumption at all levels, etc.
I hear plenty of arguments why the economy won't crash, or at least crash that hard, due to the obvious near-term challenges. However, I have yet to hear any arguments as to how the existing, highly dysfunctional system can continue indefinitely well into the future.
Bill -- That's the problem in a nutshell and why this has years to run. If you buy a $500k home and now it's $400k for people to buy a new one (which means yours is more like $375, if not upgraded) you are screwed. And remember, where are those $500k homes? Yup, the land of I/O. Look at the percentage of homes in markets that are still bubbles where current buyers are still going in with terrible loan terms. There is no way in hell any of these refi. It is this behavior of the builders that guarantees the next traumatic moment in the financial markets, when we realize that the silly writeoffs that banks are doing now arent nearly the end of the game. Gonna get purty ugly in three months...
Entirely unsustainable--the only reason the economy grew at all in the past 7 years is because of housing.
Retail growth, job growth, financial services growth, auto sales, boat sales, growth in luxe services for the middle class--all a function of housing. That is where I think many of the economists and market analysts are missing the mark with their predictions.
And, the housing market is not overbuilt in just a minor way.
Not only do all people who wanted a house have one (or two or three), people who really didn't want a house (but didn't want to miss out), ot that really couldn't want a house(because they couldn't afford it) all have houses and enormous debt resulting from it.
The overhang of unsold houses will remain for many years because of the drop-out in ownership rates due to the simple inability to pay.
Multiple years of population growth resulting in an additional cohort of financially sound people will be required to burn up the existing stock. By that time, many of the newer cracker-boxed will have rotted away or been stripped to the studs.
Builders really screwed their shareholders big time when they bought back $Billions in shares in 05 & 06. Coming back to haunt them in spades as it forces them to burn the furniture to heat the house as they lose money faster and faster.
Execs of course lined their pockets nicely, fiercely selling their own stock into the buybacks because they were in the best position to see where the market was headed. The stock market is great way to get filthy rich if you're an exec. I'd be pissed off if I were long HB shares.
km4: "The irony or perhaps fallacy is most middle to upper middle class Americans are still think housing with be their salvation investment."
Once these people realize that their retirement fund is gone, watch out. One of my in-laws just came to the grips with the fact that his $400K house is now selling for $250K. Travel plans and golfing schedule has been drastically slashed. I'm curious to see what gets cut when the house is sub 200K.
The current over/under on the inheritance is $100.
Ten years or so, the papers were full of stories about the coming housing crash as baby boomers tried to sell going into retirement. Well, instead they bought two, three or four more houses. In addition, gen X and Y bought into this market as well. Now we are going into a crash with the baby boomer adjustment still looming. Only now the leading edge of those boomers are 60. Even for those not forced to sell due to mortgage costs will be putting the old homestead on the market as they settle down to retirement. But rather than buy something smaller, they'll just be moving to the summer home they bought in 2005. Of course, they may have to ride out a few more winters in the snow since the cash machine is broken.
The resale market will eventually have to realign...
Reminds me that I stumbled across a brilliant real-estate-agentism today in a listing for a 3 year old town home across the street from half a dozen brand new ones:
I was thinking, man, if I could have 10 properties, I could just kind of retire ... and kick back and live off the income," says Rowberry, a nuclear safety inspector.
We need a Simpsons episode starring Homer to fill in the details.
sustainable???
Pray for the smooth sailing of Asian Economy. Pray for the non-stop influx of cheap illegal immigrants. When Asia become autonomous and Asians stop their procreation, the music will stop. At present rate, it is sustainable for another century.
Krugman's perceptions as usual are right on target.
Strangely though I have expressed those same views on this blog times before- and have been largely ignored or attacked.
The divisions between the rich (who have see as Krugman noted have seen their wealth soar 296% in the last 30 years, while the middle class has grown 13% says all.
Its the Robber Barron's Gilded age again mixed in with the roaring 20s- we can thank the conservative republican revolution of the last 30 years.
However people in the country are now waking up to this- and realize they are like a person standing in the middle of Main street with no clothes on.
BBC reporting that UK subprime loans(8% of loans) make up 70% of foreclosures. Good to see subprime is contained to english speaking countries.
Between this, Northern Rock & the HSBC report being insanely bearish on sterling(says hot money will bail and completely decouple from euro), does anybody know of a vehicle to be short the pound?
The homebuilder took loans to purchase land, of late expensive land. Payments on this land must be made and the HB can't get rid of the land unless he builds houses on it. Really is anybody buying large tracts of land these days so the only way to turn the land is to build the parcels. Otherwise, the land loan bleeds the HB dry. The "land bank" concept only works if they purchased the land outright.
- I thought that all the big builders bought land options instead of land and are letting their options expire. So, at least the big home builders do'nt have this problem, right?
MK:
Not quite. Many HB's did land options, but many also bought the land. Also, many did land options and then EXERCISED them right at the end of the bubble.
Thus, they have a lot of high priced land just sitting there.
They also have years and years of development/planning costs sunk into many a project... all at substantial cost.
Not to mention half built developments.
It all adds up over time... all of that has a payment to make (to the bank).
One thing to remember, the HBs HAD a lot of cash at one time... but during bubble mania they used a lot of that cash to bid up "prime" parcels from one another, and then they used a LOT of it to buy back stock to prop up the stock price (so that insiders could sell their stock of course) Rediculous!
the rationale at the time (which never made sense) was that they woudn't need the cash itself, because the land they hold would be their "land bank".
so now the big HB's are in a pickle. Razor thin free cash... and a very cash intensive business.
They thus will rely on the banks to fund their operations... but the banks have had a change of heart.
Thus, they have little cash, they need LOTS of cash, and they have lots of assets. So they sell the assets to raise the cash.
the more crunched they get, the more discounts we'll see. (or they'll just go BK).
I'm not entirely sold on sterling cracking, but I can see where it's vulnerable to manipulation. The economy seems to be a mirror image o the US, but it's only saving grace is that it's capital markets are more favorable to investors. Would t-bill yields have to move up another 30 basis points to start the move, or would it be less?
"but it's only saving grace is that it's capital markets are more favorable to investors"
but is it enough to overcome possible/probable coupling to the US/international markets?
it would seem to me that the UK will go down with the US due to this coupling...
We may be surprisingly more "globalized" than we realize, at least in terms of the financial markets... people borrow in Yen to invest in the UK/US and lever up using off balance entities in yet other countries...
And my (very weak) understanding is that the UK has become more favorable than the US due to less onerous regulation required (i.e. no Sarbanes Oxley). I've seen time and time again what the financial wizards can/will do when regulation is not required/enforced.
I, too, would love to see how to get insight as to the British state of things. I get and read the Economist... but it often has this "it can't happen here, but can in the States" bend to it. as example, they literally speak of US lenders lending to "trailer park trash" while neglecting that many UK borrowers are no better in the buy to let program... (there just aren't trailers in the UK!) reminds me of Californians talking about how "trailer trash" in "flyover land" would lose money in RE, but not on the Coasts because "everybody wants to live here"
Interesting article in the local Sunday paper today on a 40% decline in kitchen make overs this year compared to last. They say that 1. With falling home prices, such upgrades no longer are recovered if the home is sold and 2. Tightening home equity loans and falling home prices are causing MEW to dry up. Both of these reasons seem on the money to me. It's good to see newspaper articles that provide a little realism about our country's economic state.
Wow, the neighbors who moved in last fall buying a nicely remodeled 40 year old tract home with a small lot for 850k just bailed Friday. Self employed with nothing down. They did take their really nice furniture and Hummer with them. It is listed in MLS but they pulled the sign down after one day. Apparently they new better then to try. These homes sold for 200k ten years ago and reached the 800k level for a few at the peak. Now a few are selling in the low 600k and inventory is building up. It is okay though, because we are on the coast and have great schools. Who wouldn't overpay for that.
First!
...the "land bank" fallacy during the boom
But that's the point. During the boom land banking was a great business practice. Not only did it make their existing property appear more desireable but it froze out potential competition.
It just isn't a sustainable business model except in boom times and every single one of the homebuilders was sure they were the smartest guy in the room and could unwind first when the boom leveled off. They still think they are the smartest guy in the room and that with just a little more cash they can survive to scoop up the fallen market share of dead competitors.
I have suspicion that in many markets in California homebuilders could cut their prices by double digit percentages and still make a profit. Anyone know what kind of margin most builders "enjoy" - especially in the bubble markets?
That liquidation is in their pants now.
My take on why analysts are totally wrong about housing, because they look at homes like a standard business!
Economic Disconnect: Saturday Disconnect on TV
Robert, i think the "land bank" was part of the story that gave the "smartest guys in the room" cover while they took the cash. Nearly all executives were selling very aggressively near the top. Maybe they were the smartest guys in the room.
This "why" is a not a reason but a reiteration:
Homeowners, esp that large segment that is done paying mortgages, has little pressure to lower prices. This is the reason: they generally can afford to wait until they get their price, unlike the committed builders who are paying for that waiting period.
We are visiting Colorado Springs for the weekend. Staggering amount of new commercial construction and huge homes. This still has a long ways to go.
Homeowners have emotional baggage and are unable to dollar cost average unlike the HBs who are able to apply both to their advantage making it more difficult and more necessary for them to adjust price.
Profit margins for builders were running close to 40% in Northern California at the peak.They have some room.
Profit margins for builders were running close to 40% in Northern California at the peak.They have some room.
Perhaps... depends on how much "leverage" they used for land, construction loans, etc., to amplify their gains while the good times rolled. 30%, even 20% off might kill off the weaker ones.
Does anyone remember the argument that homebuilders wouldn't suffer during the "next" (that is, this) downturn because they insisted on a big pre-payment before they built, rather than the "build-it-and-hope-they-buy" that was common in the last run-up?
Another beautiful theory slain by the ugly facts. Guess no-one pre-payed for the "land-banc". Where's the FLIC when you need it?
Front page link on Yahoo at the moment...
Boom, bust in area beset by foreclosures
My momma knew that getting it over quickly was best. A professor at Rice University proved the same thing in relation to tax policy. My question is: If you get to the bottom and find out that everyone who wants one has a house, what will drive the market up?
I had just started reading this blog article when my spouse metions some news that seems to fit:
Page Not Found - cbs5.com
I read the article in my hard copy of BW that came this afternoon. It's a cover story, so I wonder whether the cover story investors will use it as a signal to buy housing stocks.
The take home message for me is how hard this hits the recent customers of the builders. For a while the bulders used "incentives" to avoid hurting their recent customers. I think that this will really increase foreclosure rates. What happens when a builder starts selling the last few hundred homes in a big development at 100k less that most homes were priced at? This means that everyone is underwater and essentially no one can refinance or sell. The builders had better hope that they can sell the last homes quickly and get out of the area quickly.
And another thing (although somewhat OT) - can anyone explain to me how resets escape being a big bad thing for the economy. I mean either people make their payments and have less money for buying stuff to support the economy or they don't and lots of capital evaporates. It looks like a lose-lose to me. Am I missing something?
golden age of the USA middle class 1940-1980
Yes that's right - see chart
Introducing This Blog - Paul Krugman Blog - NYTimes.com
The irony or perhaps fallacy is most middle to upper middle class Americans are still think housing with be their salvation investment.
NOT !!!
Oh boy a lot of these people are in for a rude awakening....
Is October the month when the other shoe drops?
As an old military person there were a few places you never bought a house; even though living on base you gave up the tax free housing allowance which you could then pay on a mortgage and get a tax deduction.
But in some areas the building business, due to large land bank assets, was so routine and continuous that you knew in three years when it was time to sell you would compete with new houses.
The builders are competing with the sales of potential clienets.
20-30 year old employment is nowhere near expectations. Low salaries, meaningless service level jobs subject at any moment to tele-outsourcing, against rising cost of living which is far, far above Fed "CPI";
30-40 year old employment at salaries only a fraction of prior decades for same level of training and experience. Retiring principals are turning the screws on associates against flat-line mid-level job opportunities;
40-50 year old employment seems OK, there is more than enough retirement for them to step into the boomer's shoes, and a recognized shortage of people with quality job skills;
50-60 year old employment is being crushed, musical chairs, RIF's just pre-pension, a standard lament, become a howl, in the face of real cost growth and credit shrinkage.
The 20-30's are still living at home with 40-50's and late-starting 50-60's, which is nothing new, but becoming national pandemic.
And assisted-living is the fastest growing industry for new jobs and construction, in essence, a fine seine net set to capture the last effusion of wealth from the go-go 80's, before the tragedy of the dot-con debacle rears it's ugly head, Mom and Pop unable to retire, and Jr still stuck living at home.
Add rapid US$ decline, credit fees > 28%, 1999 market chop, stir well, serve hot.
credit to Oldman Lincol
"sell them at a loss - just to liquidate land to make their debt payments"
Please spell this out for me - I can't wrap my head around this concept after reading it from numerous sources.
I was thinking, man, if I could have 10 properties, I could just kind of retire ... and kick back and live off the income," says Rowberry, a nuclear safety inspector.
ohhhh sh*t
It's pretty hot in the reactor room....
no worries...it'll cool down...hey, check out this house on ebay... i'm gonna bid on it, too...bart said
I can easily see Angelo Mozilo as a sidekick character in the Simpsons.
Don't you agree?
Pop quiz:
"We have a home-loan problem because we have too many houses, and yet nobody can buy them and live in them.
Who is the speaker?
Please spell this out for me - I can't wrap my head around this concept after reading it from numerous sources.
Same as FBs selling off their toys to make their mortgage payment. When you need cash to survive, you sell whatever assets you have to get it -- usually at a loss.
Oh yeah, maybe sort of like Troy McClure. "You may remember me from such fiasco's as,..."
Or maybe Dr. Nick "Hi everybody!"
Well Anonymous,
The homebuilder took loans to purchase land, of late expensive land. Payments on this land must be made and the HB can't get rid of the land unless he builds houses on it. Really is anybody buying large tracts of land these days so the only way to turn the land is to build the parcels. Otherwise, the land loan bleeds the HB dry. The "land bank" concept only works if they purchased the land outright.
A friend related a second hand story to me. Earlier this year, a guy got a $100k mark down on a home purchase in Hampton Roads. The builder told the buyer he had to move the house before the bank would give him anymore money to start another. It's all about cash flow and the bank controls the spigot. Unfortunately, the banks are in the righty tighty mode.
Okay, let's talk sustainability.
We all knew the housing bubble was unsustainable. You simply cannot lend money cheap to everyone far in excess of affordability and expect it to last.
To me, the U.S. economy is just a larger version of the housing bubble -- completely unsustainable. High levels of debt, addiction to cheap credit, overspending/overconsumption at all levels, etc.
I hear plenty of arguments why the economy won't crash, or at least crash that hard, due to the obvious near-term challenges. However, I have yet to hear any arguments as to how the existing, highly dysfunctional system can continue indefinitely well into the future.
Comments?
Bill -- That's the problem in a nutshell and why this has years to run. If you buy a $500k home and now it's $400k for people to buy a new one (which means yours is more like $375, if not upgraded) you are screwed. And remember, where are those $500k homes? Yup, the land of I/O. Look at the percentage of homes in markets that are still bubbles where current buyers are still going in with terrible loan terms. There is no way in hell any of these refi. It is this behavior of the builders that guarantees the next traumatic moment in the financial markets, when we realize that the silly writeoffs that banks are doing now arent nearly the end of the game. Gonna get purty ugly in three months...
Entirely unsustainable--the only reason the economy grew at all in the past 7 years is because of housing.
Retail growth, job growth, financial services growth, auto sales, boat sales, growth in luxe services for the middle class--all a function of housing. That is where I think many of the economists and market analysts are missing the mark with their predictions.
And, the housing market is not overbuilt in just a minor way.
Not only do all people who wanted a house have one (or two or three), people who really didn't want a house (but didn't want to miss out), ot that really couldn't want a house(because they couldn't afford it) all have houses and enormous debt resulting from it.
The overhang of unsold houses will remain for many years because of the drop-out in ownership rates due to the simple inability to pay.
Multiple years of population growth resulting in an additional cohort of financially sound people will be required to burn up the existing stock. By that time, many of the newer cracker-boxed will have rotted away or been stripped to the studs.
Sustainable? Only if manna falls from the sky.
Builders really screwed their shareholders big time when they bought back $Billions in shares in 05 & 06. Coming back to haunt them in spades as it forces them to burn the furniture to heat the house as they lose money faster and faster.
Execs of course lined their pockets nicely, fiercely selling their own stock into the buybacks because they were in the best position to see where the market was headed. The stock market is great way to get filthy rich if you're an exec. I'd be pissed off if I were long HB shares.
km4: "The irony or perhaps fallacy is most middle to upper middle class Americans are still think housing with be their salvation investment."
Once these people realize that their retirement fund is gone, watch out. One of my in-laws just came to the grips with the fact that his $400K house is now selling for $250K. Travel plans and golfing schedule has been drastically slashed. I'm curious to see what gets cut when the house is sub 200K.
The current over/under on the inheritance is $100.
Once these people realize that their retirement fund is gone, watch out.
No doubt.
I believe a lot more inventory will flood the market when even long-time homeowners realize their nest egg is cracking.
Ten years or so, the papers were full of stories about the coming housing crash as baby boomers tried to sell going into retirement. Well, instead they bought two, three or four more houses. In addition, gen X and Y bought into this market as well. Now we are going into a crash with the baby boomer adjustment still looming. Only now the leading edge of those boomers are 60. Even for those not forced to sell due to mortgage costs will be putting the old homestead on the market as they settle down to retirement. But rather than buy something smaller, they'll just be moving to the summer home they bought in 2005. Of course, they may have to ride out a few more winters in the snow since the cash machine is broken.
The resale market will eventually have to realign...
Reminds me that I stumbled across a brilliant real-estate-agentism today in a listing for a 3 year old town home across the street from half a dozen brand new ones:
Like new construction but better!
Will this affect the rest of the economy?
Will bears shit in the woods?
Will the DOW hit 15,000?
Will Cleveland win? Both Clevelands?
Yes and yes to the last.
"The builders had better hope that they can sell the last homes quickly and get out of the area quickly."
Or else wear bullet proof vests. LOL
I was thinking, man, if I could have 10 properties, I could just kind of retire ... and kick back and live off the income," says Rowberry, a nuclear safety inspector.
We need a Simpsons episode starring Homer to fill in the details.
sustainable???
Pray for the smooth sailing of Asian Economy. Pray for the non-stop influx of cheap illegal immigrants. When Asia become autonomous and Asians stop their procreation, the music will stop. At present rate, it is sustainable for another century.
Krugman's perceptions as usual are right on target.
Strangely though I have expressed those same views on this blog times before- and have been largely ignored or attacked.
The divisions between the rich (who have see as Krugman noted have seen their wealth soar 296% in the last 30 years, while the middle class has grown 13% says all.
Its the Robber Barron's Gilded age again mixed in with the roaring 20s- we can thank the conservative republican revolution of the last 30 years.
However people in the country are now waking up to this- and realize they are like a person standing in the middle of Main street with no clothes on.
As Bob Dylan once said- changes are coming......
BBC reporting that UK subprime loans(8% of loans) make up 70% of foreclosures. Good to see subprime is contained to english speaking countries.
Between this, Northern Rock & the HSBC report being insanely bearish on sterling(says hot money will bail and completely decouple from euro), does anybody know of a vehicle to be short the pound?
The homebuilder took loans to purchase land, of late expensive land. Payments on this land must be made and the HB can't get rid of the land unless he builds houses on it. Really is anybody buying large tracts of land these days so the only way to turn the land is to build the parcels. Otherwise, the land loan bleeds the HB dry. The "land bank" concept only works if they purchased the land outright.
- I thought that all the big builders bought land options instead of land and are letting their options expire. So, at least the big home builders do'nt have this problem, right?
Alec - You can short FXB or GBB. Also, EWU might work as well.
MK:
Not quite. Many HB's did land options, but many also bought the land. Also, many did land options and then EXERCISED them right at the end of the bubble.
Thus, they have a lot of high priced land just sitting there.
They also have years and years of development/planning costs sunk into many a project... all at substantial cost.
Not to mention half built developments.
It all adds up over time... all of that has a payment to make (to the bank).
One thing to remember, the HBs HAD a lot of cash at one time... but during bubble mania they used a lot of that cash to bid up "prime" parcels from one another, and then they used a LOT of it to buy back stock to prop up the stock price (so that insiders could sell their stock of course) Rediculous!
the rationale at the time (which never made sense) was that they woudn't need the cash itself, because the land they hold would be their "land bank".
so now the big HB's are in a pickle. Razor thin free cash... and a very cash intensive business.
They thus will rely on the banks to fund their operations... but the banks have had a change of heart.
Thus, they have little cash, they need LOTS of cash, and they have lots of assets. So they sell the assets to raise the cash.
the more crunched they get, the more discounts we'll see. (or they'll just go BK).
I'm not entirely sold on sterling cracking, but I can see where it's vulnerable to manipulation. The economy seems to be a mirror image o the US, but it's only saving grace is that it's capital markets are more favorable to investors. Would t-bill yields have to move up another 30 basis points to start the move, or would it be less?
"but it's only saving grace is that it's capital markets are more favorable to investors"
but is it enough to overcome possible/probable coupling to the US/international markets?
it would seem to me that the UK will go down with the US due to this coupling...
We may be surprisingly more "globalized" than we realize, at least in terms of the financial markets... people borrow in Yen to invest in the UK/US and lever up using off balance entities in yet other countries...
And my (very weak) understanding is that the UK has become more favorable than the US due to less onerous regulation required (i.e. no Sarbanes Oxley). I've seen time and time again what the financial wizards can/will do when regulation is not required/enforced.
I, too, would love to see how to get insight as to the British state of things. I get and read the Economist... but it often has this "it can't happen here, but can in the States" bend to it. as example, they literally speak of US lenders lending to "trailer park trash" while neglecting that many UK borrowers are no better in the buy to let program... (there just aren't trailers in the UK!) reminds me of Californians talking about how "trailer trash" in "flyover land" would lose money in RE, but not on the Coasts because "everybody wants to live here"
Housing problems are making the Furniture Market fret:
http://www.fayobserver.com/article_ap?id=111650
but is it enough to overcome possible/probable coupling to the US/international markets?
it would seem to me that the UK will go down with the US due to this coupling...
That's the million USD question, innit?
When the hot money ups stick chasing yield, is it CDN, USD Chilean Peso? All of em? Euro yields aren't attractive enough.
The plan is (if US yields rise) is to:
1) repatriate some maturing euro debt into quality munis,
2) take a small bit & short sterling.
Unless the USD goes into freefall, then just roll it all over.
I can see China using the inflation scare to improve prductivity, then lifting the peg next all.
If that happens, I got nothing( I assume that the euro omes back to earth), but I need to start getting my head around the concept.
Interesting article in the local Sunday paper today on a 40% decline in kitchen make overs this year compared to last. They say that 1. With falling home prices, such upgrades no longer are recovered if the home is sold and 2. Tightening home equity loans and falling home prices are causing MEW to dry up. Both of these reasons seem on the money to me. It's good to see newspaper articles that provide a little realism about our country's economic state.
Wow, the neighbors who moved in last fall buying a nicely remodeled 40 year old tract home with a small lot for 850k just bailed Friday. Self employed with nothing down. They did take their really nice furniture and Hummer with them. It is listed in MLS but they pulled the sign down after one day. Apparently they new better then to try. These homes sold for 200k ten years ago and reached the 800k level for a few at the peak. Now a few are selling in the low 600k and inventory is building up. It is okay though, because we are on the coast and have great schools. Who wouldn't overpay for that.
Sustainable? Only if manna falls from the sky.
LOL. Say anyone seen Ben lately?
w, whereabouts do you live?
dav - Ventura County, CA