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Tuesday, April 5, 2011

House Builders of Pain

Continuing the theme of Main Street vs Wall Street, The Home Builders of Pain gave us some delicious material today to show just how down the average Joe is feeling in this jobless/sinking home value/ no wage growth/ rising cost recovery (hey... isn't that stagflation?).

New orders down 32%... ouch!

"Until the first-time home buyer comes back, nobody in the sector is going to recover forward. These negative results are not just for KB Home, but for the entire sector," said Demir Gjokaj, senior home builder and real estate analyst with ITG
Still, the minds at Standard and Poor's 'sees' a recovery in 'late 2011.'
"Despite a contract backlog of $354 million, we see a 32 percent sales decline in FY 2011 (for KB Home) with the housing market not improving until late 2011," Standard & Poor's Equity Research analyst Ken Leon wrote in a note to clients
Nothing like that regular cyclical October- December housing market recovery!  Happens EVERY year, right?  That is just silly... housing markets are cyclical in that sales are strongest in the SPRING.

So... we can conclude that:

Crappy Q1 sales = No one is pre-buying new homes = no spring buying season =
 There will be NO 2011 Housing Recovery. 

Oh well-- This is just another set-back to retirement for many.  There is always 2016 on the horizon:  The next 'semi-decent' year for housing.

The most important point in this article is : 
"Until the first-time home buyer comes back, nobody in the sector is going to recover forward."

Waiting for first-time buyers to return has set-backs that will stretch out for years:
  1. $7500 credit payback in 15 installments starts in 2010.  2008/2009 1st timers have to pay back their $7500 back as it was a loan, not a credit.  
  2. $8000 tax credits have to be paid back within the first 3 years if the house is sold or used as a rental.  These buyers are not only out of the market for step-up buying, but they are also not able to SELL to first-timers that may enter the market.  2009/2010 buyers are out of the game until 2013ish.
  3. Mortgage Market is a M E S S ! FHA loans are getting more expensive, compensation laws are going to raise fees and the 'attempt' to get rid of Fannie and Freddie means... NO LOAN FOR YOU!  Housing won't recover until credit for housing recovers.  Plain and simple.  It worked for the auto industry and it will work for the housing market... except for it isn't going to happen-- at least not any time soon.  
  4. Falling prices.  Confidence is king in the world of housing.  Until confidence comes back, sales will not return.  Right now housing is getting creamed daily in the press and there are no support programs to prop up the crash... watch out below.  
Beazer is going to buy 100 homes and rent the houses out while they 'wait for the housing recovery.'

The home builder said Monday it's launching a new division to buy, upgrade and rent previously owned homes to consumers who aren't ready to purchase a house or who can't qualify for a mortgage.
The Atlanta company plans to buy homes that were built in 2004 and after and expects to acquire mostly discounted foreclosures or short sales, when lenders let homeowners sell for less than they owe on their mortgage.
Touche Beazer-- if you can beat them (or build them for that matter), join them.  The rental market is strong and if you have the scratch to buy a rental jump in.  If you have the scratch to buy 100 homes for 50-60% of what you sold them for 6 years ago, you win... twice.

The only part of Beazer's plan that has holes in it is the 'waiting for the housing recovery.'

Good luck with that...

Main Street can not recover until the housing market recovers.

A housing recovery needs three things:  Jobs, Confidence and Credit. 

We have seen what happens when credit (2002-2006) is used to create the illusion of confidence and we saw what happened when the tax credit created the illusion of confidence-- it all falls apart until all three parts of the pyramid are holding each other up. Today there are still no jobs (McDonald's salaries will not bring home buyers), there is little confidence and credit is very hard to come by. 

Housing and stocks are not the same animal.  Stocks can jump around wildly whereas housing moves at the same speed as a sumo wrestler on mile 24 of a marathon... very, very slow.

The housing marathon continues.  Our House Builders of Pain will give us an idea of a good time to jump back into housing, but from these numbers today, that time is not now.  And it does not look to be anytime soon.

But it's not so bad!  Go and buy a foreclosure-- you will get it for a steal and then spend every last cent you have to your name fixing it up.

Then again, there is always free parking for your van down by the river. 

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