Source: The News & Observer
Publication date: December 4, 2007
Dec. 4–Dan Tingen is building homes in Raleigh, Cary and Holly Springs. But he’s starting to feel like he’s in Vegas.
With the market for new homes in its steepest decline in years, Tingen is making big bets that he can find buyers for 15 homes he is building.
“This is high stakes poker,” Tingen said. “It will keep you awake some nights.”
Across the Triangle, hundreds of builders are rolling the dice to decide how many new homes and lots will be needed as a cooling economy and the national housing slump erode demand.
At stake is the success of the region’s $4.5 billion new-homes market, not to mention thousands of appliance dealers, construction-material suppliers and interior decorators that depend on it. Builders are walking a fine line between meeting demand and overbuilding in a market that could shrink by the time homes are finished six months or a year from now.
“It’s not like an engine you can just turn off,” said Carl Van Horn, research analyst for residential trend tracker Market Opportunity Research Enterprises in Rocky Mount. “They have to continue building, because there is still demand for housing. People are still moving into this marketplace, and they have to live somewhere.”
Unlike other areas of the country where sales have plummeted, home sales in the Triangle for the first nine months of 2007 were down only 9.9 percent from last year’s record.
Builders “have to be prepared for the next 12 to 15 months, and if they stop now, they won’t have any opportunities for [selling]… a year from now,” Van Horn said.
Builders are trying to decide how many lots to buy for future construction — a decision made more difficult by the problems in the subprime market and the area’s slowing job growth.
There are more than 1,000 Triangle builders, but home purchases by the transplants they have relied on is dwindling. Builders and brokers said people moving here aren’t buying because of difficulty selling their homes in more distressed markets. Job growth also is slowing. About 21,000 jobs were created in the Triangle in the year that ended Sept. 30, down 4,000 jobs from the same period a year ago, according to Wachovia economist Mark Vitner.
Developers and builders aren’t expected to lose their shirts. If anything, most are taking reduced profits. Big price reductions by large national home builders this fall have jolted sales of excess inventory, too.
In the 12 months that ended Sept. 30, there were 15,125 new homes sold, and about half were spec homes — homes which were started without buyers. Most builders are now taking a conservative approach, buying fewer than a year ago, but they are still putting thousands of homes on lots purchased earlier.
“The main thing is to be in business when the market turns,” said Tingen, owner of Tingen Construction of Raleigh and past president of the Home Builders of Raleigh-Wake County. “You can’t just quit, you have your staff, your lot commitments, so you operate at lesser margins.
“This market is still very strong. People are still moving here, and our biggest problem is their inability to sell on the other end. If we could eliminate that, our market would be pretty much normal.”
Tingen expects to sell 18 homes this year — down from a record 23 in 2006 — but hasn’t lowered his prices, which average $550,000.
Manning Homes of Garner has 11 homes under construction: Only four are sold. This time last year, about nine homes were under construction and nearly all were sold.
But owner Mark Manning said he isn’t particularly worried because he has seen steeper downturns. Sales were much slower after the terrorist attacks in 2001, and then picked up. He expects 21 total sales this year — compared with a record 25 sales two years ago — and already has 11 presales in a retirement community being developed in Garner.
“Housing isn’t any different than any other industry,” Manning said. “You can’t just quit because the economy is down, and history shows it’s been a great investment if you buy a house.”
But many builders are slowing lot purchases and selling inventories of completed homes.
Single-family lot sales dropped to 8,845 — a 14.4 percent decline — during the first nine months of 2007 compared with a year ago, according to Market Opportunity Research Enterprises. The inventory of finished new homes dropped to 1.6 months in the third quarter from 3.3 months in the second quarter, according to Ed Dunnavant of Metrostudy, which provides market information on housing and related industries nationwide.
Centex Homes is the Triangle’s biggest builder, with about 900 sales expected this year. But with sales down 10 percent to 15 percent, Centex is passing on land for new subdivisions in outlying areas and reducing its inventory of unsold homes. In the past 90 days, Centex has reduced its spec-house inventory by 20 percent, division president Hampton Pitts said.
“All the national builders have adjusted to the new reality and realigned their business strategy and land management and inventory strategy,” Pitt said. “Companies are either not purchasing future options [on land]…or not closing on land they have under contract.”
But Centex, which is based in Dallas, can afford to slow land purchases, because it owns or controls “several thousand lots,” enough for two or three years of construction, Pitts said. Centex, in fact, expects to sell more homes next year than in 2007, Pitts said, and is opening new communities.
“We still have great employment growth and in-migrations, people that want to downsize and empty-nesters,” Pitts said.
The strong demand helps explain why many builders aren’t offering steep price reductions.
Investment fund manager Tom Taylor and wife, Mary K., moved this month from Laguna Beach, Calif., into a $1 million home in Hasentree in North Raleigh to be closer to their grandchildren. The couple looked at dozens of houses across the Triangle but found that many builders were unwilling to deal.
“Most were not [willing] at all,” Taylor said. “They had yesterday’s price and were proud of their house and are still sitting on it.”
The biggest discounts were offered this fall by large national builders to reduce year-end inventory; they control 36 percent of the new-home market. Some discounts were for tens of thousands of dollars — enough to lure buyers such as Rajesh Vallabhaneni, a restaurant manager and Howard Perry and Walston Coldwell Banker real estate broker.
Vallabhaneni looked all summer, then contracted for a $229,000 home only after builder K. Hovnanian offered $28,800 in upgrades in September.
“We’d still be looking,” Vallabhaneni said, “if we hadn’t gotten the upgrades.”
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Replies
It's going to get much tougher than this.
Bob's next test date: 12/10/07
How is the market holding out over your way Jim? Is it still pretty good?Where there's a will, there are 500 relatives
Austin is softening because of all the tightening up but there is still good activity. We will know a lot more in a few weeks when we get somthing ready for market. At this point I'm cautiously optimistic. Bob's next test date: 12/10/07
Portland Or. based builder is auctioning off 200 homes this weekend.
Company went up like a rocket, looks like they may come down like one as well.
here's the story
http://www.oregonlive.com/news/oregonian/index.ssf?/base/news/1197777362248240.xml&coll=7
this is not a sell at whatever the bids end up at. There is a Reserve price (unannouced). And the auctioneer can bid as well.
149 homes went to auction Saturday. 79 sold.
Add 5% onto bid, 5% down, encouraged strongly to use the lender at the back of the room. I thought I heard that the homes remain online for bidding after this weekend
Too many items set off my BS alarm
Ah, there is more to the story. It almost sounds as if the lender at the back of the room and the original lender might be one and the same. Your work still holding steady?
They can't get your Goat if you don't tell them where it is hidden.
Countrywide is the designated lender. I have no inside info, but would not trust the builder to tell me the sky is blue. Well gray and raing but you get my drift. I would say the odds are better than even that the builder gets a % on the loans.
My banker thinks this is a brilliant marketing strategy. And it has got folks in the room. We will see how many leave his balance sheet
We had a real nice November. Several builders dropping thier present service for us.
And we are out there hustling and networking. Central Oregon has crashed. We had 3 drivers there in June. Working OT, etc. Now I can't keep 1 driver busy. Had to put him on salary this pay period. Going to be some BK's over there.
We get to the other side after this and it will be fine. Our financial statement is a lot stronger than any of our competitors. We will outlast em. Esp if they are relying only on Central Or
rez,
I recently flew from Minneapolis to John Wayne airport in LA. One of my seat mates was a guy who had taken his first commercial flight in 11 years (previously it was all private jet) He was a well dressed guy who had been back to Minneapolis to auction off his last development. His hope and prayer was that it would sell for what the bank called a minimum price.. If it hadn't the bank intended to press criminal charges due to some irregularities in the original loan application. (normal business practice according to my seat mate)
He said that every single dime of the original millions he had was gone. He was going home to live with his parents . Based on the beat up condition of the car they met him in, it wasn't a really properous home either..
Several months ago, I posted about how my snobdividion (south of Denver) was seemingly bucking the trend in RE values. My point was that several houses had moved quickly and at higher prices than one would expect in this market. Invluding several that had been in foreclosure and vacant for several years.
Now another has moved. A nice view of the overgrown retention pond. For $1.155MM. I figgered this was at least 200K over what I thought he could get - and compared to his neighbors that had sold a year ago.
And they're getting ready to open another thousand acres to McMansions.
Guess they're getting the water from Atlanta!
That's the well to do folk where money isn't much the problem. Now the general populace, that's a whole 'nother story.
be a sordid story
Well the home auction ended yesterday. 240 homes go on the block. Builder claims that he is selling at a loss. 141 sold. So he still has 100 on the books.
My opinion is that his financer told him to get his balance sheet cleaned up before year end. My banker thinks it is all a marketing ploy.
Is that a sucess?
http://www.oregonlive.com/business/index.ssf/2007/12/141_homes_sell_for_a_total_of.html
461k apiece? I doubt he lost much if at all. I agree with you , he was told clean up his accounts or the plug is gonna get pulled. His bank had to be in on it though because that is a large amount for a lender to be into a builder for , they became his partner .
They can't get your Goat if you don't tell them where it is hidden.
I think it was both....financier pressure and marketing.The guys carrying more than 65 million dollars worth of inventory. That's a pretty strong bullet to bite every month. Obviously, he had some cash reserves to bankroll that inventory but everyone's bankroll takes a hit when the notes get paid and there aren't any profitable sales to pay those notes. So, lets say he did sell everything 10% below cost. So? The cost factor means nothing because that money is already spent. What matters is the the carrying costs and this guy just dropped $5 million off his anticipated next years carrying costs. I think he was smart. He not only cured a $5 million dollar interest payment problem but he probably also saved himself another 10 million dollars in losses due to falling prices in the coming year. Bob's next test date: 12/10/07
NAHB Confidence Index Remains Stuck at Historic Low
Source: BIG BUILDER NewsPublication date: December 17, 2007
By BB Staff
The National Association of Home Builders this afternoon (Dec. 17) reported that its NAHB/Wells Fargo Housing Market Index (HMI) in December remained stuck at 19, its lowest point since it was created in January 1985, for the third consecutive month. An HMI reading of 50 indicates favorable conditions.
The index gauging current sales conditions for single-family homes improved by a single point from November, to 19, and the index gauging sales expectations for the next six months rose two points to 26. But the index gauging traffic of prospective buyers declined three points to 14.
Regionally, the HMI for the Midwest gained two points to 15; it also gained two points for the South, to 21. The HMI in the West was unchaged at18; in plunged seven points to 19 in the Northeast, which the NAHB attributed to "wetter weather conditions than normal in the survey period." All regions were down on a year-over-year basis.
"Builders continue to look for signs of improvement in the ongoing mortgage market crisis that is weighing on housing and the overall economy," said NAHB President Brian Catalde, a home builder from El Segundo, Calif. "Recent actions taken by Congress and the Administration addressing certain aspects of the problem are definitely a step in the right direction."
"Today's report shows that builders' views of housing market conditions haven't changed in the past several months, and there clearly are signs of stabilization in the HMI," said David Sieders, NAHB chief economist. "At this point, many builders are bracing themselves for the winter months when home buying traditionally slows, scaling down their inventories and repositioning themselves for the time when market conditions can support an upswing in building activity--most likely by the second half of 2008."
Michael Rehaut, the home building analyst at J.P. Morgan Securities, cautioned investors in a research note not to read too much into the three-month holding pattern in the HMI number. "While on the surface, a third straight month at 19 may seem like the emergence of a trough, we believe on the contrary that the survey, remaining at a highly depressed level, combined with still highly elevated inventory levels, will result in further home price declines and material impairment charges over at least the next 2-3 quarters," Rehaut wrote.
The HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as either "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as either "high to very high," "average" or "low to very low."