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Finding Their Margins Bend Toward Non-Viability

A report from Bloomberg. “Sentiment among U.S. homebuilders fell in December to the lowest level since 2015, missing all forecasts and signaling that the industry’s struggles are intensifying amid elevated prices and higher borrowing costs.”

“The National Association of Home Builders/Wells Fargo Housing Market Index dropped to 56 from 60 in the prior month amid broad-based declines across sales, expectations and buyer traffic, data released Monday showed. With November’s eight-point decrease, it was the biggest two-month decline since October 2001.”

“Three of four geographic regions showed a decline, led by the Northeast, where sentiment plunged by the most since June 2010. Builder sentiment in the Northeast declined to 37 from 52. The Midwest dropped to 52 while the South decreased to 61. The gauge for the West held at 65.”

From MarketWatch. “Before the housing bubble burst in 2006 — and even before it actually began inflating — builders were constructing homes running, on average, under $150,000. Now, not so much. Earlier this year, there was a rebound in homes built in the next priciest range of $150,000 to $199,999. But even that’s trailed off.”

“The price bracket that seems to be picking up the most steam is the $300,000-$399,999 market segment. That makes sense; the median-priced new home was $309,700 in October.The October median price was lower than year-ago levels for the second month in a row. “

From WUSF Public Media on Florida. “With Hillsborough County in the midst of an affordable housing crunch, developers continue building luxury homes and apartments, especially in Tampa’s trendy neighborhoods and downtown.”

“It’s a common refrain you hear from residents when they’re talking about affordable housing: ‘Why do I see so much construction in Tampa, but it’s not anything I can afford?'”

“Kevin Robles, Chief Operating Officer of Tampa’s Domain Homes, said it’s the cost of building, not greed, that’s driving up the cost of new housing. ‘In a ‘for-market’ environment that we are currently in today, I can barely put forth in the market anything less than high $200,000’s, low $300,000’s. Anything below about $285,000, you just can’t produce it’ and make a profit, he said. “

From The Oklahoman. “The nation’s housing market is ‘broken’ because buying a new home is out of reach for too many middle-class Americans, said John McManus, vice president of Washington, D.C., construction data firm Hanley Wood’s residential group.”

“‘Housing is broken because businesses — when they add up what they have to pay for land, fees, people, materials, and capital — are finding their margins bend toward non-viability,’ McManus said at Hanley Woods’ recent Hive Conference in Austin.”

“‘Housing is broken because the only housing builders, developers, architects, distributors, and investors can build right now profitably is unaffordable to people who earn average salaries, take home median wages, live normal lives,’ he said.”

From Seattle PI in Washington. “Prospective home buyers are finding more options around Western Washington, with plentiful inventory, recently announced increases in lending limits, and moderating interest rates over the past few weeks.”

“Realtors in the NWMLS report can’t stress enough: This isn’t signs of Seattle’s market falling apart, just slowing down a bit. So, if it’s not the weakening of real estate as we know it, what is it? NWMLS director Dick Beeson credits a combination of stabilizing factors like those mentioned above: a plethora of inventory, only slightly increased interest rates, coupled with ‘more receptive and savvy sellers.'”

From the Wall Street Journal. “Rising interest rates have made life tough for mortgage brokers lately, many of whom are being forced out of the business, so a reminder of the good old days naturally cheered them up.”

“Former Countrywide Financial boss Angelo Mozilo last week received a standing ovation at the National Association of Mortgage Brokers meeting in Las Vegas, according to mortgage professional Jeff Lazerson.”

“Mr. Mozilo has long denied any responsibility for the housing debacle a decade ago, including in an interview earlier this year with The Wall Street Journal. ‘Not subprime mortgages, not Countrywide, not Angelo Mozilo,’ Mr. Mozilo said of who was to blame. ‘I wish I had that kind of power.'”

“Based on his warm reception, he at least has the power to cause temporary amnesia.”

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This Post Has 72 Comments

  1. ‘In a ‘for-market’ environment that we are currently in today, I can barely put forth in the market anything less than high $200,000’s, low $300,000’s. Anything below about $285,000, you just can’t produce it’ and make a profit’

    I guess it’s the old “you want fries with that?” for you then Kevin.

    1. Yea, all that glue, chinese dry wall, and under the table laborers I see on construction sites all the time. I can only assume it must be the kick-backs to all the various organizations that monopolize the small consumer are what must be expensive.

  2. I post this when relevant:

    Why ‘new’ costs so much
    The three Ls: labor, low inventory and lending
    09/28/2016

    ‘it is no wonder that our lots are getting smaller and more expensive as the disconnect between “new” and “pre-owned” continues to widen. Nationally, the gap between the new and existing homes since 2012 is now $72,100 compared to just $20,000 between 1990 and 2008.’

        1. I would very much like to read accounts of individuals contracting & successfully getting a new very basic home built for $150,000 or so, in this day & age. Seems like this is not happening.

          1. A relative in CO recently told me about getting her home furnace (circulating hot water system) updated/replaced. She could not get it done without her doing much of the work and inspecting progress very closely. As it turned out her brother in OH had the exact same system (made by the same company) done in his old house. He contracted with the grandson of the original 1917 installer, had it done well and with no problems for a bit less than she paid.

  3. ‘Beeson credits a combination of stabilizing factors like those mentioned above: a plethora of inventory, only slightly increased interest rates, coupled with ‘more receptive and savvy sellers’

    See, Dick knows there isn’t a shortage. Get savvy builders or get a new job.

  5. “Mr. Mozilo has long denied any responsibility for the housing debacle a decade ago, including in an interview earlier this year with The Wall Street Journal. ‘Not subprime mortgages, not Countrywide, not Angelo Mozilo,’ Mr. Mozilo said of who was to blame. ‘I wish I had that kind of power.’”

    Why is this man not in jail?

  6. “The price bracket that seems to be picking up the most steam is the $300,000-$399,999 market segment. That makes sense; the median-priced new home was $309,700 in October.The October median price was lower than year-ago levels for the second month in a row. “

    Not a crash! Slowing down. Decelerating!!! Don’t PANIC! Please no bubble popping here….just a SHIFT!!!! Just keep buying!

  7. “Three of four geographic regions showed a decline, led by the Northeast, where sentiment plunged by the most since June 2010. Builder sentiment in the Northeast declined to 37 from 52. The Midwest dropped to 52 while the South decreased to 61. The gauge for the West held at 65.”

    The Bubble is still STRONG in the WEST.

    KEEP BUILDING BOYZ

  10. I sure wish AlbuquerqueDan were around to reassure us that oil will be back up to $80/bbl any day now!

    Oil futures end lower, with U.S. prices at their lowest in over a year
    Published: Dec 17, 2018 2:45 p.m. ET
    By Myra P. Saefong
    Markets/commodities reporter

    Oil futures fell on Monday, with U.S. prices settling at their lowest since early October 2017. Data from Genscape reportedly revealed a jump in crude stocks at the U.S. storage hub last week, raising concerns that a government report due Wednesday will confirm a large inventory increase at the hub in Cushing, Okla. A report from the Energy Information Administration also forecast another monthly climb in U.S. shale oil production, with January output expected to rise by 134,000 barrels a day. January West Texas Intermediate oil (CLF9, -3.77%) lost $1.32, or 2.6%, to settle at $49.88 a barrel on the New York Mercantile Exchange. That was the lowest finish for a front-month contract since Oct. 9, 2017, according to FactSet data.
    …

    1. If only gasoline prices would track oil prices down. I’ve seen a slight decrease. But name-brand regular gas here in Vegas is still over $3. You can find lower grade stuff for under $3.

  12. Oh no, not another death cross! What could it portend?

    The last key death cross is poised to engulf the stock market
    Published: Dec 17, 2018 2:03 p.m. ET
    The last important death cross?
    By Mark DeCambre

    Ominous-sounding death crosses have been emerging in the stock market like weeds, with the latest—and arguably, the last important such cross—about to take hold in the Dow.

    The Dow Jones Industrial Average (DJIA, -1.85%) is on the verge of joining other major equity benchmarks in a so-called death cross, where the 50-day — a short-term trend tracker — crosses below the 200-day, used to determine a long-term trend in an asset. Chart watchers believe that such a cross marks the point where a shorter-term decline graduates to a longer-term downtrend.
    …

    1. Another day, another 500 point drop on the Dow. Does anyone have any idea how many more 500 point drops the Dow could sustain before it goes to 0?

      1. This is the last one for a while.
        Fed will capitulate tomorrow. “It’s going to the moon, Alice!”

        1. Hope so. I finally was able to exit my FAZ holdings (last batch @13.50) and am waiting for a pullback to 12 and then 11 to reestablish position.

          1. i was wondering if Faz would be a good investment for the coming crash, i have some cash in my IRA was thinking back when i broke below 10

        2. Do you think they will prematurely end QT? What’s a few extra trillions in balance sheet HODLings between friends?

          Wall Street says Fed’s ‘quantitative tightening’ program could end much sooner than Powell has flagged
          Published: Dec 17, 2018 3:21 p.m. ET
          Powell discussed balance sheet as low as $2.5 trillion, but Wall Street says Fed may keep one as high as $3.8 trillion
          By Greg Robb
          Senior economics reporter
          Bloomberg News/Landov
          Runners pass the Federal Reserve’s headquarters in Washington, D.C.

          The Federal Reserve’s “quantitative tightening” program, designed to incrementally shrink its balance sheet without disrupting financial markets, could end much earlier than what Chairman Jerome Powell has previously signaled, leading Wall Street firms are saying.

          Under quantitative tightening, the Fed is letting as much of $50 billion of its Treasury- and mortgage-backed securities holdings mature every month without replacing them. This takes money out of the financial system as Treasury finds new buyers for its debt. The Fed is quick to point out it is not selling assets which would have a bigger impact on markets.

          Since beginning the shrinking process in October 2017, the Fed has trimmed its bond portfolio by around $365 billion to $4.14 trillion.
          …

          1. I posted this link on the previous thread. This entire thing is hilarious. The stock market is still at eye-popping levels, the economy humming along, yet !!!!!!!PANIC!!!!!
            Give me a break.

        3. Markets
          Fed Rate Hikes Are Extremely Rare When Stocks Are This Beat Up
          By Lu Wang
          December 17, 2018, 10:48 AM PST
          – Equity weakness has rarely seen monetary tightening since 1980
          – But Powell has shown less sensitivity to financial markets

          …
          In fact, were policy makers to follow through with their widely expected hike Wednesday, it would be the first time since 1994 they tightened in this brutal a market. Right now, the S&P 500 is down over the last three, six and 12 months, a backdrop that has accompanied just two of 76 rate increases since 1980.

          The statistic is another lens into the divide between markets and the economy, a split that has beguiled forecasters trying to draw connections between the two. While half the S&P 500 sits in a bear market and groups like banks and transports tumble day after day, some key economic data bolster the case of hawks.
          …

  16. Got back early Saturday from my trip to Sillycon Valley, which was spent mostly in the bowels of one of the FAANGs offices.

    Running errands in the afternoon was eye opening. All up and down Island Crest, there literally was an open house sign on every block (like 5 streets in a row, a break for one street, and then another, etc).

    I was struck by it as I saw it – I can not remember ever seeing that many open house signs out, even during the ‘spring rush’ the last 3 years. Only instead of beautiful warm weather, flowers and trees in bloom, and families looking to move between the school years, this was crappy 40 degrees out, rainy-wet and we just had huge wind storms with branches and debris down everywhere, not to mention it’s just before Christmas when kids are in the last week of school, and people are running around get all of their holiday preparations.

    In the words of Keanu Reeves aka Neo… Holy S**t

    Perhaps we should restart the regular ‘boots on the ground observation thread’ again…

    1. my trip to Sillycon Valley

      Job offer? I hope you make out, but it should be interesting having just bought at the top of the bubble an expensive house how up and moving pencils.

        1. BlueSkye: Close. We’ll see if an offer comes of it. I’ll just say they sought me out, I didn’t call them.

          Chinbabwe: Definitely not moving. Besides the fact I wouldn’t ever subject myself to the republic of California, there is Mrs. Spiffy to consider. We both have kids with ex’s and need to stay in the general area for at least another 5-8 years due to them.

          I probably haven’t given out all of our details in one place here, but I’ll share this. Mrs Spiffy is also has a ‘tech’ career and brings home north of 150. Household AGI has been over 325 for 6 years now and nearly hit a half mil the previous year. And we’re looking at possible passive income of over 500k over the next few years in addition to the day jobs. So yeah, we are not anywhere near the average family economically.

          Though we did buy near the top timing wise, I still think it was well-bought – in absolute dollars, one of the lowest sale amounts in the zip code in the last year, and despite what MW/MB drones on about it being meaningless, it was way less per sq/ft than anything else on the market in the same zip today (by a good amount), for a very good condition custom home. And that’s not even mentioning the 3/4 acre lot and privacy.

          I share all this because I will freely admit to the crew here that even though we’re pretty well off, and think we had a good deal and did it for the right reasons, it’s still a hell of a plunge to take and there’s the risk we get hurt in the next downturn.

          2. That’s two.. but yeah. When I worked for the house of mouse, I would sometimes take trips to the Imagineering labs – every day in the state resulted in a 7% income tax claim by the state for that day’s wages. The company took care of it – paperwork and amount – fortunately.

          3. the risk we get hurt

            It won’t hurt at all if you don’t think about it every time you send in the monthly payment.

        2. I meant to add, besides the kiddo situation, we do strongly want to retire here. I’d be happy to eventually be carried out of this house on a stretcher (if you know the reference).

          1. we do strongly want to retire here

            You’re braver than I am. As much as I love the PacNW, the politics around here are driving me away. Going to milk the paycheck a few more years, then head off to redder pastures.

          2. What’s funny is all of the libs have started griping about taxes, car tabs, etc., but they keep voting for the same old sh!t.

            “Thank you sir, may I please have another?!!”

          3. “As much as I love the PacNW, the politics around here are driving me away.”

            Councilmember Kshama Sawant isn’t going to survive her Paul Allen comments.

          4. drumminj – I made a post the other day in a discussion about climate change, and I think I’ve mentioned this here before as well.

            I spent 20 years of my life next to the great lakes – including a couple winters along lake Superior. I then spent the next 20 in Texas (where I met the Mrs), most of them in DFW.

            Climate wise – both of those places have some really sucky weather for extended periods of the year – and are expensive energy-wise (and $$$) to make acceptable. From a retirement standpoint, the PNW, specifically western Washington is light years ahead in comfort and the amount of energy needed for HVAC, and milder on both ends of the spectrum, and I’m concerned about the quality of life as I may have good 40+ years left (some lucky genetics/family history)

            In addition to watching our housing/financial/etc bubbles, I’ve got some genuine concerns about the future of cheap energy. I would not be surprised if in the next 2 decades we see more and more people moving to find more hospitable climates (though some recent developments give me hope we’ll improve the situation before then – like turning off the open immigration spigot and the shift away from fossil fuels (thank you Mr. Musk))

            To most people, I can’t even bring those points up, but I think we can talk about them here.

            All that said, we do ponder various ‘Plan B’ retirement options, though it’s complicated by the Mrs being nearly 15 years younger. Currently my favorite is going full time in a nice 5th wheel (like the Keystone Montana 3920BR) and doing part-time remote work. I mean, we never know if something will completely side-swipe the bigger situation, so we consider alternatives.

          5. Chinbabwe & rms

            I agree about the very liberal bent around here, especially among the young and those on the receiving end of the government wealth transfer machine.

            I do get a sense that even many staunch liberals are getting near their breaking point at seeing the local government’s unending appetite for more, more, more, and wondering why things like mobs of homeless are just getting worse. I do hope and think that we’ll see the pendulum swing back at least some in the decade ahead. Another economic crash might go a long way to inflicting enough real pain to hurry the growing up process along on some people.

            And Sawant has got to be wearing out her welcome.

          6. the great lakes….really sucky weather for extended periods of the year – and are expensive energy-wise (and $$$) to make acceptable.

            I live in the Finger Lakes and we get three months with heating bills and a few days of air conditioning, yet it costs less than $100/mo for all my utilities. Probably half of that is HVAC. Since my taxes are only $100/mo, it doesn’t seem like such a $$$ hardship.

          7. I spent 20 years of my life next to the great lakes – including a couple winters along lake Superior. I then spent the next 20 in Texas (where I met the Mrs), most of them in DFW.

            I can relate to your thinking here, and do think similarly. I grew up in IL and lived in TX for 8 years.

            I’m a big fan of the climate here, and like agree there’s “strategic value” in this location, in terms of climate, fresh water, and other resources.

            The people, politics, bad driving, lack of enforcement of laws, increased taxes and fees, etc, are making a strong argument for getting the heck out of dodge though. Maybe I’ll (we’ll?) get lucky and the tide will turn…

          8. BlueSkye – From a couple visits, I’m suspect that upstate NY has an edge climate-wise over Michigan with softer extremes and there’s some really pretty country there.

            Where I left behind was flat, ugly, dirty, and not as cheap as it used to be, and that’s not event thinking about the various toxic areas like Flint or anywhere that had large manufacturing plants 50+ years ago. I occasionally visit and I can feel the decline. It may not have as much ‘bleeding-edge youth fantasy liberal’ thinking like you can find around here, but it has own share of ‘bigoted – need union factory glory days again’ thinking, and I don’t fit either.

            All that said, it’s still on our list of fallback and retirement options. I enjoyed the winters as a kid, but as old man they’ve become longer and colder than I prefer, but some rural acreage there might be an option.

            Look back over the conversations, I see I didn’t mention it because I thought it was obvious. The Seattle area’s ‘Silicon valley’-ness is the other reason beside kids that we’re staying put – there is a critical mass of tech firms and high paying jobs here that we’re never really out of work for long. We can pay for our kids college and other fixed expenses a lot easier on what we’re paid here vs. what’s typical in the midwest.

          9. “Where I left behind was flat, ugly, dirty, and not as cheap as it used to be, and that’s not event thinking about the various toxic areas like Flint or anywhere that had large manufacturing plants 50+ years ago.”

            You just painted a beautifully bleak picture.

    2. “this was crappy 40 degrees out, rainy-wet and we just had huge wind storms with branches and debris down everywhere, not to mention it’s just before Christmas when kids are in the last week of school, and people are running around get all of their holiday preparations.”

      It has been cold in the very early mornings but I don’t recall it hitting 40 anytime recently. What’s amazing is that the people out shopping now over there are doing that year round. Malls are typically filled to the point that there is no parking. Way over populated for sure. Likely the reason most businesses cater lunch 5 days a week otherwise the employees would be spending an hour in a lunch commute and looking for parking. I have meetings at one of the FAANGs offices a couple times a month and the catered food is usually the highlight of my visit

      1. should have said 40-something degrees then.

        It’s been in the 40s quite a bit here, and a couple times in the evenings the car has chimed the cold warning which comes on at 37 degrees.

        Either way, the point is that it was a crappy time to be holding an open house, and yet there were a log of them visible compared to what we’re used to.

        I think what’s happened is that houses were selling so fast and getting so many offers previously, they barely needed to have an open house or more than one. Just looking at Zillow, everything’s now got price reductions and/or been on the market for weeks and months. So the realtors are having to hustle to try and find buyers and even work through the holidays.

        1. “So the realtors are having to hustle” And stay warm around there garbage can fires passing the bottle to one another.

          I reread your comment and get the picture you were painting now ;). It is just insane that 6 months ago those properties were being over bid and selling in days. Adding in all the economic doomsday news, this can go down quick! I witnessed the dotcom bubble first hand and this sure feels similar…

          1. Exactly. Normally real estate is dead the last 2 weeks of the year as everyone is in full holiday mode. But not this year – a clear sign of how much the worm has turned already.

            Some of my day job work over the years has involved complex simulations and one that becomes pretty clear is that when the wheels come off, it’s not just possible, but easy for things to degrade frighteningly fast.

    1. Dude…credibility.

      No broker in the history of real estate has ever advised buyers To “Sit Tight While Prices Crater.” Such advise would be heresy to the “always be closing” set.

      Let’s rewrite it for accuracy, shall we?

      Denver, CO Housing Prices Crater 7% YOY As Brokers Advise Buyers “There has never been a better time to buy!” and “Suzanne’s Research Confirms that This (and Every Other Listing) is Special, and You Guys can Do This!”

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