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To Lure Buyers, Homebuilders Are Cutting Prices

A report from the Star Tribune in Minnesota. “During November sellers listed 3,992 properties, 12.6 percent more than last year, according to monthly report from the Minneapolis Area Realtors. At the same time, buyers signed 5.2-percent fewer purchase agreements, leaving 10,181 listings on the market at the end of the month.”

“‘The inventory gains we’ve been waiting for have finally arrived,’ said Kath Hammerseng, president of Minneapolis Area Realtors. ‘Buyers — particularly those who feel sidelined — can take comfort in that shift.'”

From Bloomberg. “Investors in U.S. homebuilders are holding their breath heading into the New Year as experts predict softening demand in 2019, mainly driven by higher borrowing costs. To lure buyers, homebuilders are cutting prices.”

“Investors have also been yanking cash from exchange-traded funds tracking builders. The $811 million iShares U.S. Home Construction ETF, ticker ITB, has seen more than $1.2 billion worth of outflows this year, putting the largest fund tracking the industry on pace to lose the most assets since it started in 2006.”

“The $601 million SPDR S&P Homebuilder ETF, ticker XHB, has also bled cash, with investors pulling about $383 million this year.”

“The residential construction market hit the pause button in 2018 with permits, starts and completions– the three headline construction indexes– on track to close the year on a sour note, according to Zillow.”

“‘This construction pullback is not due to lack of demand, and instead seems born out of builders’ fears that it’s almost impossible for them to profitably deliver new homes at a lower price points where that demand is strongest,’ Zillow analyst Aaron Terrazas wrote.”

From Patch Arlington on Massachusetts. “This brand new four-bedroom has seen its price slashed for an immediate sale. The home was listed at nearly $1.2 million earlier this year and is now on the market for $1,089,000.”

“Features: Price slashed for immediate sale! Another great offering from well known local Builder. Located on the Winchester Line, this NEW HOME offers all you would expect and more.”

From Real Vail on Colorado. “Affordable housing is an issue reaching crisis level in Colorado where resorts rely heavily on luxury properties and holiday homes. In Vail, the population of roughly 5,000 permanent residents is doubled by part-time residents in vacation properties.”

“Despite a constant level of property transactions over the past year, Vail has also seen a growing number of properties described as seriously underwater. This is a category of property where the balance of loans is at least 25% higher than the property’s market value. At 15%, Vail currently has the second highest percentage of homes in this situation in Colorado.

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This Post Has 45 Comments

  1. ‘Vail has also seen a growing number of properties described as seriously underwater’

    Growing? Oh dear…

    1. There are no underwater properties, Ben. There are only underwater FBs.

      Going to be a blue, blue Christmas for millions of speculators and bubble-chasers who overpaid.

    2. “Vail Valley has seen steady sales of real estate over the past year with the number of transactions this year nearly identical to 2017 and the value of sales only differing by $0.14 billion. ”

      Yet, an increasing number of properties are underwater? How can the value of sales be increasing while the rate of properties underwater is growing?

      Maybe it is all in the definition of “value of sales”?

  2. “‘The inventory gains we’ve been waiting for have finally arrived,’ said Kath Hammerseng, president of Minneapolis Area Realtors.

    And yet, despite what UHS repeatedly assured us, much of this inventory that materialized out of nowhere is sitting unsold. Quite a mystery we have here, Kath, thinly disguised….

    1. much of this inventory

      You and I would probably consider the entire housing stock to be inventory, but for the UHS it is only “inventory” if it is listed for sale with them.

      1. Technically, they’re right. It’s only on the supply curve if it’s for sale. However, Ben is also right in pegging this a mania for the same reason. The law of supply says that quantity supplied increases as price RISES, but in this case, its LOWER prices that are increasing listings. But, to quote the magnificent Mr. Jones, either way, they’re fooked.

        1. Alternatively, and more accurately, what we’re seeing is a supply shift to the right (increase) because of seller price expectations; if sellers think the price will be lower in the future, they’ll list now, hopi g to get that higher price. This can be a feedback loop, the supply curve inexorably marching right, lowering equilibrium price and increasing equilibrium quantity as sellers recognize that future prices will continue to fall. This is how I think of that metaphorical wave, revealing naked swimmers.
          Economics, as i tell my students, is another tool in their critical analysis toolkit, but it’s far from perfect.

          1. One thing I’ve learned from Ben/this group is that classical economics is for a normal non-speculative market. The opposite happens when you’re in a speculative bubble because it’s no longer about supply and demand of the commodity, it’s about supply and demand of other people/speculators. There can be all sort of potential supply sitting out there that’s being held off the market by the speculators. Speculation in necessities of life is ends up being evil even when that’s not the intention.

  3. Housing is only one among many current examples of falling risk asset prices. 2018 will be a year to forget for risk asset HODLers.

    Not Even Hindsight Could Have Helped You Make Money This Year
    Investors faced rocky markets in stocks, bonds, commodities, and crypto.
    By John Authers
    December 17, 2018, 9:00 AM PST

    Every December, I visit the managers at Hindsight Capital LLC, an imaginary hedge fund that always invests with the best possible strategy for beating the market—in hindsight. These managers live in a world perpetually 12 months in the future; the only limit to their trading ability is that they must explain why their trades could have been foreseen 12 months in the past.

    Usually this is a fun exercise that reveals surprising truths about the market, and Hindsight cleverly finds ways to double or triple its money. This year, however, was a tough one even for Hindsight. Almost nothing—not stocks, not bonds, not commodities, and certainly not crypto—made money.
    …

    1. I think we were speculating about that possibility here a couple times back at the beginning of 2018 – of course ‘that’s fear mongering’ was the retort… In the words of Alfred E Newman “Recession? What Me Worry?”

      But we were identifying that the QE flood pumps, Central bank policy and the chase for returns/ROI had let to all areas being supersaturated, not just real estate and the question here was ‘when and how fast will it fall?’ when everyone else was saying ‘unpossible’ .

      We’re not looking so lunatic fringy now, are we? Actually, the MSM and PTB seem to be currently still embracing the notion the turbulence will be over shortly and it will be smooth sailing again. Too much is riding on keeping the party going, but I’m sure a big part of what is going on is a rush for the exits.

      It’ll be even more interesting to see what Hindsight Capital LLC says next year…

      1. “We’re not looking so lunatic fringy now, are we? Actually, the MSM and PTB seem to be currently still embracing the notion the turbulence will be over shortly and it will be smooth sailing again.”

        They are collectively counting on the Fed to cut short its punch bowl removal operations, either by an early end to scheduled rate hikes or cessation of its quantitative tightening program just shy of $4 trillion in stranded balance sheet assets.

        The Fed’s response to this weight of expectations will be interesting, for sure!

        1. After each Great Muppet Reaping, more and more former sheeple are becoming awake and aware. They’re also realizing the Oligopoly media aka the MSM was complicit in keeping them in the dark and setting them up to be bilked out of their wealth and property by the Wall Street-Federal Reserve Looting Syndicate. As Housing Bubble 2.0 bursts, anyone reading this blog can compare and contrast what Ben & the posters in here are saying, vs. what the REIC shills and touts in the MSM are saying. I suspect after the Everything Bubble bursts, millions of pauperized former sheeple are going to reject the MSM en masse in the same way millions of former USSR subjects stopped reading “Trud” and “Pravda” after they started seeing through the System’s lies and propaganda.

          2. Speaking of which I don’t know if anybody here follows anybody like Milo or Jordan Peterson but this whole “de-platforming” thing going on where anybody not following the narrative is not only un-personed by all the major social media, but also by all ways to get paid by the masses including Patreon(?) and Paypal. They are trying to create a true free speech zone that won’t do that, but when even the banks cut off the un-personed it becomes very difficult for them to make a living. It would appear that this stuff may blow up very soon.

          3. Carl Morris – I haven’t specifically noticed the term “de-platforming”, but for some time I’ve noticed the trend to immediately vilify someone for daring to even question any of the unofficial ‘official’ positions on various issues.

            One of the big ones being anything to do gender and questioning “men are always 100% bad, women have always been oppressed, we have always been at war with Eurasia”

            And I am not referring to subjective or un-provable things, but practical things like “why is this (STEM related, nothing gender specific) class only open to high school girls, but not boys, when it can’t fill all of the open seats? Isn’t that a waste?” (Mrs Spiffy has son that wanted to take said class)

            I could go on and on, but I think you already have the picture.

    3. Why, we’ve got some crypto speculators and HOLDers right on this blog. Guy chimed in with “made a little on Ether” the other day. Oh, yeah, sure – HOW MUCH DID YOU LOSE SO FAR, BUDDY?

    4. Paging ABQDan…

      The Financial Times
      Oil
      Oil prices slide on supply and growth concerns
      Crude tumbles 4% and remains close to that level at end of London trading day
      Anjli Raval in London 4 hours ago

      Oil prices fell as much as 4 per cent in volatile trading on Tuesday as planned production curbs by global producers, led by Saudi Arabia and Russia, failed to allay concerns about oversupply stoked by swelling US shale output.
      …
      The fall in oil comes amid broader pressure on global equities due to persistent worries over how the US-China trade war could hit economic growth.
      …
      “Prices are continuing to nose-dive.”
      …

  4. ‘‘This construction pullback is not due to lack of demand, and instead seems born out of builders’ fears that it’s almost impossible for them to profitably deliver new homes at a lower price points where that demand is strongest’

    That’s horse hockey Aaron. Check out the guy in Arlington who took to sawin’ and a slashin’.

    BTW, I’m considering taking a few trips here and there and wanted input about possible meetups. I am eyeing Seattle for late February so I can take in the crater.

    1. Remember an article some time ago stating there is not an oversupply but a shortage of buyers? Builders that can build at the low-end and make some profits–however small they may be–will survive. Builders that can’t will go bankrupt.

      1. And can said builders even build small?

        Can they make 1400/1600/1800 sq ft, 3br 1.5 bath ranch-style houses again as opposed to 3300 sq ft 4/3/media room and cater to the entry-level, previously priced out people?

        Thinking along those lines, can they even do it profitably with all the jacked up permitting and other fees that feed hungry local governments? Did the minimum viable low-end/entry level get raised far to high due to everyone taking a larger piece of the pie?

        2. Did the minimum viable low-end/entry level get raised far to high due to everyone taking a larger piece of the pie?”

          Yes I would bet on it

        3. Thinking along those lines, can they even do it profitably with all the jacked up permitting and other fees that feed hungry local governments?

          Speaking of which, local builders are claiming they can’t build for less than $200/ft^2 for that reason. But I don’t see any of them offering me a nice new 2000ft^2 house for 400k so I’m not even sure what they really mean.

          1. The first step towards affordability is cutting the input costs. Land needs to fall by quite a bit. That will make it easier to build affordable.

          2. “Land needs to fall by quite a bit.”

            Now you’re talking about goons, school teachers, etc., standard of living and retirement promises.

    3. ‘‘This construction pullback is not due to lack of demand, and instead seems born out of builders’ fears that it’s almost impossible for them to profitably deliver new homes at a lower price points where that demand is strongest’

      Says the guy who can’t find the first step in getting a project priced, bid and off the ground.

      Here’s what you want to remember…. Anyone calling contractors “builders” and houses “homes” know nothing about either. These people are usually HousingHens, DebtDonkeys or DegenerateGamblers flapping their jaws.

        1. If you read the thread bars correctly it shows it as you replying to Ben. It’s all good. I had to go back and look too since there were so many other first level replies before you.

          1. If you read the thread bars correctly it shows it as you replying to Ben. It’s all good.

            The “thread bars” are a feature of the JT Extension, not the blog itself (and only shown when post nesting/indentation is off), so not everyone will see them 🙂

    5. “wanted input about possible meetups”

      Denver. Shelby’s Bar by the Hyatt in downtown Denver might not be there by the next time you’re here. And don’t wear flip-flops, there’s alot of needles on the sidewalks in downtown Denver.

      1. San Francisco would be a great meet-up. I think a lot of posters are either from the Bay Area or pass through regularly.

  5. “This brand new four-bedroom has seen its price slashed for an immediate sale. The home was listed at nearly $1.2 million earlier this year and is now on the market for $1,089,000.”

    Yet oddly, it sits unsold. C’mon, greedheads – go watch an old Wes Craven movie to get you familiar with the kind of sawin’ and slashin’ that’s needed to unload this shack.

  7. “‘The inventory gains we’ve been waiting for have finally arrived,’ said Kath Hammerseng, president of Minneapolis Area Realtors. ‘Buyers — particularly those who feel sidelined — can take comfort in that shift.’”

    Dear potential knife catchers,

    Please join the buyers from 6 months ago in getting SCHLOONNNGGGEEEDD.

    Love,
    Local Realtor

    PS. I need my COMMISSION CHECKS!!!

  9. How long has the Volcker Rule been around already? Somehow, completely out of the blue, it is making stocks drop like a rock, following years of massive gains in all risk asset prices. Most curious!

    1. 17% is far worse than 7%. I guess the Plunge Protection Team wasn’t around in 1931 to goose the stock market.

    2. A measly 0.25% increase to 2.50% of the federal funds rate, and the market looks like it downed the entire jug of MoviPrep. Our over-leveraged economy reminds me of a loaf of Wonder white bread, nothing but puffed-up air.

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