Friday, April 29, 2005

Will Ghost Homes Ever Be Built?

IHT.com has a report on the home buying boom. "There was a time when most people buying a new home waited until the house was built to buy it. But over the 12 months through March, only 23 percent of buyers did that. That is a record low."

"Meanwhile, 40 percent of buyers bought homes before the first construction worker appeared on the site. That is a record high." That raises an issue. If all these home sales numbers we've heard recently included these ghost houses, they may never be built if the speculators rush to cancel.

The inventory levels that this blog has reported regularly has shown up on their radar. "Homebuilders seem to think that the risks of not having land ready are greater than the risks of having too much of it. Greg Jensen of Bridgewater Associates, a money management and research firm, put together balance sheets from a group of builders, and found that in 2004 their inventories, largely land, soared to the point that operating cash flow was negative even though profits were up sharply."

"It sure looks like the end of a bubble to us," Mr. Jensen said.

3 Comments:

At 11:20 AM, Anonymous Anonymous said...

Ben,

I feel that future demand has been severely diminished in the frenzy to buy now. This is a lesson the auto manufactures will learn as well.

On a personal note, the wife and I are full agreement on selling our condo in Fairfild County, CT as it is worth about $325k" at the moment. We have no mortgage and we are going to rent in the interim to give us 1) the ability to lock in the historical gain; and 1a) the flexibility to buy our long-term home when we want to without having to go through the hassle of selling our prior residence at the same time.

TheGuru

 
At 11:37 AM, Blogger Ben Jones said...

Guru,
With everyone rushing to buy before rates increase, etc, you are exactly right. Good luck with the sale. I have heard that many sellers have been able to lease back their home and not even have to move. Thanks for the update!

 
At 1:25 PM, Anonymous neveraborrower said...

Good point about future demand being sapped. The RE boom will not only retard future demand for housing but for all things housing-related: furnishings, construction, appliances, and so forth.

This is really more of a credit boom than a housing boom. And years of unbridled EZ credit will put the hurt on cars and other capital purchases as well.

Borrowing from the future has become a time-honored American pastime over the past few decades---take a look at Social Security for example. But as the saying goes, all debts must be repaid, if not by the debtor than by the lender.

Can the game continue? It could. But we all know the end-game here. Boosting demand in the present through debt financing is simply an economic pyramid scheme reliant on ever-increasing amounts of debt and pliant lenders willing to lend.

I have no idea when this scheme veers off the tracks. But it won't be pretty when it does.

 

Post a Comment

<< Home