Tuesday, May 10, 2005

Southwest Builder Marks Slowdown

The first quarter results for one home builder indicates a slowdown. "William Lyon Homes is one of the oldest and largest homebuilders in the Southwest with development communities in California, Arizona and Nevada."

"The number of homes closed in the first quarter of 2005 was 459 homes, down 24% from 603 homes in the first quarter of 2004. At March 31, 2005, the backlog of homes sold but not closed totaled 1,580 homes, down 10% from 1,755 homes at March 31, 2004."

"Net new home orders for the quarter ended March 31, 2005 were 873 homes, down 20% from 1,092 homes for the quarter ended March 31, 2004."

The firm ownes almost 10,000 lots in the three states and has options on another 10,000, eleven times its backlog. RE inventories jumped by $163 million, or 15% in the quarter. Cash and receivables declined 56% in the same period."

9 Comments:

At 9:07 AM, Anonymous Anonymous said...

Any comments on Toll Brothers

 
At 9:14 AM, Anonymous Anonymous said...

You'll find out in less than 2 hours. Always remember... Sell on the news. I'm buy puts right now.

 
At 9:16 AM, Anonymous kailuabruddah said...

I think Toll Brothers revenue came in slighty light compared to expectations... that said, the stock ran up 10% over the past week so if today's pullback is on light volume who knows...

If the selling volume picks up, perhaps the entire homebuilder group resumes its decline which began in early March...

Since the stock market tends to look ahead 6 months or so, if the decline really does resume, I would expect massive increases in inventory - particularly in the bubble locales... and the start of a 4-to-6 year 20%-to-40% decline in bubble market housing prices...

A couple of quick links to demonstrate that the RE Bubble has clearly spilled over the Pacific Ocean to the 50th state:


http://starbulletin.com/2005/05/10/business/index.html

http://starbulletin.com/2005/05/06/news/index1.html


http://starbulletin.com/2005/05/08/news/index1.html

 
At 9:46 AM, Anonymous alohamrhand said...

(A couple of quick links to demonstrate that the RE Bubble has clearly spilled over the Pacific Ocean to the 50th state)

Hawaii marches to a different drummer, mostly due to the Japanese influence. Property ran up mightily in the late '80s due to tons of Japanese money pouring in---it's a popular destination for them.

The current Hawaii boom started much later than the broader US/global RE boom. Some of the money pouring in is Japanese because the dollar has depreciated vs. the yen. But most of the money is either local (trade-ups) or Calif.

My family owned a condo in Maui for 20 years. We had to sell it in 1999 due to trust complications. Unfortunately, we sold too soon and the value of the property has more than doubled since then.

What's funny, though, is that even though we kept the Kaanapali condo rented about 85% of the time, through a mgmt firm, it still wasn't throwing off much net income due to mgmt fees, upkeep, etc. You had to buy new carpet and furniture quite often to keep it shipshape for the rental pool.

Even though it has more than doubled in value, the rents are no higher than they were seven years ago because of the supply on the market. So the fundamentals are even worse. Anyone buying at today's prices would surely lose money every month if they bought as an "investment"---which most do. The only way to make money is through continuous asset appreciation. A familiar story.

 
At 10:08 AM, Blogger Ben Jones said...

aloha,
Thanks for the inside tip on Maui.

 
At 10:23 AM, Anonymous John Vosilla said...

"Even though it has more than doubled in value, the rents are no higher than they were seven years ago because of the supply on the market. So the fundamentals are even worse. Anyone buying at today's prices would surely lose money every month if they bought as an "investment"---which most do. The only way to make money is through continuous asset appreciation. A familiar story."

Yes that is pretty much the theme in most bubble markets, especially single family and anything higher end. However, I am finding at the lower end the market rents are actually going up substantially in urban areas such as S Florida due to a shortage of rental units after all the condo conversions. However the cap rates still don't even come close to penciling in any reasonable return due to skyrocketing operating costs.

 
At 10:37 AM, Anonymous poolboy said...

(However, I am finding at the lower end the market rents are actually going up substantially in urban areas such as S Florida due to a shortage of rental units after all the condo conversions.)

You are probably right, but I think that's a short-term phenomenon. Condo conversions usually occur during the terminal stage of a boom. When buyers fail to materialize, these units end up right back in the rental market...as do the thousands of new condos that either didn't sell or whose owners can't flip them and need to rent them.

So you get a swing from a tight rental pool to a very bloated rental pool. At some point, an equilibrium occurs but it could take years before things even out.

 
At 2:13 PM, Blogger Thomas said...

Isn't it true that some huge percentage of California's job growth since the 2001 recession bottom have been in the real estate industry? And if that's true, won't lighter sales volume result in more of these people being out of work?

Prices in Southern California have yet to correct much; we're still seeing year-over-year appreciation in every month's numbers (although the March '05 Y/Y appreciation was "only" 11%, down from the truly insane 25%+ rates we've seen for the past two years or so). However, sales volume is clearly down, and heading further south.

Often (not always), it takes some external catalyst to change investor psychology and get an overvalued market to turn around. In this case, it's possible that the real estate bubble will be a victim of its own success: Once prices are jacked up so high that virtually nobody can afford to buy, sales will come to a screeching stop, as sellers will initially be reluctant to sell for less than what this insane market has deluded them into thinking they're entitled to.

A dialback in sales means more realtors and mortgage brokers' revenue streams drying up, and a decline in homebuilders' profits. Think of all the secondary effects of those declines -- no more Prop. 13 upward adjustments when houses are sold, so government spending gets pinched; no more capital-gains revenue gushers, etc.

The argument of the RE bulls that the bubble will end in a plateau has become circular: Real estate bubbles can't pop without a recession, and the economy looks strong -- but the continuing expansion of the bubble, coupled with decent sales volume, appears to be the only thing keeping the economy afloat. Even if values plateau or continue to rise, lower volume may well give us the recession that would suffice to start a full-bore housing collapse in earnest.

Somebody tell me where I'm wrong in that analysis.

 
At 2:39 PM, Blogger Ben Jones said...

Thomas,
(it's possible that the real estate bubble will be a victim of its own success)

That's the realization that came to me. The affordability matter alone could stop the boom. Now, we have a host of new problems that may be the cause. Thanks. Good points.

 

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