As the U.S. housing slump enters its third year, there
is no sign of dawn in the darkness that is paralyzing home building, home buying and home lending. Standard & Poor's 15-member Supercomposite Homebuilding Index tumbled 62 percent this year as of yesterday, the largest drop since the benchmark was started in 1995. The companies have lost about $35 billion of market value.
The outlook is bleak with new home sales projected to fall 13 percent, according to estimates from the National Association of Realtors in Chicago, even as interest rates drop. Losses at Fannie Mae and Freddie Mac, the two biggest U.S. providers of mortgage financing, may restrict the availability of home loans, and chief executive officers at D.R. Horton Inc. and Centex Corp. expect another tough year. This looks like it's going to be the deepest correction of any housing correction since World War II, and the question really is, What's the duration, how long will it be?
Centex CEO Timothy Eller said at a JPMorgan Chase & Co. conference in
Las Vegas, the decline in the S&P homebuilding index has pushed the measure to March 2003 levels, with companies including Centex and Pulte Homes Inc. falling more than 65 percent in composite trading on the New York Stock Exchange. Credit Protection Costs Total new home sales peaked in July 2005 and have declined for 19 of the last 28 months, according to Commerce Department data. Existing home sales peaked in September 2005. The median price for a new home dropped 13 percent in October, the most since 1970, and the annual sales rate for new homes in September was the lowest in almost 12 years.
Bond investors have sought more protection against homebuilders defaulting on debt as revenue and cash flow have declined. Credit protection costs reached 12-month highs for Miami-based Lennar Corp., Bloomfield Hills, Michigan based Pulte, Dallas-based Centex and Fort Worth, Texas-based D.R. Horton, the four largest U.S. builders by revenue; as well as Calabasas, California-based Ryland Group Inc., a builder in 28 U.S. markets, and Hovnanian Enterprises Inc. of Red Bank, New Jersey, the biggest builder in that state.
"Bankruptcy Risks"
Credit default swap spreads climbed by as much as 335 basis points for
builders with investment-grade ratings and by an average 209 basis points for
those with junk ratings, according to CreditSights Inc., a New York-based research firm. Credit default swaps are contracts to protect bondholders against default. An increase indicates worsening perceptions for credit quality. If we talked two weeks ago, I'd say there wasn't much more downside, but the market is acting like there's still a lot more to go,'' said James Wilson, an analyst who follows home builders at San Francisco-based JMP Securities LLC.
Beazer Homes USA Inc, the Atlanta-based homebuilder under investigation
by the U.S. Securities and Exchange Commission, and Hovnanian are "bankruptcy risks," Wilson said. Those companies have too much debt and are exposed to slumping housing markets in Florida and Michigan, Indiana and Ohio, he said. Beazer CEO Ian McCarthy said at the conference in Las Vegas that it is going to be another tough year. The company has a secured credit line of $500 million, he said. The company is really looking to make sure its balance sheet and its credit position is strong as we go through this tough time, McCarthy said. The company also has agreements with our bankers and with our secured credit lenders that will put us in good stead going forward.
Worse 2008-2009?
Hovnanian CEO Ara Hovnanian said at the JPMorgan conference that
the company has a better financial structure than we've ever had. Hovnanian's bonds don't start coming due until 2010 and 2012, giving us plenty of breathing room, he said. We're experienced operators, been around for almost 50 years, Hovnanian said. We will clearly persevere and thrive in the eventual upturn as we have after every cycle. Many homebuilding executives at the conference said they expect the slump to last through 2008. Next year is going to be worse than for us and for the industry in general, said Donald Tomnitz, D.R. Horton's CEO.
At least three closely held companies filed for bankruptcy protection in the past month, including Fort Lauderdale, Florida-based Levitt and Sons LLC, the 1949 pioneer of planned suburbs with Levittown on New York's Long Island. Tousa Inc. of Hollywood, Florida, which has lost 99 percent of its stock market value this year, said this month it was considering filing for Chapter 11 bankruptcy protection.
"Tousa's Strategy"
Tousa acquired 22,000 home sites in Florida through a joint venture in
August 2005, when the housing market was close to its peak. Florida accounted for five of the top 25 U.S. metropolitan areas with the highest foreclosure rates this year, according to RealtyTrac Inc. The Irvine, California-based seller of foreclosure data has a database of more than 1 million U.S. properties. The New York Stock Exchange suspended trading in Tousa because the average closing price was less than $1 for 30 straight trading days. Tousa last traded at 8 cents, down from a seven-year high of $30 in August 2005.
Standard Pacific Corp., based in Irvine, California, is the worst performer in the S&P homebuilding index, dropping 89 percent. Home sales in California,
the company's largest source of revenue, fell 40 percent and median prices for existing homes slid 9.9 percent, data compiled by the California Association of Realtors show. Housing Glut A housing rebound is unlikely, as about 1 million adjustable loans made to subprime borrowers, those with weak or incomplete credit histories, are scheduled to reset at a higher rate in 2009, according to RealtyTrac. That may put many homeowners at risk of foreclosure and lower the value of neighboring houses, said Rick Sharga, vice president of marketing at RealtyTrac. About 1.3 million subprime mortgages will be in foreclosure by September 2009, including actions already under way, according to estimates from New York- based analysts at Credit Suisse Group.
There is just no quick fix, including further rate cuts, to stabilize the current weakness in the housing market, said CreditSights analysts Frank Lee and Sarah Rowin in a report to clients. Discounted Prices Builders must contend with a glut of existing homes on the market. There's an almost 11-month supply of unsold existing homes, the highest in more than eight years, according to data from the National Association of Realtors. The decline in the market for existing homes is lagging "far behind" the new home market, and resale prices have only started to erode, said Citigroup Inc. analyst Stephen Kim in a report.
We have never before seen how a belated dropoff in existing home prices will
affect already discounted prices for new homes, but it is difficult to be optimistic here, Kim wrote.
Citigroup cut its rating on Lennar, Centex, Los Angeles- based KB Home,
D.R. Horton, Ryland, Pulte and Standard Pacific to ``hold'' from ``buy.'' Meritage Homes Corp. in Scottsdale, Arizona, was reduced to sell from hold. Cash flow will assume even greater importance as homebuilders owe $875 million in debt payments in 2008 and then about $1.6 billion in 2009 and 2010, data compiled by CreditSights show.
"Hard Year"
Potential legal costs also may hurt the builders, said Lee of CreditSights. D.R. Horton, Hovnanian and Reston, Virginia- based NVR Inc. are being sued by consumers who saidthey were coerced into taking loans from the company's mortgage units. The top 10 builders made $2.1 billion from providing financial services such as mortgages and title insurance last year, according to data compiled by UBS AG. Investigations of builders may also weigh on the companies.
The U.S. Department of Housing and Urban Development is examining whether builders received kickbacks when selling property. Pulte and KB Home are among six homebuilders that agreed to pay a total of $1.4 million to settle federal probes into whether they accepted rebates from insurers for referrals when selling homes.
New York, Ohio and at least six other states are investigating the
mortgage industry, including whether appraisers, mortgage brokers and lenders may have inflated home values. Resolving the complaints "could run into the millions or billions of dollars," CreditSights's Lee said. There will be some bankruptcies, some consolidations, some private equity plays, said Kenneth Rosen, chairman of the University of California's Fisher School of Real Estate and Urban Economics in Berkeley. It's going to be another hard year.
The end of the real estate recession seems nowhere in sight, in light of a slew of bleak news Tuesday of falling sales and prices, a severe decline in construction and deep losses and layoffs at one of the nation's largest builders.
Sales of existing homes fell last month to their lowest point in five years, the National Association of Realtors says. The NAR says it expects more dismal figures for September as the housing market reels from the crisis in the mortgage industry.
But the September figures might be much worse. Re/Max International, which analyzed existing-home sales in five major cities for USA TODAY, says September totals so far are down sharply from last year. In Baltimore, Tucson and Seattle, for example, sales in the first three weeks this month are off more than 40%.
"I've given up forecasting how low housing sales will go," says Joel Naroff, president of Naroff Economic Advisors.
And Stuart Miller, CEO of Lennar, (LEN) has given up forecasting the builder's profits after reporting a record loss of $514 million in its third fiscal quarter, as it laid off 35% of its employees and wrote down the value of real estate.
Lennar warned that more pink slips are on the way. The company began construction on 60% fewer homes in the June-through-August period compared with the same fiscal quarter last year. At the same time, nearly one-third of buyers canceled their contracts.
"August seemed to be a melting pot of all things negative," Miller says. The declines were felt in every region of the country, he says.
Pulte Homes: "The Problem Is Demand"; No, the Problem is Pulte Homes
We heard from Toll's Bob Toll on bended knee looking for Congress to stimulate housing demand, and Pulte Homes joined in. Nothing really new there - the homebuilders are asking Congress for a $15,000 tax credit similar to the $2,000 tax credit offered to kickstart housing 35 years ago during the Ford Administration (they'll likely get half of that amount) - however, there were some interesting comments related to pricing that are worth sharing.
Richard Dugas, PHM CEO, said he believes it is a mistake to believe the new housing market can correct without the resale market also correcting. This is an important point of distinction. New homes are now selling at a 10% to 15% discount to resale in most areas of the country. Historically, that ratio has been reversed.
"We clearly need resale pricing to correct, and correct dramatically,' Dugas said. He cited the most recent data from the S&P/Case-Shiller index showing a 14% decline in prices year-over-year, by far the largest on record, but noted that even that kind of decline is not enough.
"We view that [price decline] as a good thing," Dugas said, "and frankly we think resale pricing needs to continue to move down, because existing buyers are telling us they would like to buy our homes, but need to sell their existing homes, but they've obviously got
to get realistic about price before they have a chance to sell those homes."
This view - that prices still need to come down significantly - makes some sense, especially if your business is selling new homes, but there are other issues at work. Foremost is the problem facing both Fannie Mae (FNM) and Freddie Mac (FRE) if Dugas gets his wish for dramatically lower home prices. We believe both companies are underestimating coming price declines.
Fannie recently relaxed downpayment rules so borrowers approved by Fannie Mae's automated underwriting program will now be able to borrow up to 97% of the value of their homes. At the current pace of decline using the Case-Shiller composite, it would take just four months to be underwater on your mortgage with a 3% down payment.
Meanwhile, the real issue facing homebuilders is the psychological impact of housing price deflation. "Of [the issues facing housing], I think by far the biggest issue is buyer confidence and the lack of the ability for the buyer to make a decision to get in housing, because they are fearful of price declines," Dugas said. That's why he's looking to Congress to help. "The whole idea here folks would be to put a floor under pricing and get people back in the market," Dugas said.
If Dugas and Toll get their way, we taxpayers will essentially become home price guarantors as existing homeowners are forced to reprice their homes downward while only they (the homebuilders) get to share in the profits. The rationalization for this disjointed and incongruous view of risk and reward is that housing is a "key linchpin" of the U.S. economy. Well, so was the cotton industry in 1790. Some things need to change.
Woodside Homes, which bills itself as the third largest private homebuilder in the U.S., may be nearing bankruptcy.
The Utah-based company is part of a group of builders developing the Inspirada master-planned community outside Las Vegas. Other developers at the community include Toll Brothers TOL, KB Home KBH, Meritage Homes MTH and Beazer Homes BZH.
The Inspirada project is being built on 2,000 acres in Henderson, Nev., that Woodside and the various joint venture partners purchased at auction from the Bureau of Land Management. The project was originally dubbed South Edge.
Earlier this year, another partner in the project, private builder Kimball Hill Homes, filed for bankruptcy.
Last week, a group of note holders filed an involuntary petition against Woodside Homes in U.S. Bankruptcy Court in the Central District of California. Involuntary petitions are often made by creditors to force a company into Chapter 11 bankruptcy. Woodside has 20 days from the date of the Aug. 20 filing to respond.
“First and foremost, Woodside continues to operate in the normal course of business — paying employees, vendors and subcontractors, and building and selling homes,” Jennifer Mercer, a spokesperson for Woodside Homes, told TheStreet.com.
“The company is working with both the note holder and bank groups and will be presenting its position to the judge requesting an orderly resolution on Wednesday,” Mercer said. She refuted the Tuesday report from Standard & Poor’s LCD News that said Woodside had already filed for Chapter 11.
The petitioning creditors listed on the filing against Woodside are John Hancock Life Insurance, AXA Equitable Life Insurance, Metropolitan Life Insurance, New York Life Insurance and Security Life of Denver Insurance. The total claim amount is $156 million.
Government assumes control over mortgage giants Fannie Mae and Freddie Mac
WASHINGTON (AP) -- The Bush administration, acting to avert the potential for major financial turmoil, announced Sunday that the federal government was taking control of mortgage giants Fannie Mae and Freddie Mac.
Officials announced that the executives and board of directors of both institutions had been replaced. Herb Allison, a former vice chairman of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.
Treasury Secretary Henry Paulson says the historic actions were being taken because "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe."
The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.
"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance," Paulson said.
Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.
The Federal Reserve and other federal banking regulators said in a joint statement Sunday that "a limited number of smaller institutions" have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans."
The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.
Paulson said that it would be up to Congress and the next president to figure out the two companies' ultimate structure.
"There is a consensus today ... that they cannot continue in their current form," he said.
Paulson and James Lockhart, director of the Federal Housing Finance Agency, stressed that their actions were designed to strengthen the role of the two mortgage giants in supporting the nation's housing market. Both companies do that by buying mortgage loans from banks and packaging those loans into securities that they either hold or sell to U.S. and foreign investors.
The companies own or guarantee about $5 trillion in home loans, about half the nation's total.
Lockhart said that both Fannie and Freddie would be allowed to increase the size of their holdings of mortgage-backed securities to bolster the housing industry as it undergoes its worst downturn in decades.
Lockhart said in order to conserve about $2 billion in capital the dividend payments on both common and preferred stock would be eliminated. He said that all lobbying activities of both companies would stop immediately. Both companies over the years made extensive efforts to lobby members of Congress in an effort to keep the benefits they enjoyed as government-sponsored enterprises.
Both Paulson and Lockhart were careful not to blame Daniel Mudd, the CEO of Fannie Mae, or Freddie Mac CEO Richard Syron for the companies' current problems. While both men are being removed as the top executives, they have been asked to remain for an unspecified period to help with the transition.
By Alan Zibel and Martin Crutsinger, AP Business Writers
Congress must not write the no-strings-attached blank check the Bush administration wants to bail out Wall Street with. The $700 billion (at minimum) for Wall Street and $0 for Main Street deal that gives the Treasury secretary absolute control of who gets cash is not the way to address the nation’s financial crisis.
Pulte Homes Inc.'s (PHM) fourth-quarter net loss narrowed due to lower write-downs, but revenue and net new-home orders tumbled as the company said the housing market took "yet another step down." "Sinking consumer confidence, excess foreclosure inventory and continued very tight mortgage availability put dramatic downward pressure on the homebuilding market," said President and Chief Executive Richard J. Dugas Jr. The home builder reported a net loss of $338.2 million, or $1.33 a share, compared with a year-ago loss of $874.7 million, or $3.46 a share. The latest results included $380 million of pretax impairments and other land-related charges, while year-ago results included $509 million in impairments. Revenue tumbled 43% to $1.65 billion. Analysts polled by Thomson Reuters projected a loss of 71 cents a share, including the impairments, on revenue of $1.44 billion. In October, the company declined to provide a fourth-quarter guidance, citing a high degree of volatility in the housing industry and overall economy. Net new-home orders in the quarter slumped 61% to 1,763 homes. Closings decreased 37% to 5,474 as the average sales price declined 13% to $278,000. The backlog as of Dec. 31 was valued at $631 million, or 2,174 homes, down from $2.5 billion, or 7,890 homes, a year earlier.
BLOOMFIELD HILLS, Mich. (AP) -- Pulte Homes Inc.'s chief executive intends to sell about 4.8 million shares, or 11 percent of his personal stake in the homebuilder, through a prepaid variable forward contract, according to a regulatory filing Monday.The contract allows William J. Pulte, who also founded the company, to receive cash now, while also keeping the right to maintain ownership of the stock at the end of the contract's 16-month term by settling it with cash.Pulte also may keep an interest in a possible increase in the shares' value over the next same period, the company said. In addition, the contract protects Pulte against the potential decline in value of the shares.The executive will use some of the proceeds of the contract to settle a previous, prepaid variable forward contract he entered into a year ago, the company said. The new contract combines the roughly 3.4 million shares pledged in the February 2008 contract with 1.4 million new shares.Pulte Homes currently has about 257.5 million shares outstanding.
NEW YORK, Feb 10 (Reuters) - A review of the 33 U.S. home builders generating more than $10 million in revenue found that more than 30 percent are in danger of filing for bankruptcy, according to a restructuring consultancy."It's striking when you see just how much cash flow has continued to decline for the better builders," said John Bittner, partner at Grant Thornton Corporate Advisory and Restructuring Services.Already this year, several home builders have filed for bankruptcy, including Florida's Mercedes Homes Inc, which filed on Jan. 26, citing the collapse in demand for new homes and an oversupply of existing homes for sale. The company called itself the No. 20 home builder in the United States and their operations were spread throughout 13 markets.Fulton Homes Corp also filed for Chapter 11 bankruptcy protection this year in Arizona, while Landmark Homes and Development Inc filed in Nevada.To avoid the same fate, the survivors have, and continue to, cut costs and prices and ramp up incentives on inventory in order to increase cash flow at the expense of profitability.Expense reduction will be critical, said Tim Skillman, a Grant Thornton principal.Average revenue per home builder declined nearly 50 percent from peak levels to $1.9 million last year. Home builders that slash land spending and maximize cash flow will help themselves combat the specter of distress, the firm said.But there is a limit to how much builders can cut costs and sell off assets, said Bittner."It'll get to a point when builders get rid of the assets with the most value and expenses can't be cut much further. After that, there's not much they can do except wait for a turnaround in the housing market."
Blackstone Group Lp 2009-02-17 Sold All shares -350,000Lmm Llc Md 2009-02-17 Sold All shares -5,796,649Traxis Partners Llc 2009-02-17 Sold All shares -483,680Old Mutual Asset Managers Uk Ltd 2009-02-17 Sold All shares -372,800Wellington Management Co Llp 2009-02-17 Sold All shares -148,694Everest Capital Ltd 2009-02-17 Sold All shares -640,000 Algert Coldiron Investors Llc 2009-02-17 Sold All shares -47,165 Newbrook Capital Advisors Lp2009-02-17 Sold All shares -272,759 Legg Mason Capital Management Inc 2009-02-17 Sold All -420,900Capital International Inc2009-02-13 Sold All -506,600Systematic Financial Management Lp 2009-02-12 Sold All shares -1,463,606Credit Suisse Institution 2009-02-17 Sold 37% of their PHM holdings down from 1,288,201 -472,631 to 815,390Charles Schwab Investment Management Inc 2009-02-13 Sold 58% of their PHM holdings down from 1,098,051 -626,773 to 471,278 Not looking good for Pulte Homes.
WASHINGTON (AP) -- The number of American households threatened with losing their homes grew 24 percent in the first three months of this year and is poised to rise further as major lenders restart foreclosures after a temporary break, according to data released Thursday.The big unknown for the coming months, however, is President Barack Obama's plan to help up to 9 million borrowers avoid foreclosure through refinanced mortgages or modified loans. The Obama administration expects its plans to make a big dent in the foreclosure crisis. But it remains to be seen whether the lending industry will fully embrace it, despite $75 billion in incentive payments.The faltering economy is causing the housing crisis to spread. Nationwide, nearly 804,000 homes received at least one foreclosure-related notice from January through March, up from about 650,000 in the same time period a year earlier, according to RealtyTrac Inc., a foreclosure listing firm. During the quarter, Ohio was the state with the seventh highest number of homes seeing foreclosure activity with about 31,600 receiving at least one filing, up 1 percent from a year earlier.In March, more than 340,000 properties were affected nationwide, up 17 percent from February and 46 percent from a year earlier. Ohio had 12,600 homes receiving foreclosure notices during the month, 12 percent more than during March 2008.Foreclosures "came back with a vengeance" last month and are likely to keep rising, said Rick Sharga, RealtyTrac's senior vice president for marketing.Nearly 191,000 properties completed the foreclosure process and were repossessed by banks in the quarter. While the number was down 13 percent from the fourth quarter of last year, it is expected to rise through the summer and then possibly taper off.Fannie Mae and Freddie Mac, the big mortgage finance companies, together with many banks had temporarily halted foreclosures in advance of Obama's plan. Now armed with the details about which borrowers can qualify, the mortgage industry has begun foreclosing on ineligible borrowers.The Treasury Department has signed contracts with six big loan servicing companies -- including Citgroup, Wells Fargo and JPMorgan Chase. Many have already started processing loans as part of the government's "Making Home Affordable" plan."We need to get the long-term solutions for these folks," Shaun Donovan, Obama's housing secretary, said in an interview.In the coming months, Donovan said, there are still likely to be increased foreclosures, especially from vacant houses, second homes and those owned by speculators. None of those properties will qualify for a loan modification. However, he remained optimistic that overall foreclosures could start to decrease this summer.But even industry executives who emphatically support the plan emphasize that it's success isn't guaranteed."The effectiveness of the plan overall obviously is going to depend on the level of industry participation," said Paul Koches, general counsel of Ocwen Financial, which collects loan payments on subprime loans.Many borrowers and consumer groups claim the modifications offered by the lending industry don't do enough to help cash-strapped homeowners, despite more than a year of public prodding from regulators. Fewer than half of loan modifications made at the end of last year actually reduced borrowers' payments by more than 10 percent, data released last month show.Plus, the lending industry has been swamped by the unprecedented wave of calls from distressed borrowers. "You can't wave a magic wand and make the loans suddenly modified," Sharga said. "They're all individual transactions."In RealtyTrac's report, Nevada, Arizona, California and Florida had the nation's top foreclosure rates. In Nevada, one in every 27 homes received a foreclosure filing, while the number was one in every 54 in Arizona. Rounding out the top 10 were Illinois, Michigan, Georgia, Idaho, Utah and Oregon.
The 26 cities with the highest foreclosure rate in the nation are all located in four hard-hit states, with Las Vegas topping the list, according to a report released Wednesday.Metro areas in California, Florida, Nevada and Arizona topped the foreclosure filing list for the first quarter of 2009 in a report from RealtyTrac, an online marketer of foreclosed properties. A foreclosure filing includes default papers, auction sale notices and repossessions.Las Vegas had the highest rate of foreclosures of any city, with one in every 22 homes subject to a foreclosure filing in the first three months of the year. The rate of foreclosure filings was 4.5%, seven times the national average.Merced, Calif., had the second highest rate, with Cape Coral-Fort Myers, Fla., Stockton, Calif., and Riverside-San Bernardino-Ontario, Calif., rounding out the top five."The metro areas with the highest levels of foreclosure activity in the first quarter of 2009 paint a picture of concentrated problems in a relatively small number of hard-hit areas," said James J. Saccacio, chief executive officer of RealtyTrac, in a written statement.Foreclosure rates have been very high in the 4 key states throughout the bursting of the housing bubble, and so it was to be expected that cities from those states would pepper the top of the list.However, it was a surprise to see the list so top heavy, according to Rick Sharga, senior vice president at RealtyTrac."The concentration of troubled metro areas within the hardest-hit states, candidly, was even more severe than we expected it to be," Sharga said. "The degree to which those four states dominated the rankings surprised even us."New problem cities: Meanwhile, some metropolitan areas had a surge in foreclosures. Boise City-Nampa, Idaho, in 27th place, Provo-Orem, Utah, in 37th, and Charleston-North Charleston, S.C., in 51st were examples Sharga gave of areas that had particular strong gains in filings.Sharga said the rise of foreclosures in additional regions indicates new factors influencing the housing market as the recession drags on."What we believe we are seeing is some of the areas with unemployment problems," said Sharga. "These are people living paycheck to paycheck and, when the paycheck is gone, suddenly they can't afford to make their mortgage payments."The data for RealtyTrak's metro area foreclosure report is collected from 2,200 counties across the nation, and those counties represent more than 90% of the U.S. population. Some 203 areas are covered by the report.Across the nation, foreclosure activity in the first quarter hit a record high, according to another RealtyTrac report issued last week. Total foreclosure filings reached 803,489 in the first three months of the year, the highest monthly and quarterly totals since RealtyTrac began reporting in January 2005.The national report also found that the worst of the foreclosures were centralized in a handful of worst-hit states. California, Florida, Arizona, Nevada and Illinois accounted for nearly 60% of the total foreclosure activity in the first quarter, with 479,516 properties received foreclosure filings in those states.
Just two months ago, Pulte Homes CEO Richard Dugas told analysts that not only did the homebuilder have too much inventory, but that it also had more land than it could possibly need, considering the housing industry's current malaise. Now he's gone out and bought Centex, which is going to end up giving him an estimated eight years’ worth of land. On top of that, the deal is going to give the combined companies so much debt that it will result in one of the worst cash-debt ratios in the industry.Merging Pulte Homes with Centex may make for the nation's largest homebuilder, but it's also quite possibly making for the largest housing disaster.
BLOOMFIELD HILLS, Mich.--(BUSINESS WIRE)--May. 5, 2009-- Pulte Homes (NYSE: PHM) announced today financial results for its first quarter ended March 31, 2009. For the quarter, the Company reported a net loss of $514.8 million, or $2.02 per share, compared with a $696.1 million net loss for the prior year first quarter, or $2.75 per share. The first quarter 2009 net loss included $410.2 million of pre-tax charges related to inventory impairments and other land-related charges. Impairments and land-related charges for the prior year quarter were $663.6 million. Consolidated revenues for the quarter were $587.4 million, a decline of 59% from prior year quarter revenues of $1.4 billion.
New Home Prices Have To Go Up 10 To 15% Before Builders Can Make A Profit. I don't foresee That Until 2 More Years. There Is Just To Much Builder Inventory & Foreclosures On The Market To Deal With Before You Can Start Increasing New Home Prices 10-15%. It May Take More Than 2 Years To Start Seeing A Decrease In Those Inventories & Foreclosures. My Question Is-How Much Longer Can These New Home Builders Survive? Even When They Start Making A Profit, It Will Be A Long Time Before They Can Start To Keep Their Heads Above Water, Literally. The Market Will Never Be The Same As It Was, Which In My opinion, Is A Good Thing For The Consumer.
With unemployment up, deficit up, interest rate up, cost of basic needs like electricity & water up, even though 1st time buyers are supposed to get $8000 credit, nobody mentioned that you need to make less than $75,000/yr to get it; I find it hard to imagine that these homebuilders will survive this environment. No wonder they even knocked down some unfinished projects.
"U.S. unemployment rate in April hit 8.9%, its highest in a quarter century. The labor force lost 539,000 non-farm jobs in April, down from March's 699,000 decline. A 72,000 rise in government jobs, mainly new workers for the 2010 Census, helped narrow the gulf."
But if you dig in those numbers carefully, you need to add Birth Death Assumption and seasonal adjustment, Census one-timers (because those are one-timers, temporary workers), plus revisions, bringing the REAL Adjusted Non-Farm Payroll job losses to 847,000 not 539,000.
And this was supposed to be WORSE THAN EXPECTED.
It is very obvious that they are manipulating their data, accounting rules, people to pump up this market, all that with the goal of restoring confidence so that the general unaware investors would put money back in the market;
in the mean time, the companies can then take advantage of the hype to raise capital at a higher price. No wonder everybody wants to raise capital.
Even MSFT who has tons of cash already, comes out raising capital to take advantage of the stock price, not that they need the cash! This proves that stock prices are inflated, companies know this, the smart people know this, but the average investors don't. Because of greed, they don't want to miss the boat by not investing.
Once they are all in, the market will become overbought and it's the little guys who will end up holding the bag.
Here's the good news: The worst of the subprime mortgage carnage is behind us.
Here's the bad news: That was just the tip of the iceberg. There's probably much worse ahead.
Fool retirement guru Robert Brokamp recently sat down with noted value investor Whitney Tilson to talk about his thoughts on the continuing mortgage crisis.
I thought this was a subprime problem!
It was, at first.
Many subprime mortgages started out with a low "teaser" interest rate that then increased to a market-level subprime rate after a set period of time. When that happened, the payments would go up -- often by a lot -- and the hapless overleveraged borrower would go, "Oh fiddlesticks, I can't afford to pay the mortgage anymore."
(Except that most of them probably didn't say "fiddlesticks." But I digress.)
Tilson notes that the number of loans facing payment shock started climbing in early 2006, reached a very high level in early 2007, and stayed high until about the end of last year, at which point they started falling off sharply. Likewise, the massive wave of defaults and foreclosures triggered by these higher payments is abating. That wave is behind us.
But subprime mortgages weren't the only ones with teaser rates.
Now, it's mostly not a "subprime" problem
The emerging problem is with prime mortgages, those issued to people with good credit. The crash in housing prices has left many of those folks "underwater" -- owing more than their house is now worth. And the crash in the global economy has left many of those folks unemployed -- and many who are still employed are making less money now than they were a year or two ago.
Tilson cites figures that about a quarter of all prime U.S. mortgages are underwater at the moment, and that number is likely to grow if housing prices continue to fall. Despite some beliefs that home prices are bottoming, unemployment is still a big problem -- Deere (NYSE: DE), among others, just announced new rounds of layoffs. And now mortgage interest rates are suddenly rising -- the average 30-year mortgage is up to 5.32% this week, up from 4.91% just last week, according to the most recent Freddie Mac (NYSE: FRE) survey.
Nobody knows quite how all these factors will play out, but clearly the potential for a huge wave of defaults in the near future is growing.
What, you thought things were stabilizing?
Tilson recently argued that the appearance of stabilization in the housing market is a "head fake," caused by the usual spring surge in homebuying and a temporary reduction in the inventory of foreclosed homes sitting on the market. The crisis, Tilson says, is actually getting worse.
As Tilson sees it, although the worst of the losses suffered by speculators and subprime borrowers are over, problems with prime loans are just now starting to pick up steam. Many conforming prime loans are owned by Fannie Mae (NYSE: FNM) and Freddie Mac. But other mortgages will likely also prove problematic, including home equity lines and prime "jumbo" mortgages, as well as the scarier Alt-A and Option ARM loans.
Eeeek?
Why scarier? According to Tilson, nearly half of Alt-As and over 70% of Option ARMs are underwater. Alt-A resets are just starting to take off -- they won't peak until 2012 or 2013. And Option ARMs don't just reset, they recast -- borrowers go from making just interest payments, in many cases, to making full proper 30-year-amortized mortgage payments. Some could see their monthly payments increase by 60% or more.
