Echo

Forced consolidation in the home building industry

Tuesday, January 20, 2009

With home values falling over the last few years, new construction coming to a standstill, and inventories building with fierce pressure, consolidation in the home building industry is inevitable. Some say that up to 50% of the homebuilders in the industry will fail, if they haven't already.

The chart illustrates the Census Bureau's estimate of new construction put in place: residential, nonresidential, and public. The annual growth rate of residential construction spending has been negative since 2007, while nonresidential construction has likely hit a peak, but is still growing. Public construction is positive, and will likely improve with the new stimulus plan. However, the funds, as they are appropriated, will not filter into the economy for quite a while.

But it looks like the credit crunch is coming down hard on small-sized homebuilders in the SouthWest. From the IHT:

Dave Brown, one of the best-known home builders in Tempe, Arizona, had kept his head above water through the housing downturn, not missing a single interest payment on his loans. So he was confounded a few months back when one of his banks, spooked by the decline in his company's revenue, suddenly demanded millions of dollars in additional collateral to continue carrying loans on his projects.

He was unable to come up with the money, and in October, JPMorgan Chase foreclosed on five of his developments. Shortly thereafter, Brown Family Communities, 33 years in the business, decided to shut its doors....

...As defaults and delinquencies rise, home builders, once prized banking customers, have become pariahs. Even builders who are up to date on their interest payments or still managing to sell houses are getting trampled, as in the case of Brown.

"They're not distinguishing the track records of one borrower against another," said John Fioramonti, a real estate consultant in Tempe. "If you're a builder, you are a bad risk."
With the pullback accelerating, complaints among builders of hardball tactics and shoddy treatment by banks are mounting, as is a general sense of betrayal.


"The behavior of the banks is unprecedented," said Mick Pattinson, a home builder from Carlsbad, California, who has organized a national coalition of builders to draw attention to what they regard as unreasonable treatment. "Yes, there was overleveraging in the industry. But the aftermath doesn't need to have been as brutal as it has been."

Some experts defend the banks, saying they are starting to do what is necessary to come to grips with the turmoil in real estate. For months, they have been under pressure from U.S. bank regulators and their shareholders to curtail lending to a faltering industry.

"The lenders are not operating irrationally or unfairly, generally speaking," Fritts said. "They have to protect themselves."

Access to credit is essential to builders, who rely heavily on borrowed money to finance land acquisitions and home construction....(you can read more here).
Rebecca Wilder

4 comments:

Janie January 20, 2009 at 8:32 AM  

There is a HUGE planned community west of Phoenix, in Surprise, which has come to a screeching halt. Brown isn't the only home builder to go out of business. Many locally deserve to go but a few got caught and have to pay for the bad builders.

MC Shalom January 20, 2009 at 10:26 AM  

They Bail Out, We Opt Out.

All of Our Economic Problems Find They Root in the Existence of Credit.

Out of the $5,000,000,000,000 bail out money for the banks, that is $1,000 for every inhabitant of this planet, what is it exactly that WE, The People, got?

If Your Bank Doesn't Pay Back Its Credits, Why Should You Pay Yours? Or Else ...

If the Banks Get 0% Loans, How Come You Don't?

At the Same Time, Everyday, Some of Us Are Losing Our Home or Even Our Jobs.

Credit is Mathematically Inept, Morally Unacceptable.

They Bail Out, We Opt Out

Opting Out Is Both Free and Completely Anonymous.

The Credit Free, Free Market Economy

Is Both Dynamic on the Short Run & Stable on the Long Run, The Only Available Short Run Solution.

I Am, Hence, Leading an Exit Out of Credit:

Let me outline for you my proposed strategy:


Preserve Your Belongings.

The Property Title: Opt Out of Credit.

The Credit Free Money: The Dinar-Shekel AKA The DaSh, Symbol: - .

Asset Transfer: The Right Grant Operation.

A Specific Application of Employment Interest and Money.
[A Tract Intended For my Fellows Economists].


If Risk Free Interest Rates Are at 0.00% Doesn't That Mean That Credit is Worthless?

Since credit based currencies are managed by setting interest rates, on which all control has been lost, are they managed anymore?

We Need, Hence, Cancel All Interest Bearing Debt and Abolish Interest Bearing Credit.

In This Age of Turbulence The People Wants an Exit Out of Credit: An Adventure in a New World Economic Order.

The other option would be to wait till most of the productive assets of the economy get physically destroyed either by war or by rust.

It will be either awfully deadly or dramatically long.

A price none of us can afford to pay.

“The current crisis can be overcome only by developing a sense of common purpose. The alternative to a new international order is chaos.”

- Henry A. Kissinger


They Bail Out, Let's Opt Out!

If You Don't Opt Out Now, Then When Will You?



Let me provide you with a link to my press release for my open letter to Chairman Ben S. Bernanke:

Chairman Ben S. Bernanke, Quantitative [Ooops! I Meant Credit] Easing Can't Work!


Yours Sincerely,

Shalom P. Hamou AKA 'MC-Shalom'
Chief Economist - Master Conductor
1 7 7 6 - Annuit Cœptis
Tel: +972 54 441-7640

Tim Manni January 20, 2009 at 3:05 PM  

Rebecca,

Great post. I just came across the "Fix Housing First" website. It's an initiative being solicited to Congress to include two specific measures in the upcoming stimulus, aimed at correcting the housing market. It's supported by the National Association of Home Builders. According to National Mortgage News, "Fix" is aiming at "An enhanced home-buyer tax credit, coupled with an with a deep and permanent interest-rate buy down," to increase home sales and prevent falling values. But as your post proves, it seems proposed solutions like "Fix" are missing a key, and very root cause of the problem.

Perhaps they should petition Congress to re-examine the devastating impact a lack of credit availability to even responsible builders is having on the industry. As you pointed out, even successful builders have no choice but to consolidate, hence fold.

While enticing new home buyers is paramount to re-establishing the real estate industry, the Fed needs to take a hard line on financial institutions that are snuffing out viable businesses (via a lack of credit). Unless, the gov is prepared to examine the home building industry's need for a bailout.

Thanks,
Tim

Tim Manni January 21, 2009 at 9:44 AM  

I forgot another important point, is building more homes in this already saturated market really a viable solution? Maybe for home builders, but probably for no one else.

Thanks,
Tim

Blog Archive

Search News N Economics

  © Free Blogger Templates Columnus by Ourblogtemplates.com 2008

Back to TOP