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 From Steven E's Byline (Former member of the National Association of Homebuilders)

• Are prices in the housing market going to go lower?
  • Probably
• Are prices in the housing market going to go higher?
  • Absolutely!
• If I buy now will they go higher?
  • Absolutely!
• If I wait for lower prices, wouldn’t I be better off?
  • Not necessarily

 The housing market is like the stock market. When do you buy? When do you sell? If you are looking for a short-term investment that you can flip in a few months, now might not be the right time to buy. However, if you are looking for a good sound investment, a primary home for your family or maybe that vacation home you have had your eye on, now could be the buy of a lifetime.

This current market has seen the major homebuilders in this country forced to dismantle their corporate structure just to survive. They have had major layoffs and have even had to go so far as to cut their top executives and the majority of their “A” players. They have had to cancel contracts on land that they tied up years ago for their future developments. They have had to cut the amounts they pay their subcontractors and the amount of work they give them, both to the point that many subcontractors have gone out of business. The ones that survive will be so short of staff and cash they will be hard pressed to increase the volume of work they can handle when called upon to do so. The major manufacturers and suppliers have shut down production lines, closed their plants, laid off personnel and have sent their equipment elsewhere.

What does all this mean? It means this country’s Homebuilding Infrastructure has been dismantled. It means the American Homebuilders and their subcontractors, manufacturers and suppliers will not be able to respond quickly enough to meet the pent up demand for new homes when this market rebounds. It means that homebuilders will be willing to pay anything to get their homes built and to market, just like they did not so long ago. It means that the shortage of available new homes we experienced five or six years ago will be with us again. It means prices on homes will rapidly climb above the high prices we were willing to pay just a few years ago and definitely above the low prices we are currently paying. The only difference is, this time they probably won’t be coming back down anytime in the near future.

Almost every down turn in the housing market has been followed by a robust and sustained upturn in the market. Whether it is just the right investment you are looking for or a home for your family, if you wait until everyone else is buying, you could miss out on what you really want or need. If you buy before the market hits rock bottom you are in a much better position to negotiate the best deal and right now your choices of properties have never been better.

What does this mean to you the home buying public?
It means you better not wait too long to make your move! 
 

Brits snatch up U.S. homes
By Lauren Baier Kim

Americans may have hit the malls on Black Friday, but across the pond, Britons are looking for a different kind of bargain -- U.S. residential real estate, says an article in the London-based the Observer. With the exchange rate above two dollars to the pound and with housing prices on the decline in the U.S., Brits are buying up stateside holiday homes, selling their own U.K. properties to relocate to the U.S. and even purchasing U.S. residential real estate in the hopes of renting it out, the Observer says. Twenty percent of overseas buyers in the U.S. are purchasing for investment purposes, while about 50% are buying second homes, the newspaper says. Top places of interest for British buyers are Manhattan, California and Florida, the article says. "People can't believe the amount and type of property you can get," says the owner of one Florida firm who advertises to overseas buyers. "They would expect to pay twice that amount for the same thing in the U.K."

 

NBC2 Investigators: Real estate slump
Last updated on: 10/29/2007 7:02:00 PM by Craig Wolf

LEE COUNTY: The NBC2 Investigators looked into the real estate market slump and uncovered one thing sellers could do to turn the market around.

The American dream of owning a home is still alive, but on an opportunistic hold. Although the buyers are there, some home prices are at 2002 levels. Many buyers are waiting for the prices to drop.

"What we have are lurkers. Lurking on the sidelines," said Lee County Realtor Brett Ellis

Ellis agrees with his high-profile competitor Denny Grimes.

"We don't have a demand problem. We have a supply problem," said Grimes.

There are 15,000 homes and 9,000 condos listed for sale in Lee County. Thousands of them are priced out of the current real estate market and are putting a downward pressure on prices.

Real estate agents and realtors are laying it on the line for sellers.

"We tell them here's where the market is- if you're not prepared to bring your property to the market, we can't help you. Because nobody is going to be able to sell your property for more than it’s worth, especially in today's market," said Ellis.

The NBC2 investigators discovered realtors are telling clients to drop their prices to a reasonable level. IF sellers do that, buyers would buy, the inventory would go down and the market would stabilize.

"We're seeing people coming in crying uncle, waving the white flag, saying we're not going to get what we thought. We've got to get serious to move this thing," said Grimes.

The investigators discovered that advice may be taking hold. While many buyers are still lying in wait, others like Jenny Marinescu are seeing an opportunity that may not last much longer.

"I found out from our neighbors that we got a very good deal," said Marinescu.

She and her husband just bought in a gated community. The house had been on the market at one point for $370,000. They paid $245,000 not wanting to look a gift horse in the mouth.

"Unless you're psychic, it's the only way to predict when the market will bottom and what it will do. You just have to look back at history. If you do your research just a little bit, you'll see that now is a good time to buy," said Marinescu.

By Amy Hoak
From MarketWatch

When the Hohnstines became true empty nesters -- their children finished with college -- the couple bought a vacation home. They figured if they enjoyed their vacations near the Delaware shore, they would eventually retire there as well.

As it turns out, the home near the beach has been like a magnet in attracting their children and grandchildren, and because the home is only a three-hour drive from their primary residence in Virginia, many weekends have been spent there since they bought in 2002, Lyle Hohnstine said. Soon, the home at the Village at Bear Trap Dunes in Delaware will be their primary home.

Baby boomers with discretionary dollars to spend, like the Hohnstines, have fueled an increase in the number of vacation-home sales in recent years. In fact, the National Association of Realtors reported that a record 1.07 million vacation homes were sold in 2006, a 4.7% increase over 2005.

While the majority of buyers, 79%, said that they bought the home to use for vacation or as a family retreat, 34% said a reason for buying was to diversify their investments, according to the Realtors' survey. Twenty-eight percent said they planned on using the home as a primary residence in the future, and 25% said the tax benefits were a reason to buy. And 21% bought because they had extra money to spend; 18% of buyers planned on renting out their homes.  

 

 

 

By Michael Corkery
From The Wall Street Journal Online

With home sales slowing to a crawl and buyers unable to qualify for mortgages, some home builders are struggling to keep their operations going.

Already, Levitt Corp.'s Levitt & Sons unit has filed for bankruptcy-court protection, and a second builder, Tousa Inc., said it is considering several "in and out of court restructuring and reorganization" options, including a possible Chapter 11 filing. While those small Florida-based builders were partly crippled by company-specific issues, the make-or-break matter for most builders -- and for those who may be enticed by their cheap stock prices -- is the ability to generate cash to service debt and to pay for the construction of new homes. Such liquidity risks could trap investors.

"Liquidity is the No. 1 concern for builders, and rightly so," says Nishu Sood, an analyst at Deutsche Bank. "It's a matter of survival," he says of the many builders that borrowed heavily for the land they stockpiled during the housing boom.

For months, builders have been slashing prices to move houses and generate cash. But in recent weeks, Mr. Sood says, the new-home market in some regions is behaving like there already is a broad economic recession. "In some communities, builders can't give away homes," he says. "They will end up with fewer tools to come up with cash."

Amid the distress, investors may be tempted to go bargain hunting. According to UBS, the home builders are trading on average near 40% of their tangible book value, which is typically a rough estimation of what the company would be worth if liquidated. That makes them appear extremely inexpensive.

One red flag: Some builders have violated, or are close to violating, credit agreements with their banks. Until now, the banks have been willing to relax their rules to avoid technical defaults. But their patience could be wearing thin for some builders as the housing market deteriorates.

WCI Communities Inc., which focuses on high-rise condominium towers in coastal Florida, is currently testing the banks' patience. The company recently violated an "interest coverage" test, which requires a minimum ratio of earnings before interest, taxes, depreciation and amortization to the interest it owes on its debt, says Andrew Brausa, a debt analyst at Banc of America Securities.

WCI received a waiver until Dec. 7 and has negotiated with its banks for more breathing room. James Dietz, WCI's chief financial officer, says the banks are close to signing off on a new agreement. "We believe we can generate sufficient cash to pay debt service and all our obligations," says Mr. Dietz.

WCI may have little leverage to assuage its lenders. As the condo market falters, WCI's cash-flow projections for this year have eroded to between $210 million and $460 million from an earlier range of $530 million to $730 million. The company is expecting to generate significant cash by completing a large condo project, One Bal Harbour, near Miami. But some analysts fear more home buyers will walk away from that project than the company expects amid falling property values.

WCI has to pay about $120 million to service the interest on its debt next year, which it will be able to do if cash flow doesn't dip further. But that isn't certain given the direction of sales in the Florida condo market. The company has about $200 million left to draw on its credit line, Mr. Dietz says.

WCI shareholders may wish the company's board hadn't rejected a $22-a-share tender offer by billionaire Carl Icahn in March, saying the company's value was higher. Mr. Icahn, who fought successfully to become WCI's chairman, owned 14.5% of WCI's shares outstanding as of Sept. 30. In 4 p.m. trading yesterday on the New York Stock Exchange, WCI's shares rose 30 cents, or 10%, to $3.31.

Another builder that worries investors is Standard Pacific Corp. of Irvine, Calif. The builder has about $140 million in debt service next year and is likely to generate enough cash in its fourth quarter of this year to cover these payments, says Vicki Bryan, an analyst at Gimme Credit, an independent bond-research firm.

But there are other drains on its liquidity. For one, the company has to pay $150 million of maturing long-term debt next year and an additional $150 million in 2009, UBS analyst David Goldberg says. Investors also worry about Standard Pacific's arrangements to develop communities. In its third quarter, the builder had to pay $85 million to acquire the assets of two California joint ventures. The company said it expects to pay an additional $60 million to unwind a joint venture in the fourth quarter.

At an investor conference Tuesday, Standard Pacific Chief Executive Stephen Scarborough said, "We have a plan in place to generate cash and preserve cash and to pay down debt, and we've been operating within that plan."

Many analysts have "sell" or "hold" ratings on Beazer Homes USA Inc. The Atlanta builder faces a number of legal woes, from accounting irregularities to federal investigations of its lending practices.

Beazer, which trades at 20% of its book value, blamed its legal problems for scaring away buyers. More than two of three buyers walked away from contracts in its fourth quarter -- one of the highest cancellation rate in the industry. Beazer recently negotiated a waiver with its bond holders on $1.5 billion of debt that was in danger of a technical default because the builder hadn't filed its quarterly report on schedule. Beazer said in July that the banks had reduced its credit line to $500 million from $1 billion.

A few builders stand out as sure survivors and possible buying opportunities for investors. John Gould, a portfolio manager at Schafer Cullen Capital Management, which has $11 billion in assets, says D.R. Horton, the nation's largest builder, "looks interesting because its balance sheet is in good shape and it appears that the majority of write-downs are behind them."

Horton generated $800 million in cash in its fiscal fourth quarter and lowered its net-debt-to-capitalization ratio to 40.2% from 44.7% the previous quarter. Luxury builder Toll Brothers Inc. also has a solid balance sheet, ample cash and a low level of debt, making it a possible buy.

But some investors believe that even the strongest companies may have further to fall, as the housing market worsens. "We think it's too early" to invest in the home builders, Schafer's Mr. Gould said. "I think 40% to 50% of book value is a better entry point for us."