Tuesday, February 27, 2007

It's the Inventory, Stupid!

To say that we're overbuilt in the Sunshine State would be an extreme understatement. With this, you could say that Palm Beach is the poster-child of the situation. From Linda Rawls at the Palm Beach Post.

'First, the good news from housing consultant MetroStudy:

• New-home starts in Palm Beach County hit a four-year low in the last three months of 2006. They dropped 62 percent just from the fourth quarter of 2005.

• Total inventory - including model homes, finished vacant homes and homes under construction - fell to a four-year low in the last three months of 2006.

• Housing supply declined 4 percent in the fourth quarter of 2006 compared with the same period in 2005.

Decline, decline, decline, decline. This is the good news?'


Hey, it beats the alternative. Though a 4% decline from record levels is not likely to cause a sea change in the housing market.

'Yes, in these topsy-turvy times - when it's quite possible to be "upside down" on your house (to owe more than it's worth) or to lower your asking price by $1 million and still not get an offer - declining housing starts, construction and inventory are all good news; signs that the distressed new-home markets in Palm Beach County and the Treasure Coast are trying to recover.

Any recovery, however, could well be postponed into the second half of the year. Most analysts don't even agree on whether the market has hit bottom.'

I don't know exactly why, but it appears the builders are much more bearish on the market than the realtors. Granted, the realtors aren't required to tell the truth because the NAR (National Ass. of Realtors) isn't a publically traded company. If it was, a few things known as the SEC and Sarb-Ox would cause the NAR to provide forecasts more closely aligned with that of the builders (i.e.; truthful).

'Just last Thursday, luxury-home builder Toll Brothers Inc. said its first-quarter profit dropped 67 percent due to hefty write-downs and other costs, and Chief Executive Robert Toll said "there are (still) too many soft markets."

The inventory of existing homes, which was up 71 percent Palm Beach County alone in December, may grow as "re-listers" - people who couldn't sell in 2006 - are likely to try again in the spring. And analysts expect a further uptick in the region's new-foreclosure filings as high-risk borrowers continue to default on loans and lenders tighten credit standards.'


More foreclosures = More distressed inventory

Ergo,

More distressed inventory = Lower Prices

And to continue our boolean logical progression,

Lower Prices = More Sales

And finally,

More Sales = Lower Inventory

But we're still at the very beginning of this clearance process. The article continues with a description as to how this situation was created.

'Many of those borrowers were investors who artificially pumped up demand - and prices.

"Builders ramped up production to meet surging demand during the housing boom," said Michael Larson, a real estate analyst with Weiss Research in Jupiter. "But it turns out a big chunk of that demand surge wasn't 'real' demand.

"It was investor demand - people buying up one, two, three or more homes at a time to flip, rather than people just looking for a place to live."

That artificial demand is gone now, Larson and others say. Investors have pulled out of the market, causing new-home sales to plummet.

In Palm Beach County, new-home sales dropped 36 percent in just one year - comparing the fourth quarter of 2006 to the same period in 2005 - according to MetroStudy in West Palm Beach.

Further proof the local housing boom has gone bust: Palm Beach County buyers closed on only 976 new homes in the fourth quarter of 2006 - down drastically from its boom-time peak of 3,123 closings in the third quarter of 2003, MetroStudy said.'


The situation is not pretty, and much more bad medicine is in store.

Full Article

22 comments:

Just a smart ass said...

If we had artifical demand, such as, Mr Larson said;

Do we now have artifical supply??

You mean, that all those houses really don't exist, except on somebodies balance sheet.

jayz said...

You can hear the drums in the distance, and they're slowly getting louder.

Too many houses chasing too few buyers.

Watch out below, people - we're in for a rough ride.

lizziebeth said...

Jerry said; "I don't know exactly why, but it appears the builders are much more bearish on the market than the realtors."

That maybe because they have a significant amount real money invested in their business.
RealWhores, [and I know a few like myself], are just a bunch of skimmers & leaches, feeding off the public, and will say anything to make a buck..

Anonymous said...

We really need to push for oversight of the Realtors, because the instances of lying, cheating and fraud goes unchallenged. A lot of stupid people rely on their "really nice" realtor.

lizziebeth said...

Trying to be nice to a bunch of jerks, that post on here, really irritates me to say the least.
How do you think I feel when I'm dealing with a jerk, that I absolutely need to sell a house to,and he turns around and walks the other way!!!
Hey BUBBA!!!, yah wanta buy this house???

lizziebeth said...

Just let me say this. The trouble with you people is, you have no idea how expensive it is to run a scam. I didn't want the Hummer, my impotent husband wanted it, so he could drive his buddies around in it, and show off..Then I had to get a boob job, and a face lift, and a new-dooo...Finger nails,,the whole works, [yah that to..got it tightened]. Have you any idea how much all that cost these days with inflation the way it is..What's a girl to do??
So, when some jerk calls to go look at houses, I've got to tank up the Hummer, [90 bucks, buster], and try to make the 'big show'.. right.
So we're driving around, and this guy gets hungry, as I'm rubbing my beaver, cuz it so hot down there.
Anyway he asked me to pull into a Pizza Hut drive thru....You know the jerk, didn't even to offer to eat me or buy lunch...
So, as it turns out, he didn't have anything to do that day, and his wife had gone to the beach, and he thought, that he waste a little time looking at real estate.
Just one of them G.D. snowbirds, that P. you Off...
If you think this job is fun, jerk-off, stop by, and I'll park my Hummer on you!!!

FL - Paradise Lost said...

Notice to all readers and posters:

In the name of civility, I am reluctantly taking the step of moderating comments. With this, I will have to personally approve every comment for publishing. This will result in a delay for posters to see their on-line thoughts - no fun but necessary!

That said, I will not reject any comment as long as there are no nasty personal attacks within.

Sorry it had to get to this - I guess it's a fairly common thing.

jayz said...

Jerry, I glad to see you are stepping forward to clean up this board.
A few of the poster here have made it uncomfortable for many of us to post here.
See above.

Thanks Jerry!

FL - Paradise Lost said...

SKB, got your message - thanks.

We need unity to get the word out!

Anonymous said...

POOOOOOOOFFFFFFFF your equity has disappearred.

Lots of this happening.

CRAZY G said...

Jerry;

You missed the article about Freddie Mac banning subprime mortgages. Effectiveley cutting off one category of buyers.


Of course your not going to post this, but your blog is really dead when you have jerks that can only say POOFFF...

I really do wish you better luck, because I don't really see anything that makes people want to come back

I've seen other blogs, where there a NO respondents. I then ask myself, why bother!!!!
Many of the articles you post are from the newspapers, and they have their own blogs. So why bother???

Most of the comments are short and idiotic to say the least. And if I berated them because of that, it was my saddistic enjoyment of making jerks look stupid...

Like my dad used to say:

It's a great life if you never weaken

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house for sale Philippines said...

What an experience lizziebeth. Informative and interesting but dont pick on the estate agents : )

Deirdre G