Building leaving San Antonio (Houston, Howe: sales, renting, condo)

[schertz1]

The small builders lack the huge operating cost and overhead of the larger builders. Material discounts do not make up for high operating cost. I do not see small or custom builders suffering as much. They generally-not always-offer a superior product as well.

I usually do not trash companies but Standard Pacific's product doesn't exactly scream buy me.

[banker]

Originally Posted by schertz1

The small builders lack the huge operating cost and overhead of the larger builders. Material discounts do not make up for high operating cost. I do not see small or custom builders suffering as much. They generally-not always-offer a superior product as well.

I usually do not trash companies but Standard Pacific's product doesn't exactly scream buy me.

Agreed on the Standard Pacific product...

But I wouldn't go so far as to say (or imply) that the small builders are not also hurting. We only see the results of publically traded companies. The small local builders are not required to release earnings statements like Pulte, Centex, DR Horton, KB and the like. It is safe to say the smaller builders are hurting as well. When a big builder needs to dump product - they can lower costs further than most small builders since they have fatter margins.

I have friends in the home building industry and they agree that the only new home segment that seems to be pretty stable is the high end (over $1million) homes. Those tend to be local builders - as the national builders do not compete at that level. Most of those homes have different type of financing requirements - often times with the home owner having their own construction financing in place that the builder uses during construction.

[texdav]

From what I have read the real problems will come when the ARM loans reset in feburary. Much of the slowdown is builders getting rid of inventory before hand.I have seen that alot of builders in the san antonio area have dropped prices 5% in the last month on inventory homes.

[banker]

Originally Posted by texdav

From what I have read the real problems will come when the ARM loans reset in feburary. Much of the slowdown is builders getting rid of inventory before hand.I have seen that alot of builders in the san antonio area have dropped prices 5% in the last month on inventory homes.

ARMs have and will be resetting over the next 18 months. The problem will increase in the coming months. Thankfully - San Antonio was not as hard hit by this as other markets since as others have said we have not had the dramatic and irrational run up in home values relative to other areas. Our job market remains strong and as the home inventory drops it is easier for the market to absorb new homes for sale.

That said - we have some interesting times ahead of us - but it won't be as bad as in other parts of the country.

[rd2007]

This reminds me of something I have always wondered. I have personally never met anyone that went the ARM route and I always wanted to hear from an actual person that did. I'd especially love to get a glimpse into the logic process they followed as they dug this huge hole.. I have seen people interviewed on TV, but they usually had a slant (as is usually the case) and tended to try to deflect the blame on someone else.

[banker]

Originally Posted by rd2007

This reminds me of something I have always wondered. I have personally never met anyone that went the ARM route and I always wanted to hear from an actual person that did. I'd especially love to get a glimpse into the logic process they followed as they dug this huge hole.. I have seen people interviewed on TV, but they usually had a slant (as is usually the case) and tended to try to deflect the blame on someone else.

As a banker I will be the first to admit that banks made mortgages that they shouldn't have - but the hard truth is that many people went shopping for houses based on the maximum payment they could handle...usually done with an ARM in place to give the lowest interest rate possible. Sadly - they didn't think far enough ahead to see what would happen when the rate repriced. Now they blame the bank for this type of stupidity. When rates are at historic lows there is only one direction they can go...that is up. Why people don't realize that is beyond me.

[the_dimwit]

My wife and I refinanced our home in 2001 to pay off some credit card debt. We took out about 20k in equity to pay the cards off and buy some new furniture (badly needed as I was a bachelor before that point). As interest rates continued to drop, we refinanced again in 2003 in order to take advantage of the lower rates.

We chose a 5-year ARM due to an interest rate of 4%. I must say that my total mortgage amount was never high enough to cause a great deal of risk with an ARM (I bought the home in 1998--in Washington DC area just before housing boom).

I am closing on this house next week (we moved to SA in August 2007), so the ARM won't have a chance to expire/reset.

Would I still choose this option, considering what is going on now? Yes. The risk was not high, but the reward was. We dropped our rate from 6 to 4 percent, saving a decent amount of money per month. HOWEVER, I would NOT go that route if my mortgage was close or equal to what the current market sales were showing.

In other words, if my mortgage was 350k and home sales were around 400k, I would not refinance with an ARM to simply make a lower monthly note.

I agree with Banker--lending companies were allowing people to qualify for loans (whether initial purchase, refinance, or home equity) that should have never been allowed to sign on the dotted application line much less walk out with the cash. I watched people take up to 100% of their equity at the market's peak. Guess what has happened? They are freaking out at the prospect of watching their interest rates go through the roof at a time when they can't sell their house for less than their current mortgage.

Tough spot to be in...

--Dim

[texdav]

I have a friend who worked for KB and he said alot of the homes sold when he was there were ARM loans. He said there was little checking as to the truth of reported financial information in the approval.Said that alot of them were in the 300,000-400,000 purchase range;just buying more than they could afford.

[sapphire]

Originally Posted by rd2007

This reminds me of something I have always wondered. I have personally never met anyone that went the ARM route and I always wanted to hear from an actual person that did. I'd especially love to get a glimpse into the logic process they followed as they dug this huge hole.. I have seen people interviewed on TV, but they usually had a slant (as is usually the case) and tended to try to deflect the blame on someone else.

I think every article I've seen where someone with an ARM was interviewed they threw the blame on the mortgage broker. Why you don't pay attention and educate yourself on what is probably the largest purchase of your lifetime is beyond me. And then the lying to yourself about what you can afford is a whole other ball of wax. We "pre-qualified" for a whole lot more house than we ended up with. I just didn't want a scary mortgage bill in my mailbox every month.

[schertz1]

Originally Posted by banker

Agreed on the Standard Pacific product...

But I wouldn't go so far as to say (or imply) that the small builders are not also hurting. We only see the results of publically traded companies. The small local builders are not required to release earnings statements like Pulte, Centex, DR Horton, KB and the like. It is safe to say the smaller builders are hurting as well. When a big builder needs to dump product - they can lower costs further than most small builders since they have fatter margins.

I have friends in the home building industry and they agree that the only new home segment that seems to be pretty stable is the high end (over $1million) homes. Those tend to be local builders - as the national builders do not compete at that level. Most of those homes have different type of financing requirements - often times with the home owner having their own construction financing in place that the builder uses during construction.

True, the large tract/ national builders do have huge margins on their products. They also have very high operating cost, both fixed and variable. They can not greatly reduce prices, for any length of time, without restructuring their operations (mainly selling stakes in developments, layoffs, cutting salaries/builder bonuses, or realigning products). If you look at the price of new homes offered by national builders, you really will not see any price reductions, even in the worst markets. They may give employee pricing to everyone or 10-20K in options- nothing they don't do in even good times. Possibly a close out special.

Small builders may pay more for materials but they usually do not have huge office buildings, marketing expenses, back and front office operations, health care expenses, mistake after mistake due to poor material takeoffs. I would say the huge margins of national builders really only equal to about a 3 -7 percent net profit.

A bad or readjusting market can hurt everyone. I think the larger companies will be hurt more.