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[nhkev]

that's funny I was born in waldorf Md and my father bought a piece of land (1970) 30 yrs later he sold it for about 5k more than he paid for it, after taxes he probably took a loss.

[kroeran]

Originally Posted by Dreamy46

I don't know that you can correctly make that statement about 10 year cycles when Moody's is predicting that Florida prices won't recover until the 2030's, especially when you have a roughly 10% transaction cost to turn the home over..

oh sure, Moody's who gave such accurate ratings of the quality of all those bad bonds and company credit

I agree that it may be 20 years before it returns to 2006 peak prices, but I am positive that the current bottom feeders will be at least flat in ten years (on average) as the current prices are below construction costs.

There is simply no-where else in the world where you have such a climate combined with American institutional infrastructure. There just is no-where else to retire to, so it will come back somewhat as all the public sector employees retire.

That being said, you should buy a house to LIVE in, not to flip. If there is a chance you will need to move/sell in the next 5 years, rent, especially in Florida.

[Dreamy46]

Originally Posted by kroeran

oh sure, Moody's who gave such accurate ratings of the quality of all those bad bonds and company credit

I agree that it may be 20 years before it returns to 2006 peak prices, but I am positive that the current bottom feeders will be at least flat in ten years (on average) as the current prices are below construction costs.

There is simply no-where else in the world where you have such a climate combined with American institutional infrastructure. There just is no-where else to retire to, so it will come back somewhat as all the public sector employees retire.

That being said, you should buy a house to LIVE in, not to flip. If there is a chance you will need to move/sell in the next 5 years, rent, especially in Florida.

Construction costs are still laughable. What happened to the price of lumber since the boom? Where did your own developer find 35% to cut out of home prices? How about the largest cost piece of the construction pie, land? It's in a deflationary death spiral.

[kroeran]

Originally Posted by Dreamy46

Construction costs are still laughable. What happened to the price of lumber since the boom? Where did your own developer find 35% to cut out of home prices? How about the largest cost piece of the construction pie, land? It's in a deflationary death spiral.

I think the way the economics works is that the builder has to basically zero out the fixed sunk land value and see if they can generate a margin solely on the variable cost of putting up another string of units and start whittling down the debt load.

So for the buyer, you are basically getting the land for free, the builder gets to back out of a difficult situation with dignity, and position themselves to be the last man standing for the rebound.

I see lumber is close to half of July '07 peak, so that would help with construction cost, and I assume trades are bidding very low for the little work out there, possibly running at an overall loss, but to bring in cash and make a margin on variable expenses, keep valued staff employed, ride it out.

In some of the more recent units put up, there may be a tres ceiling or other small feature pulled out of the design, so I have heard, certainly nothing that most would notice or miss.

One factor is that the townhouses are divided into quad (with quad pool) and non-quad, no interior block park nor pool, and the latter I would expect are significantly less expensive to build, which were in the development design from the beginning, but according to economic conditions, the builder has chosen to build and market the less expensive units at this time.

There are some premium quads in the plan close to the town centre that I expect will be sold last and at a premium once conditions normalize, and then phase II for the megaestates over the back-end bridge, unless they rework the plan and put up quads there, which is what I would personally hope, as the pool quads are truely an amazing and sustainable innovation.

Though I personally prefer the quad pool setup, ie. being able to change in my garage and waddle across (with martini in-hand) a few feet to the quad pool and drink with neighbours I know, some are happy to have the less expensive non-quad towns, which have much less expensive HOA fees as well, and simply pop over to the resort pools at new urbanist the town centre, (a gruelling 10 minute walk at the most) which we are all paying for anyway.

[Dreamy46]

Originally Posted by kroeran

I think the way the economics works is that the builder has to basically zero out the fixed sunk land value and see if they can generate a margin solely on the variable cost of putting up another string of units and start whittling down the debt load.

So for the buyer, you are basically getting the land for free, the builder gets to back out of a difficult situation with dignity, and position themselves to be the last man standing for the rebound.

I'm not sure how you're alluding to zeroing out land money spent? Typically, a company zeroing out their highest cost item gets zeroed out itself when that happens, unless they have really deep pockets.

Land is hands down the biggest culprit that drove up new construction prices. It's also interesting the see the process play out in reverse because the builders have difficulty selling more new units because what they've already built and sold is selling in foreclosure for 25% - 50% of the price as competition. Then you have all the upset initial buyers that are watching their same homes get built and offered with huge price reductions. Makes for great neighbors.

I tend to view a builder that overpaid for their land supply in the same light as a negative equity homeowner. You have to short-sell it, or let it go in foreclosure, because nobody is going to be sympathetic to a ridiculous asking price to bail you out.

The Chinese Drywall situation with some developers is even more laughable. When they were supposed to be buying $20 sheets of quality wall board, they were instead buying $4 sheets of Chinese, garbage drywall. What price do you think the consumer paid? Has any of that popped up in your development?

[kroeran]

Originally Posted by Dreamy46

I'm not sure how you're alluding to zeroing out land money spent? Typically, a company zeroing out their highest cost item gets zeroed out itself when that happens, unless they have really deep pockets.

Land is hands down the biggest culprit that drove up new construction prices. It's also interesting the see the process play out in reverse because the builders have difficulty selling more new units because what they've already built and sold is selling in foreclosure for 25% - 50% of the price as competition. Then you have all the upset initial buyers that are watching their same homes get built and offered with huge price reductions. Makes for great neighbors.

I tend to view a builder that overpaid for their land supply in the same light as a negative equity homeowner. You have to short-sell it, or let it go in foreclosure, because nobody is going to be sympathetic to a ridiculous asking price to bail you out.

The Chinese Drywall situation with some developers is even more laughable. When they were supposed to be buying $20 sheets of quality wall board, they were instead buying $4 sheets of Chinese, garbage drywall. What price do you think the consumer paid? Has any of that popped up in our development?

well, you can't short-sell bare developed land with utilities in this environment, so they have to build it out to get it off the books, but it is I suppose the same logic as a short-sell, though I can't claim to know where the break even line is. I am just applying economics to the few facts visible as an outsider.

by zero out I mean how an entrepreneur looks at fixed costs (already spent, or will be spent regardless) vs variable costs (by actually doing something) and the decision to keep going, which ends up being more of a loss minimization than a profit making activity, and the house buyer benefits from this who can use the property and wait for prices to recover to sustainable prices.

The land may be worth close to nothing as is, but by building it out, the house sale will exceed the cost of the actual structure. Apart from that, there is the longer-term issue of building a brand.

Before I bought, I looked into the background of the ownership, which is scant on the web. My understanding is that they sold the family legacy multi-state lumber company for multiple billions of dollars at the peak of the pre-dot-com-bust, so deep pockets is the operative word.

Someone actually told me that finishing out the existing Stock developments properly was an issue of personal family honour on the part of the builder.

I have not heard of any CDW at Paseo, and if there were, I'm pretty sure the gossip would have travelled like wildfire. Checked my copper wires, no problem. Thats one upside with new construction, the one year warranty and a builder still in business. CDW is easily detectable.

[Dreamy46]

Originally Posted by kroeran

well, you can't short-sell bare developed land with utilities in this environment, so they have to build it out to get it off the books, but it is I suppose the same logic as a short-sell, though I can't claim to know where the break even line is. I am just applying economics to the few facts visible as an outsider.

by zero out I mean how an entrepreneur looks at fixed costs (already spent, or will be spent regardless) vs variable costs (by actually doing something) and the decision to keep going, which ends up being more of a loss minimization than a profit making activity, and the house buyer benefits from this who can use the property and wait for prices to recover to sustainable prices.

The land may be worth close to nothing as is, but by building it out, the house sale will exceed the cost of the actual structure. Apart from that, there is the longer-term issue of building a brand.

Before I bought, I looked into the background of the ownership, which is scant on the web. My understanding is that they sold the family legacy multi-state lumber company for multiple billions of dollars at the peak of the pre-dot-com-bust, so deep pockets is the operative word.

Someone actually told me that finishing out the existing Stock developments properly was an issue of personal family honour on the part of the builder.

I have not heard of any CDW at Paseo, and if there were, I'm pretty sure the gossip would have travelled like wildfire. Checked my copper wires, no problem. Thats one upside with new construction, the one year warranty and a builder still in business. CDW is easily detectable.

Here's an example of land repo's:

New wave of foreclosures looms | HeraldTribune.com | Sarasota Florida | Southwest Florida's Information Leader

How would you build-out when the bank won't give you anymore money or is calling in the loans? That's exactly what sunk many of the builders so far. Some went under simply because they lost their credit lines in 08.

[kroeran]

well, the answer to that is in the previous posting