Meanwhile, speaking of housing, there are a lot of long faces among house sellers this morning. According to the weekend news, the story just becomes more and more depressing.
“American Dream turns to a Nightmare,” begins the report in the Arizona press. (A modest suggestion to financial journalists: find a better headline. We’ve read that same headline at least 20 times already. This downturn in the housing threatens to last for years. You can’t keep using that same line. Please try to think of something new.)
The Phoenix market was so hot it attracted buyers from all over the country. Now, the buyers have disappeared. Houses are empty. Foreclosures are rising. Who could have guessed that it would turn out this way? Well, anyone who bothered to think about it…but apparently none of the thousands of people who bought houses did! According to the report, people bought houses in 2006 for US$250,000…fully expecting that their places would be worth US$500,000 in five years. Prices were rising steeply; they couldn’t imagine that it would ever stop.
In Las Vegas, meanwhile, there are still some 568 subdivisions in various stages of building and marketing. An estimated 48,000 houses are already on the market, with more coming.
How things have changed! Just two years ago, buyers lined up for a chance to pick up lots and houses. People would camp out overnight to be first in line. Sometimes hundreds of potential buyers would show up for only a handful of lots. And builders had to limit the number of lots per customer. Buyers always said “yes” and lenders never said “no”. It was paradise for builders.
But now, Business Week reports that builders are desperate to clear away inventory. On September 14th, for example, Hovnanian (NYSE:HOV), one of America’s big nail drivers, announced a “72-hour Deal of the Century,” in which it cut prices by as much as US$100,000 in 19 states.
“Massive…six-figure price cuts” are becoming common, says BW. Standard Pacific (NYSE:SPF) offered US$20 million in discounts at about the same time.
The builders are making a simple business decision; it’s better to get rid of inventory than to carry it. Houses – and here, dear reader, we let you in on a fundamental insight, are a WASTING ASSET, not an appreciating asset. Let them sit around in the desert sun for a while and you see how fast they waste away. The curtains fade; property taxes must be paid; paint chips and cracks; the lawn must be watered and mowed. They might as well be a crop of lettuce.
Better to make them someone else’s problem, the builders concluded.
And so they unloaded them at steep discounts. And then, all the neighbours got to see what their own houses were really worth.
Markets and Money