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Lex on US Housing Market


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2006 May 24, 2:59am   15,841 views  186 comments

by Randy H   ➕follow (0)   💰tip   ignore  

Homebuilders
Readers of the FT will be familiar with the (newly expanded) Lex Column. Today's featured an interesting little bit on US housebuilders, and its relation to the US housing market.

Feeling sorry for the builders does not come naturally to most homeowners. But as US households worry about the value of their dwellings, they might spare a thought for those even less fortunate. Since July last year, shares in US homebuilders have lost over a third of their value.

Things have been most painful at the top end of the market. Shares in Toll Brothers, the luxury homebuilder, have more than halved. Over the past few months, the question for most investors has changed from whether there will be a slowdown, to how bad things could possibly get.

The column goes on to mention:

  • Signs of significant inventory overhang in many regions
  • Speculative buyers trying to unload holdings
  • Owners hoping to upgrade increasingly finding they cannot sell their old homes for the prices they need/expect.
  • Nonetheless, builders have not significantly slowed new building efforts

Toll is considered a bellwether indicator. Why? Because it markets upscale homes to a sophisticated clientele. Sentiment has grown so negative on Toll that their recent guidance further cutting earnings forecasts actually triggered a relief rally. The market capitalization of Toll is less than the value of all its land and inventory.

Or is it? The problem is that the only potential buyers for construction projects in-progress are other builders, who are similarly depressed for the same reasons. This kind of "vicious circle" is hard to break and usually causes an overshooting of reasonable valuation.

But before you jump in to buy undervalued REITs or homebuilder stocks, keep in mind that this may just be the beginning. The entire sector is trading at about 5.5 times ever shrinking earnings estimates. But (and this is a big but), direct costs are skyrocketing, general inflation is increasing, rates are rising, and industry consolidation is probably nowhere near done. Lex's conclusion: it will be increasingly difficult for these builders to defend returns as capital costs soar. Result, more downside probably left.

Why on earth do we even care? We're sure to hear from at least one Troll that "New Home Starts" don't matter, or that homebuilders aren't relevant, or that "sales of existing homes" is the only game in town. My answer: perhaps, this time, everything is different and we've entered a great new economic paradigm where leading indicators no longer lead. Or, the correction is well underway.

--Randy H

#housing

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110   Peter P   2006 May 24, 9:33am  

My normal pens are Pilot G-2s. They’re definitely worth the 75 cents or so I pay for them. I don’t like anything cheaper since they tend to bleed, clot, and cramp my hands.

Are those gel-ink pens?

111   Joe Schmoe   2006 May 24, 9:33am  

Well, they are classy people in the only way that really matters -- they are very nice.

But before meeting them, I always bought into the strereotype that people whose families have been rich for a long time are quiet about it. They don't feel the need to engage in ostentatious displays of wealth because they don't have to impress anyone, etc. Obviously, that's not true.

112   astrid   2006 May 24, 9:35am  

Yup. Are there any problems I should be aware of?

113   Peter P   2006 May 24, 9:36am  

Are there any problems I should be aware of?

Drop some water on the writing and see if the ink dissolve. This may not be a big issue though.

114   astrid   2006 May 24, 9:39am  

Peter P,

If that's a concern, maybe this would work for you.

http://www.leevalley.com/gifts/page.aspx?c=2&p=40958&cat=4,104,53210

115   GallopingCheetah   2006 May 24, 9:40am  

Joe,

Being nice to people, yes. Truly nice to people. Not being nice because you want a favor from them. Being nice to people, truly nice from the bottom of your heart, because this is the way you have been treated all your life and you treat others likewise.

116   requiem   2006 May 24, 9:42am  

Any fountain pen knowledge I have came mainly from this "Ask Slashdot" topic:
http://ask.slashdot.org/askslashdot/03/10/05/171257.shtml

Pelikan, Rotring, and Lamy seemed well-thought of (as writing instruments in general).

117   astrid   2006 May 24, 9:43am  

I thought Rotring only made graphic pens...

118   GallopingCheetah   2006 May 24, 9:45am  

Vielen Dank, Requiem.

119   Peter P   2006 May 24, 9:45am  

I thought Rotring only made graphic pens…

They also make very nice mechanical pencils and multi-function pens.

120   Joe Schmoe   2006 May 24, 9:45am  

GC-

Yes, that is how they are.

121   surfer-x   2006 May 24, 9:47am  

And I’m not even a Boomer, just on the leading edge of X.

I beg your pardon Sir.

122   Peter P   2006 May 24, 9:48am  

And I’m not even a Boomer, just on the leading edge of X.

I beg your pardon Sir.

We should consider someone a boomer only if he has Pluto in Leo.

123   GallopingCheetah   2006 May 24, 9:48am  

I also believe the more one matures -- I mean the older one gets, hopefully but not necessarily -- the less one is susceptible to social and societal pressures. Young folks are impressionable and always out to impress others.

124   astrid   2006 May 24, 9:49am  

I've just checked out the prices on celluloid pens, insane! I guess I'll try to get a bit more life out of my Esterbrook before trading it in something fancier.

125   astrid   2006 May 24, 9:51am  

Surfer-X,

I just found that according to wikipedia, I'm a generation-Xer. It's really weird and disorienting. But what the hell, I'm in good company.

126   Peter P   2006 May 24, 9:51am  

I’ve just checked out the prices on celluloid pens, insane! I guess I’ll try to get a bit more life out of my Esterbrook before trading it in something fancier.

You should be able to get a new Pelikan 400 for well under $200.

127   astrid   2006 May 24, 9:53am  

Peter P,

You're right, very pretty.

128   Peter P   2006 May 24, 9:54am  

I just found that according to wikipedia, I’m a generation-Xer. It’s really weird and disorienting. But what the hell, I’m in good company.

Pluto in Virgo or Libra?

129   astrid   2006 May 24, 9:55am  

What? Astrology is not my strong suit. But I've a Leo.

130   Peter P   2006 May 24, 9:58am  

But I’ve a Leo.

That makes a lot of sense.

131   Peter P   2006 May 24, 10:00am  

Most of the time I usually have a 20 cent papermate, since I rarely have any thought worth writing down with a fancy pen.

Since I use only ballpoint/rollerball the refill is more important than the pen.

132   astrid   2006 May 24, 10:03am  

"That makes a lot of sense."

? the misspellings?

133   Peter P   2006 May 24, 10:06am  

? the misspellings?

No, you sound like a Leo.

134   surfer-x   2006 May 24, 10:06am  

What? Astrology is not my strong suit. But I’m a Leo.

Me too! I like Leos

135   astrid   2006 May 24, 10:07am  

SP,

"Most of the time I usually have a 20 cent papermate, since I rarely have any thought worth writing down with a fancy pen."

Somehow, I really doubt that. Luckily, the value of the idea need not be commiserate with the value of the pen used to record them.

136   GallopingCheetah   2006 May 24, 10:08am  

That slashdot article that Requiem forwarded has good words for Namiki and Lamy. A Namiki has a gold nib for $100. Presumably, gold nibs result in very smooth writing. I do wonder, however, if older models have better craftsmanship. Is it realistic to get a good, used pen for $20-50?

MontBlanc is a little like Rolex. Rolex isn't accurate. But I think it's very solid and robust. So it serves a purpose, in addition to the aethestic one.Of course, the best thing is to never wear a watch, if you could afford the leisurely life.

137   OO   2006 May 24, 10:08am  

Speaking of architectural design for multiple generations, here is a house I looked at a few weeks back.

http://www.mlslistings.com/common/properties/propertyDetail.asp?open=0&page=1&mls_number=614356&type=property&name=

The layout, especially the granny area on the level downstairs, is well thought through, accommodating the topography very well. Most granny quarters I see are depressing, if I were to be put into one of those, I would definitely feel like being tucked under the armpit by my kids.

It is located in the foothill area of Cupertino so the view is also very nice. If you are interested in designing your future home for in-laws, it is worth a look.

138   Peter P   2006 May 24, 10:10am  

Is it realistic to get a good, used pen for $20-50?

Old pens carry the energy of the previous owner. It can be good or bad. Caveat Emptor.

139   GallopingCheetah   2006 May 24, 10:12am  

Regarding Seattle RE:

Rumors have it that a large RIF (layoff) is in the works for the folks in the Windows division. Tons of employees under H-1 are being brought over from China and India. I am suddenly seeing a lot of familiar faces and mannerisms that I don't want to see. For sure, these people are paid like sxxt.

Why does anyone think Seattle RE will hold?

My favorite area in Capitol Hill is getting whackily expensive. A couple of days ago, I saw a 3/2 house for sale in the 1-2 million range.

140   surfer-x   2006 May 24, 10:23am  

Why does anyone think Seattle RE will hold?

Why do you care, the only effect on you will be a reduction in the amount you have to pay your household staff. Plus they are only getting the peons out, a mindbendly talented individual such as yourself will have no problem continuing your climb up Bill's back, pretty soon you should encounter the dark star, don't worry, press on forward, ahhh yeah, then you will have your head firmly up Bill's posterior.

Hey, can you forward me a key for office 2003?

141   GallopingCheetah   2006 May 24, 10:26am  

I cannot give you the key for office 2003. It's against the company policy, illegal, immoral, and against my self interest. People should pay for software licenses.

Well, why waste your time on office 2003? The new office 2007 is so cool that you'll love it. Trust me.

142   Peter P   2006 May 24, 10:29am  

People should pay for software licenses.

I have to agree. Consumer software is actually quite cheap for what you get.

143   OO   2006 May 24, 10:30am  

Well, actually I know some wealthy people who carry FAKE bags just to be cute.

A woman friend of mine who is from a billionaire family carries a few fake LV items, not because she cannot afford it, just because she thinks it is a cute way to laugh at the world. Her response is, everybody knows how much my family is worth, even if I wear fake diamonds, people will assume it is real. She once walked into a local LV store with fake LV bag where she was known celebrity in the circle, guess what, no sales gal in the LV shop dared to utter anything because she also shops a few genuine items there.

Another very successful businessman friend of my dad wears a fake Patek Philippe watch, and he goes around telling all his acquaintances that it is fake. The reason he does that because he is widely known for his wealth, so he doesn't mind going cheap on stuff since his prestige is not really attached to any of these items. His motto is, as long as I have lots of dough in my pocket, whatever I wear has to be real.

144   GallopingCheetah   2006 May 24, 10:30am  

PP,

Indeed. Also for businesses, the amount of money they spend on software is miniscure compared with the actual salary that they have to pay out. Well, not even salary, just take the medical benefits.

145   Joe Schmoe   2006 May 24, 10:37am  

Yeah. I remember when the original dbase was $999. I pirated warez left and right as a teenager. It was wrong, and I knew it, but the expense was so great that I did it anyway.

As soon as software became avaialble for $99, though, I stopped. I mean, you can get the basic version of MS office with a new Dell for like $149 or thereabouts. Why would anyone pirate it when the real thing is so cheap?

146   surfer-x   2006 May 24, 10:38am  

Another very successful businessman friend of my dad wears a fake Patek Philippe watch, and he goes around telling all his acquaintances that it is fake.

You really really really have to meet Mr. Right, he, like you, is a pompous jackass that likes to drop names, I believe he lives in SLO. Look him up you can spoon, perhaps he might even have a ___________ for you to molest.

People should pay for software licenses.

Why pay for marginal MS bloatware?

147   FRIFY   2006 May 24, 10:39am  

Why do you care, the only effect on you will be a reduction in the amount you have to pay your household staff.

You forget that GC just lost his shirt in gold derivatives... ;-)

148   Peter P   2006 May 24, 10:40am  

As soon as software became avaialble for $99, though, I stopped. I mean, you can get the basic version of MS office with a new Dell for like $149 or thereabouts. Why would anyone pirate it when the real thing is so cheap?

Absolutely.

Why pay for marginal MS bloatware?

Why use it?

149   surfer-x   2006 May 24, 10:40am  

Wow, you must make more money that Ha Ha, I sure bet he is envious. Amazing that you find the time to post your pearls of wisdom here; shouldn't you be out reformulating strategy with Bill? Hey while visiting his house you should consider giving him an upper tanker.

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