Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
Tuesday, January 31, 2006
Cancellations, 'Pricing Resistance' Hit DC Builder
A Washington DC area homebuilder had some bad news for stockholders this morning. "Shares of Comstock Homebuilding Cos. were off nearly 10% in afternoon trading Tuesday after the company reduced its profit outlook and reported disappointing order growth. Soaring home prices in the company's Washington, D.C. market during the past few years has sparked 'pricing resistance which negatively impacted new order rates in the region in the fourth quarter.'"
"Rising cancellations in many parts of the country also hit order activity, Comstock added. Comstock said it would write down some of its inventory in the Raleigh, N.C., market. The small-cap builder, which mainly constructs new houses and town homes in Washington, D.C., and North Carolina."
"It's not clear if the writedown is for communities open for sale or simply owned land on the company's books. 'The rate of home price appreciation in the Washington, D.C., market during the past few years led to pricing resistance which negatively impacted new order rates in the region in the fourth quarter,' Christopher Clemente, the company's CEO, said."
"Clemente also said that cancellations by buyers who were looking for houses as investments hurt results."
"'We believe the strong demand caused by the tremendous job growth in the Washington, D.C., area, the absence of investors from the market, and a slower, more sustainable rate of appreciation, will lead to better balance in the market,' Clemente said."
What's interesting about this is that inventory would be on the books at the lower of cost or fair market value. The accounting rules are what forces a write-down, basically admitting they paid too much for the land or the construction, or both.
ReplyDeleteThe new accounting vocabulary for the late 90's - early 2000's:
ReplyDeleteimpaired assets - stuff you paid waaaay too much for
pricing resistance - refusal of buyers to purchase stuff you are charging waaaay too much for
Asia was at least fortunate to have continuing demand from the US consumer to help their economies regain some footing. Just who is going to help the US out when housing caves in here?
And it sounds like words of praise from the IMF practically signalled a top, LOL!
Finding it harder and harder to
ReplyDeletePAINT THE TURD
I don't know if it is gold's time to shine or not. I know it will someday. But what concerns me is a very long-term rolling top in the asset markets due to excess credit and liquidity, that started in 1998 by some stock market technical measures, now in both the stock market and in real estate, and possibly shifting to precious metals. It's been a bubble in search of a home for years. The same excess credit is still rolling around out there and may be making its way into markets we typically view as safe havens. Sure, gold can be purchased on credit, like lots of other things. We could indeed see a manic rise in gold, like we've seen in other asset classes, and my fear is that it won't be sustainable like the rises in other asset classes are not sustainable.
ReplyDeleteWe are not yet at the day when the grocery store will take my silver half dollars or my gold eagles for my purchases (well, they WILL take my silver, but only at the nominal face value).
Just my opinion, but I don't think fundamental arguments about foreign countries buying gold matter. For one thing, the markets take all that into account. Another reason is that foreign countries buy our real estate and our overpriced stocks too. Foreign investors have been slammed before and they're gonna get slammed again, just like US investors.
I truly truly wish there were a relatively painless way to remove all this excess credit and liquidity out of the financial system, and we could use real money like gold. But the pain of all that credit deflation will knock some sense into us collectively.
The reason that 30 year Treasuries aren't up to 10%, 20%, or more, IMO, is because the Full Faith and Credit of the United States is not yet in doubt, and the markets are anticipating a credit deflation.
Whether one believes we are headed toward inflation or toward deflation, the end result will feel the same horrible way - loss of real income and savings.
Peace,