Bubbles, Banks, and Builders, Pt. Deux

In part two of my tabloid series, I will take a look at the major profit centers of the builders, and take a look at how the banks (who say the malaise is now behind them) that loaned them money are fairing in those areas. Remember, if home builders bought their land before the boom, their cost basis will tend to be relatively low. This is of little consolation to many builders since the fever hit nearly everybody during the boom, recognized by me as being from the 2nd half of '00 to '06.

Well, let's jump straight to the gist of the matter. The biggest money makers for the builders have now become the biggest busts. Funny, how bubbles work like that. If I am not mistaken, all of the big public guys bought a lot of land and developed hard in Las Vegas. How are the banks that lent to them and their clients fairing? Remember, these numbers are just for the last 10 weeks. I want to be clear to all how quickly I perceive things deteriorating. This is not just a short term trend, either. Look at the 5 month trend in part I of this series. The next reporting period, assuming we are all honest (which is not happening all that often these days), should be most revealing.

Builder Profit Center - Las Vegas

Hey, those who are long Countrywide, watch out below!!!

Washington DC Metro Area

As usual, CFC shareholders, look out below! But wait, the Indy Mac guys might just land on your head if you are not careful. These banks are booking large amounts of real estate that is worth less and less EACH WEEK.

Riverside, CA

As usual, those CFC guys should realize they are now in the housing business.

Atlanta, GA - Here I included the GSEs to show how deep the gov't agencies are in this mess. Places like Chi-town, the Motor City, and Atlanta are actually led by the GSEs, second only to Countrywide (of course) and probably the home builders.

Of course, there are more MSAs to cover, but I think you get the message. In two weeks, I will go into what I have calculated as the Bubble, Bank and Builder Bankruptcy Index (the BBBBI :-0). I will be working on a piece that will show at least one builder going bankrupt before the end of the earnings season. What does that mean? It means the banks will run on all of the other marginal builders, massive amounts of debt will get devalued (further), and land values will plummet even harder. This will make the not so marginal builders more marginal because there debt will be under more scrutiny and their inventory will be worth even less. This will then bounce back to the banks holding the REOs and the homeowners trying to sell.

In the meantime, over the next few posts I will share the dirt that I learned of the banking and building industry. It will make this stuff look like good news.

Comments

[Reggie]

For those that might not have noticed, the banks are getting REOs faster than some homebuilders are selling homes.

[Gayla]

I never see a thing on Kansas City. Would it be safe to assume the housing market here is doing ok?

[Rob Dawg]

The comparative "reported" REOs would imply that Countrywide was writing twice as many bad loans as IndyMac, HSBC, Citi. BofA, and Chase combined.

Obviously somebody is lying. Behind door #1 we have CFC who might be massively overrporting REOS or behind door #2...

[Reggie]

@Gayla
Simply look the price appreciation in your area. Did it seem that people were making abnormal amounts of money just by buying and selling a house? If it did, then it was abnormal, and bound to revert to mean. In other words, if it ain't normal, it soon will be.

@Rob Dawg,
I'll be the last to bet on anyone in the mortgage business not lying. Countrywide wrote a lot of bad loans, with poor underwriting. I know this for a fact. WaMu wrote a lot of bad loans with mediocre underwriting. I know this for a fact. IndyMac wrote some risky ones as well.

But if I were to wager, I would pick door number 2. Expect other banks to come clean either by self admission or by force. Real property is very difficult to hide, and can be very expensive to maintain.

[homes for sale newport coast]

Places like Chi-town, the Motor City, and Atlanta are actually led by the GSEs, second only to Countrywide (of course) and probably the home builders.