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Sonic the Hedge Fund

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Everything posted by Sonic the Hedge Fund

  1. Does nobody else refute my analysis that housebuilders will crash the UK housing market? Thats setled then!!
  2. I understand that developers use contract labour that can be scaled to suit requirements, but it must also be considered that rapid scaling down of any large industry will have a significnt impact on both local & national economies - eg. what happens to rental demand, if Polish builders have no work? What happens to the newspaper industry when one of their biggest sources of advertising revenue suddenly dries up? However, this is not the point I am trying to make. Developers have many other 'head office' overheads, such as planning, designing and marketing. Land is their core business, not building houses, so the comment about construction labour is missing the point. So it's all about cashflow, developers must sell a certain proportion of each development quickly. Rising IRs compound the pressure, becuase developers face increased costs servicing debt on work in progress, thus providing a stronger incentive for developers to take necersery steps to turn developments round quicker In the current sticky market the developers need to offer greater incentives to attract sufficient interest from buyers. Cashback and other mortgage tricks are getting harder, due to IR pressure on borrowers and increased interest from regulatory authorities. So developers are being pushed towards offering more tangible incentives such as free furnishings, better PX deals, or perhaps a free car! Buyers of new houses get more for their money, thus increasing competition with existing home owners to woo an already shrinking pool of buyers. Sales of existing homes may fall as a consequence, until sellers are forced to drop their prices to compete with new homes. Obviously this effect will be localised to areas with significant new builds, but in those areas the downturn could be rapid. Developers are faced with increased costs of both sales and borrowing, which cannot be offset by higher prices. So they have one choice to maintian positive cashflow- increased sale volumes. Any significant fall in house values will by direct consequence lead to a proportional fall of all land values, regardless of the planning status. Land ownend outright sits on the developers capital balance sheet; so any fall in the land value hits the bottom line, the bigger the holding, the bigger the hit. Leveraged holdings are even worse hit, because the developer faces falling land values against rising borrowing costs- with the resultant prospect of negative equity. These costs hit developers at a time when they are already under mounting cost presure from downstream construction and marketing activities as outlined above So developers can either dump the land - depresing land values further - or try to maintian or increase its value by securing planning consent or building houses, which can still be sold, given the right incentives. Otherwise they run the risk of depresed capital, lower credit ratings, and in the extreme, insolvency. The overall point that I am trying to make is that the big UK housebuilders are now facing pressures from all sides which will force them to make difficult choices in the near future. These are not BTL numpties who are 'in it for the long term', they are proper businesses with published accounts, credit ratings, operational overheads and shareholder expectations. In any strategic decision that a developer needs to take, the selling prices of houses is just one of many considerations; and a consideration that will not always come out on top. IMHO, this makes the viability of a 'soft landing' for the UK housing market much less likely. Sonik
  3. And what about all those Polish builders, if the developers just stop building houses, in order to maintain house prices?
  4. This comment is so crazy it is hardly worthy of a reply If the price of newbuilds are slashed by say 25% less then second hand houses, which houses will sell first? What will this do to the price of second hand houses? Come to think of it, that's exactly what has already happened in the USA.
  5. Not sure what part of this you don't understand. It is well known that UK developers have deliberatly constrained supply by witholding land for development; bulls on this forum have used this as an argument for continuing HPI. In the USA housebuilders are now facing spiraling losses from write-downs of the value of banked land. As Frug has pointed out, these are geared positions; fine in a rising market; but not sustainable indefinatly in a stagnant or falling market. So developers now have a simple choice, in the face of a stagnant market: build more houses, and maintian sales with increased volumes/lower prices. Or hold onto the landbank and risk losses from falling land values. come to think of it, IIRC, in the 90s downturn some developers actualy built more houses in order to balance their books and stay solvent, because houses, even unsold houses, are worth more than undeveloped land so can be used to prop up the balance sheet.
  6. But the land bank is itself one big reason why they cannot just 'shut up shop' With any sign of falling prices, then a large overpriced landbank becomes a big liability. In the the States builders ramped up construction and slashed prices. This helps the builder to maintain sales (with increased volume/lower prices) while disposing of the landbank. At the end of the day, the big builders will care more about their bottom line than the state of the housing market. They will do what they need to do.
  7. Housebuilders will crash the market, they now have no choice: Builders have overheads, so they must maintain turnover. In a sticky market, the only way for a builder to maintain turnover is by increasing volumes; which means selling more houses for less cash. Builders were the 'Joker in the Pack' in the US, Spain and Eire. Why should the UK be any different?
  8. I love the bit 'but it's not a peak it's a plateau' Duh!! Static Production/Rising Consumption= Peak Oil If the IEA don't even get this simple concept then we truly are screwed!
  9. And 'come back' they must This factor seems to be lost on most HM observers: Builders have overheads, so they must maintain turnover & they will do this by selling more houses for less, if they have to. Also, the extent of landbanking in the UK makes this more likely: http://www.housepricecrash.co.uk/forum/ind...showtopic=50892
  10. Brighton seafront houses are quite capable of falling down all by themselves, without any help at all from the sea If you have any thoughts at all of buying seafront property in Brighton then banish them forever: Google the word 'Bungaroosh' http://www.google.co.uk/search?hl=en&q...earch&meta=
  11. This is the clasic denial that will pull the market down, notch by notch
  12. Who cares if they are. Don't forget that Joe Public will get to read these comments, as will the Editor of the newspaper, who may be influenced by this feedback in deciding what to publish in future Every little helps.....
  13. Bovis need to 'increase volume' in a tightening market. They have already used up all the teasers like cashback, part exchange and free carpets etc. So they have one place left to go: Lower Prices
  14. Need to make sure that wall goes out round Kiderminster....
  15. STM, West Midlands, Q4 2006 Perhaps I should gloat, but we will have to wait and see.
  16. Just today, someone at my work said with great confidence 'but the housing market is probably going to crash, apparently flats in London are already falling...' This not from a HPC obsesive, just somone who watches the news. Sentiment is turning, no doubt about that.
  17. Nice double dead cat bounce! Don't they call that a 'bear trap'? This has 'bearly' started yet IMHO
  18. UpMyStreet are running a 'Have your say' on Gordon Brown and housing policy HPC regulars seem to have a lot to say on this subject, so here the link: http://www.upmystreet.com/property/feature...p;rated=Success What do you think GB will do next? What do YOU think that GB should do? UpMyStreet is a place where house hunters go, so spread the word!!! P.s. Dont forget to post back here to keep the thread going!
  19. Likewise Traded up about 18m ago, then spent 1 year nervous about possible HPC. We then STM 6m ago for personal family reasons; there has been 0% HPI in my area since then. So we have taken no loss by renting, while avoiding any potential risk of HPC. My veiw is that risks have now reached the point of no return; the impact of the widening US HPC on global markets should not be underestimated. We are not priced out, I could probaly get about £350K together in 24 hours without going near a bank. So my bearish outlook has nothing to do with resentment, but a basic conclusion that curenly for my family, the risks of buying are currenly much higher than the risks of not buying.
  20. Tescos are already a commercial property company that happens to also sell groceries. During the 90's, when property was cheap, Tescos went mad buying up any plots of land they could find that might be suitable for building a supermarket. Over the last decade they have done two things with these plots: 1) Build Tesco supermarkets 2) Sold the land with a 'no retail' covenant slaped on, ensuring that their competitors cannot use the land to build a supermarket too close to a Tescos. So Tesco have built their empire on the back of the property game, but now it seems they are calling the game up, with sale and leaseback: http://thescotsman.scotsman.com/business.cfm?id=442822007
  21. If these lenders take on Lombard Street's latest advice, they will tighten their lending crireria........
  22. Most interesting is that the 'expert' now calling the top is Diana Choyleva, who had a bullish outlook until recently. Her HPI prediction for 2007 is on the front page of HPC website, heres what she said in december 2006: Ms Choyleva does not believe that there is currently a bubble in the housing market but does see a bubble developing if double digit growth happens in 2007
  23. This looks like a big reality check. Not only several lots unsold, the whole auction looks very, very slow Most sold lots have winning bids the same or just a few thousand more than the opening bid- not much bidding up then, usualy property auctions bid up in £5K or £10K increments The 'unsold' lots all have bids but no sale- perhaps the bidding did not meet reserve price? 5 lots got no bids at all Is this just a crappy catalogue of undesirable property or a sign of things to come?
  24. Interesting this, I was just reading an article about the Nationwide/Portman 'merger' It seems that the biggest job cull in this merger, will be in the sub-prime mortgage divisions of both B/S. Of course this is all in the name of 'efficiency' The biggest UK B/S, scaling back sub-prime lending. Writing on the wall?
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