Sonic the Hedge Fund
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Posts posted by Sonic the Hedge Fund
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I disagree with your previous comment and this one.
To address your previous comment the building sector employes a lot of contracted workers, so its very easy to downsize the operatation over a few short months.
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.
The only reason a building company might need to maintain turnover is to fund the loans taken out on properties under construction or already developed but not sold (but still owing the constructor, which doesn't happen often as they usualy try to meet their minimum quorum to make a site profitable ASAP after launch).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.
at the end of the day they still have an asset (the land) which has no further liabilities.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
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jobs dry up and migrant workers compete for the few agricultural vacs that remain (eg crop picking)
and the remaining migrant workers have to leave the UK to find work in another country
leaving countless rented accom empty all of a sudden
And what about all those Polish builders, if the developers just stop building houses, in order to maintain house prices?
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Cos newbuild properties represent <5% of the homes on the market at any given time in the UK.
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.
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it is different here compared to the usa and spain, there you can actually build a house and ramp up production.
here there is no land to build on because of our planning laws.
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.
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Because they've been land-banking in the UK for years. In previous recessions they have simply completed properties started, shut down their operation until things improved, and then re-started when the market has picked-up.
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.
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We have seen a ferocious reaction to the 0.25% raise this time.....ridiculous, especially as it was so pre-warned. Given the MPC's obsession about not wanting to ruffle feathers, I have a horrible suspicion they will revert to ostrich position at least until October.....there is a real danger they may cut then too as the slide starts.
As an uber-bear, I am convinced that whatever they do with rates now, it is too late.......other macro forces have taken over, namely:
1. Credit tightening worldwide
2. LIBOR taking over
3. Serious inflation coming in over the horizon - food, China, Oil....all the things which were cheap in the past when they cut in August 05.
My guess is the next MPC will be all about Sterling.........
What do you guys think?
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?
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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!
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If you build it, they will come.
Er, unless the market turns against you
Then all you can do is slash prices until they come back.
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
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Just in time for global warming to raise sea levels and wash your gaff away!
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'
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Don't know the answer to your question, but my landlord just tried to sell the flat I'm in.
Tried 4 estate agents - one refused to even come and value it, and said that it wasn't worth their while coming because "flats won't sell".
EDIT: Forgot to add, the other three gave prices too low for his liking so he's decided not to sell.
This is the clasic denial that will pull the market down, notch by notch
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Ever occur to you that the 13 replies on there might all be from people on here?
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.....
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Bovis Homes
Bovis Sales Target Under Threat as U.K. Market Slows (Update1)
By Sophie Kernon
July 9 (Bloomberg) -- Bovis Homes Group Plc, a U.K. homebuilder, may cut its annual sales target after increased interest rates and mortgage costs led to a drop in the number of potential buyers visiting sites. The stock had its sharpest decline in almost a decade.
``We believe we can increase our volume, but if the market slows any further, we have to bring our target down,'' Chief Executive Officer Malcolm Harris said in an interview today. ``We need our sales rate to pick up and we will introduce new incentives to do that.''
Bovis said visitors to developments have plummeted in the past six weeks and a planned 10 percent gain in sales for 2007 now hinges on consumer confidence in the summer and fall. The Bank of England, which has raised interest rates five times since August, has sought to slow the economy as rising property values encourage consumer spending and London's financial services industry booms.
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
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By the time the chavs are encroaching on their doorstep it will be far too late to do anything; in fact it's probably too late already unless we wall off Birmingham and exile them all in there.
Need to make sure that wall goes out round Kiderminster....
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Halifax reported that the West Midlands was down 1.1% in Q2 2007
In other words, the crash started Q1 2007
STM, West Midlands, Q4 2006
Perhaps I should gloat, but we will have to wait and see.
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It's been an interesting week. We have seen a desperate rearguard action from the Bulls still in denial but IMHO this is the week when the HPC went mainstream. The BBC, ITV, the broadsheets, even the tabloids are all talking about a housing crash as though it is likely.
The final nail in the coffin was the IR rise. Only a small thing in itself but enough to persuade Joe Public that the days of easy credit are now gone.
On the basis that once everyone agrees a crash is at hand it must already be with us, I think it's not unreasonble to quote my mate GOM
'Q1 2007'
Bears - enjoy the satisfaction of knowing that your patience has paid off.
Bulls - reality bites
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.
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Just thought i'd show you something many of you already know - Northern Rock - one of the UK's biggest loan companies:
http://uk.finance.yahoo.com/q/bc?s=NRK.L&t=3m
if you've shares in loan companies GET OUT!
Nice double dead cat bounce!
Don't they call that a 'bear trap'?
This has 'bearly' started yet IMHO
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The top of the market has been reached, we’ve known that for six or seven months now,’ Richard Auterac, auctioneer at Jones Lang LaSalle. ‘And when you get to that point people are more cautious.’
And this from a VI....Say no more!
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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!
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I owned a house and sold it for job reasons. As a bear, I decided not to buy in until the market returned to normal.
VMR.
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.
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Seem to remember that Macdonalds have been described as a commercial property company that sell burgers.
Perhaps they should start selling houses, as their brain dead customers make ideal fodder to buy at the current market height.
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:
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I quote from the article:
"This is extremely worrying," said Diana Choyleva of Lombard Street Research. "Higher interest rates may mean that some families are pushed to sell their homes."
Have they been giving the wrong advice to the lenders? see below the opening lines on their Website
If these lenders take on Lombard Street's latest advice, they will tighten their lending crireria........
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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
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Apparently houses are NOT shifting like hot-cakes after all. The Halifax auction report for April shows 12 of 79 lots remained unsold.
I thought there was a housing shortage with hundreds queueing for every property to come onto the market...?
TD
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?
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Well, I agree with the 'no large bank will be allowed to collapse' part. There are a few examples of banks going to wall, but in order to stop panic in the masses, and the demise of the whole banking system, somebody quietly anounces that a bank has been taken over by another one. Then all people are concerned about is how many branch closures ther will be, and how it will affect them.
One bank is forced to take on the liabilities of the other to keep the whole system running - usually announced as a takeover/merger.
A regional bank manager told me this, and followed it up with a couple of examples - which I won't reveal. (This was about 10 years ago)
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?
What If They Stick At 5.75%?
in House prices and the economy
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Does nobody else refute my analysis that housebuilders will crash the UK housing market?
Thats setled then!!