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Home Front: Humbled home builders now facing reality
This change is not easy for builders. In a bust that has lasted three years, they have gone through phases: denial, blaming the media for messing with the heads of buyers, predicting bottom soon and laying off staff. Now a chastened industry has reached a new stage, openly acknowledging its mistakes..."We've effectively stolen from the future. The demand we should be having now we stole in 2005 and 2006." He said: "We're paying for the sins of our past right now." Are they ever. The builders, banks, sales staffs and land developers clearly see the sins now. They built too many homes, and they built them too big. They "pushed" people who had no business getting mortgages into homes. They bought too much land with too much borrowed money... industry joke went: If you can show your breath on a mirror, you can qualify..."We learned if you give people free money, they'll take it." Respond to article and reader comments
Home Front: Humbled home builders now facing reality
By Jim Wasserman -
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Friday, May 30, 2008
Story appeared in BUSINESS section, Page D1
When home builders ruled the earth earlier this decade, a customer had to be humble. You waited in line, paid to get on eligibility lists and endured lotteries to buy houses that might jump another $5,000 if you didn't sign now and use the builder's lender.
That was then, the old days: 2002 through 2005.
Now, customers are in control, holding back, waiting, often still doubting home builders' word that this is the best time to buy.
This change is not easy for builders. In a bust that has lasted three years, they have gone through phases: denial, blaming the media for messing with the heads of buyers, predicting bottom soon and laying off staff.
Now a chastened industry has reached a new stage, openly acknowledging its mistakes.
The new humility was on display Thursday during a Sacramento-area builder seminar by San Diego-based Sullivan Group Real Estate Advisors. In a spirit of straight talk with business people who spent $50 to hear it, president Tim Sullivan told the industry, "We've effectively stolen from the future. The demand we should be having now we stole in 2005 and 2006."
He said: "We're paying for the sins of our past right now."
Are they ever. The builders, banks, sales staffs and land developers clearly see the sins now. They built too many homes, and they built them too big. They "pushed" people who had no business getting mortgages into homes. They bought too much land with too much borrowed money.
They have seen colleagues laid off and big-name builders bare their finances in bankruptcy filings. There was even talk Thursday about the "new frugality," a "new austerity" in America.
Yes, an industry not known for timidity now has low expectations. In the Sacramento region this year, builders expect to sell only 5,500 to 6,000 houses, said Dean Wehrli, Sullivan's Sacramento-based vice president. That's half of what he said annual demand ought to be: 11,000 to 12,000 new houses a year, given population growth alone.
Wehrli calculated that during the excesses of the boom years Sacramento-area builders "stole" about 16,000 homes from today's demand. That's how far ahead of normal trend lines they got between 2002 and 2005 in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties, he said.
By Wehrli's calculations, it will take at least another "brutal, painful" year of wrenching sales declines to absorb the overproduction and bring the market back to normal demand.
Builders confronted more evidence of having gone too far when the Sullivan Group trotted out its foreclosure statistics. Many among the thousands of repossessions were homes that builders sold three years ago when an industry joke went: If you can show your breath on a mirror, you can qualify.
There also was talk about projections by the Federal Reserve that 150 U.S. banks – mostly smaller institutions that invested in real estate – are headed for failure. There was speculation that some of the nation's biggest publicly traded home builders may merge or file for bankruptcy.
Finally, came the better news, the suspicion that since Sacramento has experienced some of the sharpest housing pain in the nation, it's closer to equilibrium that most areas of California. It might be one more bad year, maybe less.
So what's been learned after all of this? And will those lessons endure "forever?" Sullivan asked.
Probably not that long.
"We've at least changed for a generation," said panelist Joseph Anfuso, president of Stockton-based Florsheim Homes. "We learned if you give people free money, they'll take it."
http://www.sacbee.com/103/story/975645.html
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desdemona5 at 5:45 AM PST Friday, May 30, 2008 said:
Not to mention treating customers like crap
When we were touring models back in 2005, we dealt with some of the rudest, crassest, most snide "customer service" people. Back then, if you weren't ready to buy that day, you were a subhuman animal; to even talk to you was a waste of breath. We'll never forget how poorly we were treated back then, especially by one builder in particular, and we'll never buy a house from them. Ever.
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