real/diaBlog - boldly saying what others won't about Real Estate

New-Home Slowdown Is Good News, Even To NAHB Chief Economist

The pace of new-home construction in November dropped to the lowest level in 14 years. And that's good news, even to David Seirs, Chief Economist for the National Association of Home Builders (NAHB). David Seirs says he's somewhat pleased because builders cannot reduce their inventories of unsold homes unless they cut production, particularly in light of weak demand and rising competition from existing home sellers.

"The builders are behaving appropriately at this point," Seiders said. "I would have liked to see the production decline start earlier than it did. But since the beginning of 2007, production has been falling rapidly."

The pace of housing starts fell 3.7% in November from a month earlier, to a seasonally adjusted annual rate of 1.187 million, and it dropped 24% from November, 2006. Building permits, an indicator of future home construction, fell 24.6% from November, 2006, to an annual rate of 1.152 million.

With buyer activity down and their stocks getting crushed, many builders are "freezing" projects. They are doing everything they can to unload current inventory before continuing on existing projects or beginning new ones. In some cases, they are literally walking away from projects and leaving them to collect dust until existing ones sell out.

Though this tactic can be an eye sore to locals, it's working. In October, the supply of new homes dropped to 8.5 months down from 9 months in September. The lower the supply, the better it is for prices.

And the better it is for sellers and home owners in general. Much like builders helping property values go through the roof by increasing base prices weekly during the boom, builders drag property values down by decreasing base prices and/or offering higher incentives during the bust. Once builders gain some stability and are carrying less inventory, they will start back up on their projects and base prices and incentives will start to plateau. This will directly effect the property values of resales/existing homes and the real estate market in general.

Source: BusinessWeek

Beazer Homes Being Investigated For HUD Violations

As if being investigated by the FBI back in March and getting busted trying to buy their reputation back in May wasn't enough, Beazer Homes is in trouble again. This time, it's with the SEC and the U.S. Attorney's Office who are investigating Beazer Homes for violations of HUD regulations governing down-payment-assistance programs. This comes after a series of stories in the Charlotte Observer came out documenting cases where Beazer Homes appeared to have broken rules governing down-payment-assistance and had sold homes to low-income buyers who couldn't afford them in the first place.

Beazer admitted that it's own internal investigation found evidence that employees of Beazer's Mortgage division violated certain HUD regulations dating back to at least 2000. The company is seeking to negotiate a settlement with regulators to the tune of $8M to $15M, but no deal has been struck as of yet.

Beazer also announced today that they would restate earnings going back to 2004. The restatement could effect financial results as far back as 1999 and is likely to be a cumulative $25M increase in pre-tax income, after a $20M downward reduction in pre-tax income in 2006. The company said that the restatement could delay reporting of financial results ending September 30 as well.

2007 is definitely not Beazer's year.

Further Reading:

Beazer Homes Announces Findings of Independent Audit Committee Investigation - Beazer.com

Atlanta Home Builder Beazer Restating Results - Sequence, Inc./The FRAUDfiles Blog

Pulte Homes Most; KB Home Least Recommended By Real Estate Agents

According to a Bank of America survey of real estate agents, Pulte Homes was the most recommended home builder in the 40 major markets surveyed while KB Home was the least recommended. These numbers are important because approximately 40% of new home sales involve a real estate agent. In addition, homebuilders are increasingly reliant on real estate agents as market conditions weaken.

Here are the results of the survey:

1. Pulte Homes - 30.2%
2. Toll Brothers - 26.0%
3. Lennar Corp. - 22.4%
4. Centex Corp. - 16.4%
5. D.R. Horton - 16.0%
6. WCI Communities - 16.0%
7. Ryland Group - 14.0%
8. Meritage Homes - 13.9%
9. Standard Pacific Corp. - 13.6%
10. Hovnanian Enterprises - 7.9%
11. NVR, Inc. - 7.7%
12. MDC Holdings - 3.9%
13. Comstock Homebuilding - 0.3%
14. KB Home - (9.8)%

With that high of a percentage of new homes sales involving agents, you would think that builders such as KB Home, Comstock, MDC Holdings and NVR would work a little harder at getting recommended by real estate agents and brokers. Perhaps they still think that cutting out/screwing over the agent, broker and consumer and keeping the co-op fee to themselves is worth more than their reputation.

On a related note, Pulte Homes ranked highest in customer satisfaction in 11 U.S. markets, as reported by J.D. Power and Associates 2007 New Home-Builder Customer Satisfaction Study. And don't worry - the J.D. Power and Associates survey's results can't be bought like some others.

Source: Banc of America Securities, LLC

UPDATE: If you would like to see a copy of the entire September BoA survey, please leave a comment and link to your email address and we will send it to you as a pdf file.

K Hovnanian Homes pulls an Apple - Minus The Money Back

Last weekend, K. Hovnanian Homes had their "Deal Of The Century" promotion running in 31 communities across the US. They slashed overall prices by up to $100,000 and offered extra appliances and upgrades to new customers. Similarly and only a short while ago, Apple decided to cut the price of the iPhone from $599 to $399, just weeks after it's initial release (and original price). But that's where the similarities end.

Unlike Steve Jobs, CEO of Apple who came out publicly to defend the price drop to recent iPhone customers, Ara K. Hovnanian, President and CEO of K. Hovnanian Homes did not make any comment nor apologize to recent buyers who paid much more for the same product just few short days ago. And unlike Apple who is giving money back to new iPhone customers who paid the higher price, K Hovnanian is not giving a dime back to recent buyers.

Basically, if you recently paid $100,000 more for the same house as your new neighbor who bought this past weekend, you're S.O.L. If you've ever wondered why some new home buyers leave $25,000...$50,000...even $75,000 on the table and just walk away, now you know.

Oh btw, K. Hovnanian's move comes only 2 months after Ara Hovnanian told fellow builders to raise prices in order to try and make buyers believe that prices will stop going down and move forward with making a purchase (aka price fixing and highly illegal).

Beazer Homes Trying To Buy Their Reputation Back

By now, you probably know about all the problems and negativity with Beazer Homes such as diminished earnings and an investigation by the FBI. Their reputation is not that great at the moment and they surely would love to get it back up to par, if not better. But they've stooped to a new (low) level when it comes to doing that. According to the Charlotte Observer, Beazer Homes is sending out a customer satisfaction survey along with a letter promising $100 to the person(s) if they give the company high marks on the survey.

A lot of people are just giving in because they "need the cash" and giving high marks on the survey. But it's not doing anyone any good. By doing so, they're misleading other consumers, company officials and investors.

But do Beazer execs really care? Well, they get bigger bonuses if they get more favorable marks on the survey so my guess would be no. They may even be the ones who came up with the idea. And with the company in turmoil and their job security at an all time low, they're probably looking more at the tip of their noses than 100 yards down field. Beazer execs may just want the immediate bonus and then jump off the sinking ship.

By giving these false high marks, these consumers are just helping them screw over the company, consumers and investors even more. But maybe these consumers are more concerned about themselves than Beazer, a company they have no loyalties to.

FBI Investigates Beazer Homes For Mortgage Fraud and Predatory Lending Practices-UPDATED

Thank you to UrbanDigs for breaking the news on Beazer Homes being investigated by the FBI for mortgage fraud and predatory lending practices. With almost all production builders having affiliations with or owning their own lending insitution, it was bound to happen.

The percentage of new construction home buyers using the builder's lender and title company of choice is very high. This is due to the large incentives builders were offering, but only if the consumer used the builder's lender and title company of choice.

Because these lenders were almost always a broker and sold the loan the day of settlement (literally), they seemed to only care about getting the consumer in a loan and close the deal on the sale of the property. Once the loan was sold, the risk was passed on to whomever bought the loan further decreasing how much the builder's lender cared about the risk to the consumer. Seems it hit the fan...

UPDATE: Here's the latest from Bloomberg:

"March 29 (Bloomberg) -- Beazer Homes USA Inc., the homebuilder under investigation by the FBI, received a federal grand jury subpoena for documents related to its mortgage origination business.

The U.S. Attorney in the Western District of North Carolina issued the subpoena at the request of the inspector general of the U.S. Department of Housing and Urban Development, Atlanta- based Beazer said today in a regulatory filing.

The United States Attorney has made no allegations of wrongdoing by Beazer Homes at this time,'' the company said. Beazer is cooperating with the Justice Department investigation and said it hasn't received a request for information or documents from the FBI or IRS. The FBI confirmed its probe on March 27."

According to an article in The Charlotte Observer on March 25, Beazer sold homes to low-income buyers who couldn't afford them (where have we heard that before). Beazer was assuming (betting) that the buyer's income would increase as time went on, a practice that the Federal Housing Administration (FHA) restricted in 2004.

What you don't know can cost you.

So you are thinking about moving and you are seriously considering buying a brand new house directly from the builder.  So you go out one weekend and look through the models in a couple of developments you saw in the paper.  When you get to the model home one of the first things you have to do is register with the new homes representative at the model.  They ask you a couple of harmless questions about your situation and contact information.  One of the last questions they ask is whether or not you are working with an agent.  This the key question they look at when determining how to handle you as a customer.  If you answer this wrong it could end up costing you thousands in incentives as well as get you a house on an inferior lot that will one day be very difficult to sell.

Why is this question so important?  Because builders and the representatives that sell their products are professional salespeople.  And as professional salespeople they want to get the most out of every transaction.  They sell houses every week.  They use their experience against your inexperience to increase the profits of the builder.  They do not tell you that you are by law entiltled to representation.  They don't tell you that if you use competent representation (a good buyer's agent) you can actually get you more in incentives and a lower overall purchase price.

Builders representatives won't tell you because once you visit a new home model and register without an agent they get to add the commission, which is already built into the price of the home, to their already-fat profit margins. They won't credit you the commission amount back if you don't have an agent with you. Nor will they honor an agent if they were not with you during the first visit.  And contrary to what any representative says, they will not get you a better price if you don't have an agent.  You don't know what a better price is and they know that.  But a good buyer's agent knows what others have paid and in some cases what added incentives are available that were not made public and only disclosed to certain individuals.

Builders are after all, in "business". That means making money. Since the builders' rep typically receives a bonus for writing a Purchase Agreement that doesn't include an agent, they are inherently trying to find ways to cut them out. And the builder loves adding 2 to 3 percent to their bottom line. Who wouldn't?

The builders' sales rep works for the builder and gets their paychecks and commissions from the builder. The builder is in business to sell homes for as much money as possible. The builder never tells you to have your own representation because it's not in their best interest. What about your best interests?  You should never register with a home builder without an agent representing you.