Was so busy earlier this week that I didn’t have time to make a shameless plug for a housing-related story I wrote for the print magazine looking at the deteriorating financial situation of many homebuilders. A number of small and mid-sized builders have filed bankruptcy across the country, and Moody’s, the big credit-rating agency issued a report in April predicting that a number of large homebuilders could fall out of technical compliance with their debt agreements, leaving them at the mercy of their lenders to grant waivers. For what it’s worth, executives at some of the homebuilders I interviewed didn’t agree with the critics and hence, didn’t buy the premise of the story. They think the slowdown is entirely manageable and that the industry by and large is better positioned than builders were doing the ‘90-‘91 recession, when many more went bankrupt than have so far in this slowdown.
The real reason I mention my recent story, Homebuilders in a Hole, is not just to plug it, but because I’d like to solicit input from people in the real estate industry — suppliers, real estate agents, heck, the builders themselves — who have an ear to the ground. I was told by an Arizona attorney who represents several small builders that the talk on the street in that state was that some of the bigger builders were actually selling new homes below the construction and land costs. This theory: They’re anxious for the cash flow to stay in compliance with their debt covenants that they’re willing to sell for a loss if that’s what it takes to move the house. And since the land and construction expenses are already “sunk costs,” selling at a loss still creates cash flow. With that, I open the floor for intelligence from the front line. Comments?
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.