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MDC Holdings Inc. Message Board

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  • oldschoolbuilder oldschoolbuilder Apr 24, 2006 10:17 AM Flag

    Long Case/Short Case

    <<The housing slowdown is gaining speed each week.....Inventory is ramping with unbelievable speed...and all the while interest rates are inching higher...there are no buyers in major markets that were leading the "boom" (Florida for one)...>>

    Yep, no doubt about it we have an inventory problem for a while. Buyers are definitely on the sidelines waiting to see how things shake out. Speculators are selling in droves. This should be a hit to margins for the builders near term. Will this last forever? At some point there will be a time when true demand (driven by job growth) meets true supply (ex-speculator inventory).

    <<Yet you talk about the "franchise value"...that's a joke when nobody wants to buy a home.>>

    Yes, Sir, nobody will ever want to buy a new home again. I guess people will either rent, or maybe even live in cardboard boxes as land is forever worthless. MDC's top 5 position in great long term markets isn't worth much either. As General Lyons if he agrees.

    <<You look at the "book value" as if it were a number set in stone>>

    It is nearly set in stone if it is pretty close to cash value--as a big portion of MDC's assets are being converted to cash in 12-18 months.

    <<....grasp the concept here...with fixed overhead>>

    Fixed for a short time period, variable in the long run (land sellers, suppliers, labor costs will adjust downward too)


    MDC is pretty conservatively capitalized; small builders may be toast

    <<...and a lack of sales>>

    1.8 million new homes expected to be sold this year is not a "lack of sales"

    << can anyone extrapolate an even higher book value?>>

    Gee, current book value + future profits - dividends = Higher book value

    That is unless you expect losses not earnings. If so, we have a fundamental disagreement.

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    • <<<That is unless you expect losses not earnings>>>

      Well Heeeeelllllooooooo....

      People seem to be transfixed with the concept that housing booms go through "minor" corrections and then pick up where they left off.

      In Florida, ask people who bought in the late 80's ( the last "boom" ) how long it took for the valuations to rise to a level to make them "whole". On average it was 8-10 YEARS.
      Did the market eventually come back...Yes. Did it actually go much higher....Yes. Were they trapped in their homes...paying taxes....maintenance...Yes.

      Point being...a slowdown, from totally unprecedented levels and excess is shaping up to be far more damaging than a normal "minor" correction. Do I expect losses from some of the hb's. You bet.

      Will the buyers come back to the market and drive sales up again? Sure, but I truly believe the excess and added liquidity is going to take far longer to wring out than what most people expect. In the meantime will land values go down? They already have. Lots in Sugarmill Woods, a country club community of 6000 acres right up the road from MDC's Avalon development are already off 25-35%. There are over 300 listed in the MLS. So far this year 2 have sold. It doesn't matter what price they're listed at...if no one is buying.

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