�Ten years ago, when the Inland median home price was $111,000 and the median household income was $44,800, more than 71 percent of homes were affordable for local median-income families, according to the national home builders group.�
The problem we face today is that 10 years later median household incomes are not much more than they were ten years ago.............however, the average selling price of a home can be up over 300% in the same period. Today, affordibility falls within the reach of less than 12% of inland families.
Just that alone makes this current situation different than other previous boom bust cycles and helps explain the slow down in a still healthy job market.
Next we factor a historically low interest rate environment and easy credit following a dot come bust creating an fertile environment for housing speculation and strong demand which has since evaporated.
Then add in the fact that property taxes are double. Fuel prices are double. Insurance burdens are double. And other expenses are much higher and we get strong headwinds facing consumer spending which for a few years was masked by home equity extraction. Now a number of consumers are sitting there with high debt burdens without much equity to extract.
Add in a contracting lending environment, slowing job growth, and slowing commercial spending and we have a recipie for a downturn like we havn't seen before.
Couple the above with the fact that HBs are carrying high inventories of land purchased at high prices and burdened by high levels of debt, we have a very volitile situation indeed.
Is it different this time?
Only time will tell.
<<<And book value includes not only land value but also inventory which is not going to zero.>>>
That is absolutely true. But the majority of SPF's book value is land. SPF owns more land relative to market cap than most other public HBs.
<<<I feel impairment is related to price that was paid for land>>>
Although impairment relates to price paid for land, it does not reflect current market value for land. The market value can be substantially different than the impaired value. It has more to do with the profitability of that land discounted to a present value. If all of SPF's land was impaired to zero, SPF would have a NEGATIVE book value after backing out debt.
The likelyhood of all land being impaired to zero seems remote, the possibility of SPF having a negative book value..............
Time will tell.
I dont understand what is adsorption rate and why impairment is factor of adsorption rate and selling price. I am not an accountant but I feel impairment is related to price that was paid for land. Once a land is brought to a zero value it can not be impaired any more. And book value includes not only land value but also inventory which is not going to zero.
What if conditions continue to deteriorate and impairments increased to $6 or $8 or $10 or $12 per quarter?
FYI, impairments are a factor of absortion rates and selling prices.
It appears that both are continuing to slow and decline respectively.
Remember, there is over $15 dollars per share of assets OFF BALANCE SHEET also subject to impairments in additon to the assets on balance sheet. That is in addition to the assets that you are using to calculate current book value.
Sometimes, what you can't see is more important that what you can.................Time will tell.
We still have areas that support the building industry with above average incomes and affordable housing. However, the struggling national builders are flooding these markets with specs and drastically reducing profits. They are not making money, just turning dollars. This will eventually come to an end as the "use to be" big guys burn through lots and inventory. The question is, how long will they be able to operate like this?
Is it different this time?
We are in the first inning of the housing downturn. If you are not sure of this, just ask any Japanese resident who owned a home in Japan circa 1987. The value is still much lower today.
The US has a horrible combination of:
Rising mortgage rates
Falling home prices
Rising new home inventory
Commitments by HBs to communities to complete projects
Credit being cut-off to borrowers
Credit being cut-back to cash strapped HBs
Mid-leading government reports on housing
Massive US debt
Massive trade deficits
BTW, The next great short will be WAMU!!!
if what you say is true then how come SPF made $0.85/share of operating income in 1st quarter and $0.96/share in second quarter of 2007. These guys are doing fine apart from write down of land inventory which will end pretty soon.
PS operating incpme is (rev from home sales - cost of home - selling cost)/No. of shares outstanding