Over the past weekend, Centex Homes began calling homebuyers under contract to notify them that the company plans to close operations in Colorado by Spring 2009. At least one buyer with a home due for completion and closing this fall was offered a refund of his earnest money deposit - apparently as a courtesy since the neighborhood would not be completed by Centex. The buyer was assured that Centex would stand behind all warranties via its subcontractors.
According to Hanley Wood Market Intelligence, Centex Homes is a top 10 homebuilder in Colorado's Front Range with 136 new home sales during the first half of 2008 in 11 projects from Aurora to Fort Collins. The publicly traded company is one of the top five builders in the U.S. based on home sales and closing volume.
What do you think? Will other national builders find the sales volume and profit margins they can achieve in Colorado insufficient to justify operations here? Will smaller local builders with lean operations have an edge in this climate?
The Front Range of Colorado had most of the major national builders competing in the market place. For the most part they built quality products and were good corporate citizens. Coloradoans got competively priced homes in nice communities. So, it is sad to see good local divisions of Centex, Beazer and John Laing Homes fall on tough times.
National builders lacked the foresight to "see around the corner" when too much money was being pushed into the housing mortgage market. Nary a national homebuilder had the acumen to have an economist on staff that could have raised a red flag. Exceeding the quarterly estimates was the driving management credo. Stock analysts were really the drivers behind homebuilding management.
Instead, during the early 2000's most homebuilders' fears were running out of entitled property. Baroque transactions were set up to keep property of the publicly held builders' balance sheets. Now the chickens come home to roost. The industry stole too much demand from the future. Now builders are closing up shop and hardworking, dedicated employees are suffering from layoffs. Yet the major CEO's are still around blaming "deplorable market conditions" and not themselves.
The lesson to be learned is that "easy money" leads to a market crash. This is what happened with the S&Ls in the 1980s. When you see non-doc loans and downpayment assistance "charities" pop up again in 20 years it will be time to exit homebuilding once again.
More homebuilders will close up shop in Colorado--many will return when times get better. Wall Street bankers will force some of the big guys to consolidate. It's going to be very volatile for a while.
On a bright note, there is opportunity out of chaos. For those who are dedicated, Colorado will be one of the better housing markets in the future. As we borrowed demand from tomorrow in the mid-2000s, we are creating some pent up demand for the early 2010s.
Posted by: Transom Mullion | August 11, 2008 at 02:40 PM