Lose your job? Cheer up, you could be a house builder in Greenwich.

Just to start the new year off on a cheerful note, I looked up some statistics for new, unsold construction that’s languishing on the Greenwich Multiple Listing service. There are, as of today, 54 houses built since 2005 for sale at prices ranging from $4.995 million up to $25 million (and many more below that but just for fun, we’re going for the top here). In all of 2008, 17 houses with those criteria sold, and of those 17, only 7 sold in the last six months. And of those 7, only 3 sold in the past 90 days. Which three were those? The lovely and oft mentioned 480 North, which sold for half its original $9 million price, 16 Beechcroft which sold for 75% of its original $8 million price and 205 Clapboard Ridge which is still under contract so no final price is yet known. But it started at $12.250 million waaaay back in 2004 and its last asking price was $7.975. One can speculate that its ultimate selling price will not be making its builder happy. I’m guessing 60% of ask.

So fifty-four spec houses which are certainly not going to sell for what is being asked, even though many of them have already slashed their prices dramatically. If the past three months proves a good predictor for the coming year, we’re going to see some builders and their lenders in serious trouble. And maybe some bargains, too.

UPDATE: What if the market comes roaring back and regains the torrid pace of the all-time sales year, 2006? I just looked that up – 27 houses built between 2003 and 2006 with a minimum asking price of $4.995 sold in the entire year. So we’re looking at at least a two -year inventory here and that’s if we recover fully. I don’t think we will. Not this year.

13 Comments

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13 responses to “Lose your job? Cheer up, you could be a house builder in Greenwich.

  1. gideonfountain

    I’ve got bids out there but no one’s biting! Greenwich pockets are indeed quite deep.

  2. CEA

    People are praying the market bounces back and want to “wait it out”. I say May.

    • christopherfountain

      If by “May” you mean the month when those who have entered Greenwich’s real estate market abandon all hope, I could go along with that – dreams die hard. But can the banks stall that long?

  3. CEA

    Chris, banks don’t want to “admit” to bad loans. They will go along with the pretense that the loan will be repaid until the cows come home.

    If they do “play along”, then they don’t have to declare the loan in default. That means they have fewer “bad” assets. That means their stock price will stay up, because their assets are all good!

    So yes, banks can and will stall. They inserted a bunch of provisions into the housing bill that said you couldn’t get a modification without paying off your home equity line first (eliminating lots of potential refinancers). That way, it doesn’t look like the HELOC will never be paid back, and they can claim THAT as “good money” even though the homeowner can’t pay the mortgage.

    The banks need to play this game, because if they truly fessed up to the amount of mortgages that are not only “past due” but are “way, way, way past due”, they’d have to take writedowns, take a hit to their equity, and potentially have to raise money (which is difficult, if not impossible), diluting shareholders and sending their stock price tumbling. And since many pay packages are tied to a bank’s return on equity, taking a hit to that equity is tantamount to denying yourself a bonus. Bank management did that in 2008. No way they’ll do that in 2009.

  4. kidding really?

    The period builders as well any seller face now is cash burn time. This is typical of anyone trying to sell an illiquid asset. They hold on for hope…. LOWER PRICES TO FIND THE BUYERS

  5. greenmtnpunter

    And what do the bank regulators say? Sooner or later these loans have to be written down or off. Or, have the bank examiners been told to look the other way in these tough times, just like the SEC did on Wall St?

    • christopherfountain

      Mark to market? We don’t need no mark to market – we got ourselves a genuwine eeeemergency here, boy!

  6. CEA

    in the “Sooner or later these loans have to be written down or off” – it will be later. Much, much later.

    Loans are failing at unbelievable rates. From the WSJ:

    “At Washington Mutual Inc., 27.2% of subprime mortgages originated in 2007 were at least 30 days past due at the end of the second quarter, compared with 24.3% of such loans originated in 2006. National City Corp. said recently that 2007 loans are driving delinquencies in its home-equity portfolio.

    Some 65% of subprime loans originated in 2007 will end up in default compared with about 45% of those originated in 2006, according to estimates by UBS AG, which looked at loans packaged into securities.”

    There is $1.3 trillion in subprime mortgage debt out there. Imagine, say, that just 20% of it is bad (it’s probably more). That’s $260 billion. You think the banks have $260 billion? They don’t. AIG’s bailout alone was $125 billion (and counting).

    And that subprime portion is just 20% of the overall market. So there’s another $4 trillion in mortgage debt out there. What is, oh, 5% of it (and that’s conservative) is “bad”? That’s another $200 billion. So about $500 billion (half a tril to you) just in a super-conservative scenario.

    That $500 billion is the market capitalization of ALL the top 25 U.S. banks COMBINED. (it’s at least the top 25; it could be the top 50 banks, I just don’t have the time to add it all up!). So no way can the banks take that kind of hit.

    The best proposal I have seen is the government offering to backstop and buy all mortgages at $0.50 on the dollar. That way, the real crud gets taken out at at least 50% for the banks. If the bank feels it can get more, it can hold onto the loan.

    Stop me if I’m boring you with the numbers!

    • christopherfountain

      I don’t know – what happens if we just let the banks fail? Sooner or later, won’t new lenders show up? If there’s money to be made, I’d think they would.

  7. CEA

    CF: it is that time in between “just letting the banks fail” and “new lenders showing up” – it could be years, and that could spell the end of our economy.

    No credit = no business = no jobs.

    Second, the “crisis of confidence” would mean even less chance of the U.S. recovering if/when lenders “show up”.

    The equivalent would be saying “Look. Somalia is a mess. Darfur – what a disaster. Let’s just bomb the whole place, and sooner or later, new people will come in and populate the place”. OK, that is extreme, but letting your economy’s “population” (e.g. banks) go in order for a new bunch to come in and profit would do the same damage to the economy.

    Look how long it took the Dow Jones to recover (as a proxy for the overall economy) after the Great Depression. It was the 1955 before the Dow reached the same level it did in 1929. 26 years. That’s an awfully long time to wait.

  8. Towny

    Nuking China would be a better scenario.