The US sub-prime crisis continues to take it’s toll amongst developers and recent announcements from a variety of sources don’t seem to see any let up on the horizon. Some recent announcements this month include:
Toll Brothers Inc.(sic) said that its fiscal first-quarter home-building revenue fell 22% from year-earlier levels to $842.7 million and it doesn’t see any end in sight to housing-market woes. The company said it is still finalizing its first-quarter impairment analysis, but expects pretax write-downs of between $150 million and $300 million. “The housing market remains very weak in most areas. Based on current traffic and deposits, we are not yet seeing much light at the end of the tunnel,” said Robert Toll, the firm’s chairman and CEO. Toll will report full first-quarter results on February 27th.
Lennar Corp., one of the US’s biggest home builders, posted a massive quarterly loss of $1.25 billion as it wrote down the value of land holdings and suffered from slumping sales and softer home prices. The Miami-based company said it was girding for tough times to continue. “As we look ahead to 2008, we are not expecting market conditions to improve, and perhaps might continue to decline in the near term,” said President and Chief Executive Stuart Miller.
Centro Properties Group, the fifth-largest owner of shopping centers in the U.S saw its share price fall by 90% in two days last week as it struggled to refinance short-term debt it took on to fund its $6.2 billion acquisition of New Plan Excel, one of the biggest owners of strip malls in the U.S.
In the meantime, there is a growing trend of borrowers simply walking away from their mortgages. With property prices continuing to fall, and the newly introduced ‘Mortgage Debt Relief Act,’ there is little incentive for many to even try and make the payments. Many borrowers bought without making a substantial deposit and once the value of the house falls significantly below the mortgage, there seems little point in continuing. This trend is particularly prevalent amongst property investors whose intention was to flip the property quickly.
National City Corp’s chief economist, Richard DeKaser, pointed out that, “while all credit metrics are deteriorating, mortgage delinquencies are rising disproportionately, which makes sense if borrowers are choosing to walk away.”
California in particular, is being hit by this phenomenon, the state laws favoring the delinquent borrower. Banks that repossess and then sell a foreclosed property for less than the mortgage that was owed on it cannot come after borrowers for the difference – as long as it’s the initial mortgage, one that has not been refinanced. So if a borrower owes $250,000 and the bank sells the house for $200,000, the borrower comes out of it debt-free.
British banks, of course, will hound you to the grave, so this practice is unlikely to spread to the UK.