The California Housing Fiasco
“THE CALIFORNIA HOUSING FIASCO”
Annual Demographia International Housing Affordability Survey
October 5, 2008
D R Horton as Americas largest home builder, constructed nearly 53,000 homes during the peak year 2006, but since the housing bubble burst, it has been rapidly disposing of surplus land holdings, as explained within this Wall Street Journal article Developer Sells Land Dirt Cheap To Reap Tax Benefits - WSJ.com.
This article focuses on a 2000 lot subdivision in Desert Hills Springs, a blue collar community in the far reaches of Southern California’s Inland Empire.
It would appear D R Horton paid $US110 million for the raw land ($US55,000 per lot) through the inflating bubble years, completed land clearing and infrastructure works (low estimate $US20,000 per lot) plus holding and other costs (low estimates $US10,000 per lot). The total subdivision works costs would therefore likely have been in excess (and likely well in excess –since this is California) of $US60 million.
D R Hortons total financial commitment to this subdivision would have been a conservative $US170 million – and likely considerably more.
The Wall Street Journal reports County Records show that D R Horton recently sold out of this subdivision for $US7.8 million – which would represent $US3,900 per lot.
Conservatively – this would indicate that D R Hortons loss on this particular subdivision would have been at least $US162.2 million.
California, with a population of 37 million, is expected to erect just 70,000 residential units in total during 2008, according to the California Construction Industry Research Board, as reported within State's home builders expect worst year since 1954 - sacbee.com.
This represents a build rate per thousand population of 1.89 / 1000 – which is below the annual build rates through the Great Depression years of the 1930’s in California (2.18 / 1000 on average through these years).
The California Association of Realtors latest August 2008 Sales and Price Report indicates that house prices fell 40.5% August year on year and the Mortgage Insurance Group PMI Group in its latest Report, is expecting prices to fall further over the next two years. Within its latest Report with respect to foreclosures, RealtyTrac is expecting elevated foreclosure levels, with the resetting of the half a trillion dollars of Option ARM’s – 60% of which are in California.
Not surprisingly, California’s unemployment level in August was 7.7% as reported by SanDiego.com > News > State -- California unemployment rate hits 7.7 percent. Nationally – the United States lost 159,000 jobs in September.
Understandably – California is currently experiencing a (another) “fiscal crisis” – with Governor Arnold Schwarzenegger recently requesting a $US7 billion loan from the Federal Government – as reported by ABC News: Arnold to Hank: Can You Spare $7B?.