Adam Lashinsky's Blog: "Imagine this: Straight talk on the housing market."

Imagine this:

straight talk on the

housing market

Sometimes you run across a photo on the Internet which makes you laugh out loud and shake your head in disbelief and anger at the same time.

Eventhough the photo caption above of an expectant mother, smoking a cigarette, tells us she is worried about the effects of jackhammer noise on her unborn child, any sane person would "get" the real story not being told by the photo.

The woman is the bigger risk to her unborn baby, yet here she is casting accusations a construction workers.

In the same way, in Housing circles for way too long, homebuilders and Realtors have been telling a story which doesn't jibe with the pictures painted by bloggers all over the nation.

Every once in a while, you run across a blogger or writer on the net who sees through the bullshit and tells it like it is and makes it really funny to drive home a point. And you laugh out loud. And you want to share that laugh at the expense of a prevaricator or petty tyrant or crank who doesn't know when they are the cause of much humor.

Hence, today I reprint Adam Lashinky's recent CNN/Fortune Money blog which puts words into the mouth of Toll Brother's CEO, Robert Toll.

To show how Lashinsky and I think alike, I will add my comments in itlaics colored in purple under his comments printed in black italics.

So, what we have here is Adam Lashinsky and Rock Trueblood having a little fun at the expense of one of the biggest egos in Housing, Robert Toll.

(for the unedited version showing none of my comments, click on this link)

http://gowest.blogs.fortune.com/2007/07/25/imagine-this-straight-talk-on-the-housing-market/

July 25, 2007
Imagine this: Straight talk on the housing market

by Adam Lashinsky

Reading word of the debacle at class-act mortgage lender Countrywide (CFC), I couldn’t help thinking about a fascinating interview my colleague Jon Birger did recently with Bob Toll, eternal optimist and CEO of luxury home builder Toll Brothers (TOL). When I read the Q&A in the magazine, I was struck by how there seemed to be a sub-text to everything Toll said, a sort of What-He-Says versus What-He’d-Say-If-You-Injected-Him-With-Truth-Serum.

So with apologies to Jon and Bob, here is an imagined annotation to Toll’s responses, were he being more candid than the situtation allowed. (To read the full interview, follow the link above. I’ve edited it for space below. The bold are Birger’s questions, the plain text are Toll’s published answers, and the bit in italics is my contribution.)

How bad is it out there?
I don’t see the market getting better until, at the earliest, April of 2008. But I do think that when a recovery occurs, it will be much quicker than it has in the past because of pent-up demand.

Sounds good. Of course we all know there is no pent-up demand for homes. Everyone who wanted one bought one. Or Two. Or Three. Gosh, I loved the early 2000s. By the way, I just know Countrywide will predict no recovery until 2009. Most folks will find them more believeable than me.

I hope these guys have forgotten that I was once predicting that if Americans didn't buy a home in 2005, they would never be able to afford a house again in their lifetimes. I hope they also forget that I predicted a new landed gentry with those who owned, and those who would always be sentenced to rent from the new landed gentry. Why should I worry? Americans have short term memories. Jesus, Angelo Mozilo at Countrywide just said he doesn't see a turn around until 2009. Is he spending too much time at the tanning bed or what? How come he can't get on the same page as me and start spinning the proper spin?

Weren’t you worried about speculation in Florida and elsewhere during the boom?
There wasn’t anything we could do about it. We would make people sign in triplicate swearing up and down that they weren’t speculators, but we couldn’t control whom the builder next door was selling to.

Worried? Are you kidding me? We LOVED it. Do you realize how much our stock went up in three years?

Worried about the run up in home prices which caused a huge panic buying wave and made people all the more addicted to buying Real Estate, no matter what the price? Are you crazy? Our stock price rocketed, our board paid me more options and bonsues, and the mania allowed me to be King of the Universe for a few years there.

Some analysts think new-home prices would have fallen even further if not for all the incentives - high-end kitchens and the like - that builders are offering.
When you start selling homes for $400,000 that were $500,000, all the homeowners who paid $500,000 are going to be in your sales office complaining, saying, “Why are you doing this to me? Why don’t you just put a sign on my lawn saying, ‘I’m a schmuck?’ ” So you’ve got to give incentives instead of lowering prices because you don’t want to be rude, crude and barbaric to your clients.

Believe it or not, most are too stupid to realize that the giveaways are the same thing as lowering the price. Is America great or what?

Americans are to dumb to realize incentives not only lower prices, but also keep the median home price artificially high. If more homes were selling for a real price without incentives, homes in all neighborhooods . . . be them of new housing or old used housing . . . would have to adjust their prices downard, dramatically I might add. We can't weather reality based pricing. Hence, incentives help us hide our pain and nervousness and incentives helps us keep a straight face when we tell homebuyers and the press that prices are not coming down that fast or not coming down at all.

There’s been a lot of speculation that with homebuilder stocks down so much, they might be takeover targets for private-equity funds. Do you see that happening?

I think that every builder has been approached and had conversations, but obviously they haven’t gone anywhere. Say an LBO fund approaches a builder, saying, “Look, your stock was $50, it’s now $25. I’ll give you $30.” Well, why should I sell for $30 when every time the market has come back we’ve gone to new highs?

It’s a good negotiating position, don’t you think? Look, I’m a smart guy. I know that $30 is a GREAT price because we’ll never see another housing boom like the last one in anyone’s lifetime. Truth is, I doubt even the shopaholic private-equity guys would pony up for overvalued stocks like homebuilders right now.

If some private equity guy . . . who are having trouble finding money to borrow after the Bear Stearns debacle a few weeks ago dried up liquidity lending . . . wants to buy us out for $30 a share, I'll kiss his ass and be the Godfather of their children. I'd be happy to make them the last bagholder in line. I'm over this. I need a long vacation.