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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (6109)	5/11/2004 10:28:36 AM
From: Elroy Jetson	Read Replies (1) \| Respond to of 116555

That's why so many home builders are "public" now, why deal with bankers debt demands when you can offload that risk on shareholders equity? The problem is these publicly traded home builders are not selling additional shares to buy the huge land inventories they've been taking on since January. They are purchasing this land inventory with debt, which in a downturn is going to leave their stock worthless. This is exactly what they did in the late 1980's leading to the failures in 1991. The other major factor which causes bankruptcy in a downturn is home sales financed by the home builder through an in-house mortgage company. They all took this plunge last year. Every major builder is offering 100% financing with no closing costs at below market rates. The builder is carrying this paper and gets hit with the foreclose losses in a downturn. One they all went to "no money down" 12 months ago, the huge land bank investment they're currently making is just icing on the cake.