greenberg on housing / subprime

ein interessanter aspekt der bisher noch nicht besprochen worden ist. in der tat sind viele führungspositionen der homebuilder mit relativen jungen und damit unerfahrenen managern/divisionsleiten besetzt die bisher noch nie einen downturn und einige noch nicht einmal einen normalen markt mitgemacht haben.

HERB GREENBERG
The real housing story
Commentary: Also, trouble in subprime land

SAN DIEGO (MarketWatch) -- A tale worth being told, from a friend, who writes: "I have a theory on the home builders that's a bit off the beaten path. Bull markets make superstars out of otherwise mediocre talent.

"I think the home-building market has been in full-blown rally mode for so long that many of the really sharp guys who used to be running the divisions of the various public home builders (KB Homes kb home com , Beazer Homes , etc.) have long since moved on to start their own company. Why make a measly few hundred thousand dollars a year working as division president for K. Hovnanian Hovnanian Enterprises, when you can make 10 times that much by starting your own company? So the vacuum at the top has sucked up a lot of questionable talent into leadership roles.

"Simply put, many of the guys in charge on the divisional level don't know what a down market is like because they've never been in one. Or, they were just starting their career 15 years ago during the last tough patch and never had to make any executive decisions. (I know several execs that fall into this group.) These guys have absolutely no idea how bad things can get; or how long they can stay that way. They aren't telling their parent company how sales versus cancellations are really going because they fear getting fired. So instead they order their sales people to hold back reporting cancellations until they have a sale to replace it."

He goes on to say (and this is where the story gets good) that he has a friend who is a top exec of a large private California home builder.

At a recent corporate meeting, according to the tale related by the friend, "The difference between the relatively young execs and the old guys was just breathtaking. All of the older, more experienced guys believe that 2007 is going to be worse than this year ... and they're not sure whether 2008 is going to be better or worse than 2007.

"The younger whiz-kid types that have been around for the last 10 years or so? They think that they can just blow out some of the inventory over the next several months and then just go back to the 'If you build it, they will come' market. The old guys listened politely, and then put their collective feet down." This big builder, needless to say, "isn't doing any more deals for quite a while." No shortage of brains, there. (Of course, we already know that because the company never went public.)

Subprime pratfalls

With H&R Block's (H&R Block) disclosure of loan losses at its subprime-mortgage unit, as it's forced to repurchase deadbeat loans, I think back to a story I did in 2002 on their loan business. At the time, Block execs and the guys at the top of Option One, its loan division, were telling me that world of subprime is misunderstood because it actually gets better the worse the economy gets. And, besides, they said they were conservative in their underwritings. To which I say (and said at the time, to myself, at least: ) "Uh-huh! And don't try to sell me that bridge!" You can only wonder when the ripple effect will hit the other sub-prime lenders, including NovaStar , which is no stranger to this column.

gruß
jan-martin