Builders Going Bankrupt

http://www.bloomberg.com/apps/news?pid=20601087&sid=azbpl3UtOiEw&refer=home

Kara Homes in Bankruptcy After Mortgage Payment Offer (Update3)

By Kathleen M. Howley and Eric Martin

Oct. 9 (Bloomberg) -- Kara Homes Inc., the New Jersey builder known for so-called McMansions, filed for bankruptcy after $250,000 discounts failed to lure buyers.

The closely held East Brunswick, New Jersey-based company sought Chapter 11 protection in U.S. Bankruptcy Court Oct. 5, saying it owes $296.84 million to lumber, concrete, electrical, plumbing and woodwork companies while holding $350.18 million in assets, primarily unsold houses and land. One property for sale is the 6,319-square-foot, five-bedroom ``Buckingham'' model with a three-car garage, listed for $1.5 million in Freehold, New Jersey.

U.S. housing demand is flagging after five record years, swelling the inventory of unsold homes. Almost half the people who sign contracts with builders are canceling before the house is finished, forcing companies to sacrifice profit margins by offering freebies to attract new buyers, according to James Hughes of Rutgers University, in the same town as Kara's headquarters.

``There could be many similar filings in markets glutted with single family homes,'' said Gerard Cassidy, managing director of bank equity research for RBC Capital Markets in Portland, Maine. ``Kara is already at the table. We expect more people to come to dinner, the question is, how many more?''

Who is next?????

If a company has 50% less in Net Sales. Wouldn't that mean that revenue will at least drop by 50%?

We shall see come the January quarter.

We think either Centex or WCI. Sound off. Who will be first?

A few key numbers of CTX, straight from CTX's books:

In the quarter ending Dec. 30, 2005. CTX closes 9504 sales each averaged
$311064. And the operating earnings per unit sold was $53127.


In the quarter ending Mar. 31, 2006. CTX closes 12336 sales each averaged
$315358. And the operating earnings per unit sold was $48797. Notice the drop
from $53127 per unit last Q?


In the quarter ending Jun. 30, 2006. CTX closes 8318 sales each averaged
$308014. And the operating earnings per unit sold was $33827. Notice the step
drop of closed sales volume? Notice the STEP drop from $53127 per unit just two
Qs ago?


Comparing the quarter ending Mar. 31, 06 and that ending Jun. 30, 06. The closed
sales dropped from 12336 to 8318. A steppy drop of 33%. Earnings made per home
sold dropped from $48797 to $33827, a drop of 31%. Combine the two, the drop
quarter by quarter is 54%!!!


And it is just the beginning. Expect something MUCH WORSE when CTX announces the
result for quatre ending Sep. 30, 2006!!! But do you want to get out now, or do
you wait for the bad news and wait for others to get out first, before you want
to get out? Remember the exit is NARROW!

In January of 2006 we began buying January 2008 Homebuilder Puts.

Currently as of this writing in September 06 we have made over $200k from the puts. We are holding on until mid to late 2007.

This blog is setup to update everyone on the challenges to the homebuilding industry and updated news articles as they come out. We also will be analyzing the BS put out by the industry and the media to spin things away from the truth.

Every day we are getting closer and closer to the first BK.