The Journal’s article covers large, tract home builders, not the one-at-a-time builders we see here in Greenwich, but the economic principle still applies: How are you going to keep them down on the farm after they’ve seen Paree?
As the normally hot spring selling season begins, two houses in the Inland Empire region of Southern California sum up the big problem facing many of the nation’s largest home builders.
One of the houses, a four bedroom built in 2006 that was seized by a lender in a foreclosure action, is listed for sale at $229,900. Meanwhile, in the same housing development, D.R. Horton Inc. is trying to sell a new house that looks nearly identical for $299,000, or 23% more.
Or consider Pulte HomesInc.’s predicament in Henderson, Nev., near Las Vegas. The builder is trying to sell a new, four-bedroom house for $214,990, while a home owner is trying to dump a similar house, which Pulte built two years ago, for $149,999. That price is less than the owner’s mortgage under a “short sale” approved by the lender.
In many markets, “we are no longer competing with other builders. We are competing with foreclosures,” said Steve Ruffner, president of the Southern California division of KB Home.
Foreclosure sales are almost not an issue in Greenwich, yet, and those that do come up for sale are in such sorry condition that they can’t really be considered competition for a new home. But from conversations with bankers and my own on-going negotiations, I believe we’re about to see a wave of brand new houses come on the market for pennies on the dollar as builders are forced out of business and their lenders seek to recoup what they can from loans gone bad. A builder with deep resources can probably hang on while these cheap sales work their way through the system like the apocryphal goat through the python but how long will that take? I’d guess two years and if that delay cause still more builders to throw in the towel, the depressive effect on prices will be prolonged. You won’t be able to sell your $7.95 million house until the identically -sized one asking $3 million moves off the scene. Or I don’t think you will.