State of the spec house

So far this year, a third of the way through, twelve houses priced at $4.5 million and up were sold, eight of which were spec houses. That compares to forty-six in that range sold in 2007, twenty-one of which were spec.  As of today, we have sixty-one spec houses actively listed at $4.5 million or above. If no more come on (dubious, if you look around town and see all the houses nearing completion), we have only 2 1/2 years inventory.  Of course, not all those houses have to be sold – a number of the more solvent builders are renting their projects out, hoping for better times to come, when (they hope) a used house will be worth more than it is today. Maybe.

Put this in your comparable pipe and smoke it

477 Riversville Road

This spec project on Riversville is reported as under contract today for around $4.75 million. A client of mine almost had it for a price that would make this one look like a gross overpayment, but regardless, this sale is not going to be good news for other spec builders. Six acres, 8,000 sq. ft. above ground, at least 3,000 more in the walk-out, finished (with fireplaces, theatre, nanny quarters, etc. basement), high quality construction and all in all, a very nice house. When a spec house on Beechcroft sold for $2 million less than another spec house across the street, the agent for the higher- priced house was furious at my suggestion that his listing had just taken a serious hit. Well, that higher-priced house isn’t quite so high now – it was reduced a week or so ago, and it remains unsold. And now comes this. Appraisers have to use actual sales when calculating the value of a specific property, and as sales like this join the data bank, they’ll crowd out all the hoped-for asking prices of similar houses available from other builders.

By the way, at this price, the builder will be lucky to pay off his $4 million mortgage and recoup a tiny fraction of the extra millions he put into the project. He’s got another house, also listed for sale, at 223 Stanwich Road and I wouldn’t be all that surprised if that, too, goes at a very low price. Which again, isn’t going to help prop up Greenwich house prices.

Mansions even Rockeferfeller’s money can’t buy

1 Indian Spring Road, Stillman Rockefeller’s 1931 estate, was listed for $26 million in 2005 and finally sold for $13 million in 2007 (nice pricing estimate, eh?). The buyers have completely restored and renovated it and now offer it for $23 million. Go for it, you big spender you.

How much will quality building bring?

147 Hendrie Ave. Rvsd

This new spec house by York Builders came on today at $4.250 million. York is a great builder and this is bound to be a fine house, but with what I guess is 5,000 sq. ft. above ground and just 1/3 of a hillside acre, I’m not sure that the quality of construction or the presence of Binney Park down the street will stir buyers into action at this price. But we will see. York must expect a faster turn around in our market than I do.

Spec House bites the dust

477 Riversville Road, a 12,000 sq. ft. bit of new construction on 6 acres was listed today for $4.795 and already has a buyer, according to the broker, so she’s just posting it for the record. Or she’s setting up a short sale,by listing it at that price, scaring away buyers by telling them it’s sold and then selling it far cheaper herself. But that would be unethical, so lets assume it came on and is gone.

$4.795 is a daunting price for this house, originally projected to list for $9 million, but I’ll let you in on a secret: we (Farricker and Fountain) had a deal on if for much less. This sale is just one more in a series of spec houses hitting earth with a thud. As that movie would have it, “there will be blood”.

Move over, Teixeira, John Gochnaur’s coming to town!

41 Birchwood Drive

This spec house on Birchwood sat unsold for a year but never dropped its price from $5.995 and now it’s gone to contract. There’s a house and a street for everyone, I suppose (I should make you look up John Gochnaur, but here you go).

There’s at least one builder still buying

22 Field Road

Or I think there is, anyway, because this Riverside house was reported under contract today by an agent who often represents builders. Despite the glowing description in its listing, I thought it was tired old place whose disappearance would only benefit the neighborhood and that’s what I suspect its fate will be. I had my own strong opinion of its price of $1.29 million but either the buyer disagreed or did some strong bargaining. We’ll find out when its selling price is disclosed. Still, a sign of life.

8 Colonial Lane, right through this one’s back yard, more or less, is new construction that came on the market today for $3.595 million. That’s $876 per sq.ft. for the 4,100 above ground (it has another 1,600 or so below grade) which seems a tad aggressive, but the market, not I, decide things like that, so no angry emails, please. Good looking house.

Another new house whose location I was asked not to disclosed will be reported as sold today for $1.850 million. That’s something like $750,000 below its asking price so someone got a very nice at cost or below. There are good deals out there, if you look.

Open houses

Back from the Tuesday tour. It almost seems like a waste of time these days with so many houses grievously overpriced (an exception: 5 Kenilworth Terrace, asking $1.495. I did not see it but my brother Gideon, a good judge of these things, emailed me that it was “a good deal”. I’ll make an effort to see it). But otherwise, I saw houses for $3 that I thought might go for $1.75, maybe, and $4 million tear-downs sitting on land worth perhaps $1 million, if you can find a buyer for land these days. Painful.

A noteable exception to all this was, surprisingly, Bill Gardiner’s $25 million masterpiece at 253 Round Hill Road. The exterior’s of hand-hewn field stone, every proportion is exquisite, inside and out, and the detail work is phenomenal. The banister alone, hand carved, is reason enough to buy this house. It would be a wonderful thing to start my day coming down the stairs with my hand on this piece of art and just admire its beauty. The basement is huge – my form of entertainment growing up was hunting rats with a barbecue fork and a pellet rifle in my parents’ crawlspace. If your recreational tastes are more conventional, this is the place for you: 12′ ceilings, exercise room, sauna, theatre, etc. etc.

I have some quibbles. I might have made the master bedroom ten feet longer, but I understand the architect’s idea, I think, which is that the bedroom should be a protective space, not an airplane hangar, and besides, there’s a huge sitting room if you insist on space. The land itself, while beautifully landscaped, backs up to those two failed spec houses which were carved out of this property and built on S. Baldwin Farms. Eventually they will be finished and occupied or torn down, I suppose, but until then, you have a question mark as a neighbor.

So what’s the proper price for this place? I have no idea. There are still billionaires around and what’s $25 million to them? Lesser folks might blanch at that price but somewhere there’s a value here, whether that’s at $12.5, $15 million or full price I’ll leave to the rich folks. But a grand house, all in all.

A contract!

Nothing to send spec builders’ hearts soaring, I suspect, but 154 Cognewaugh (no details available on the Net because it’s a Sotheby’s listing) has gone to contract. This is a large new shingle style house built on land purchased for $1.4 million. The house was originally priced at $4.895 in July, 2007 and the builders have been adjusting their ambitions downward ever since. The latest price was $3.150 million as of January and I’d be surprised if the buyer bid full price. Even if he did, the builder will have just $1,561,000 left after deducting the land cost, commissions and taxes. If the constuction loan was at zero interest, then no problem.

The same builder, by the way, has reduced the price of another project, 137 Cat Rock Road, to $4.295, from its original price of $5.495. Like Cognewaugh, this is a beautifully crafted house and this one has a very nice, huge flat back yard and Mianus River Parkland behind. Nothing wrong with it that I can see that a stronger market won’t cure.

Spec house troubles = bank woes

I’m just back from viewing a spec house that local bank has gained control of. It was planned, I’m told, as a high 7 million sale but was available for what the bank’s owed: a little more than half that. I have clients interested in that kind of math so off I went  to check it out. Someone’s going to lose here, big.

The street this house sits on is a good one but like some boys, streets can come to a bad end. This one does, and the house is at that end, pressed up against the highway with enough ambient noise to drown out any nearby leaf blowers, if that’s a consideration. The building site is really a bathtub, scraped out below the original grade, and is approached by a narrow, steep driveway that wends its way through a swamp. There’s a Tobacco Road thing going on, with cheap, nasty houses on either side, complete with back yard dumps for unwanted household detritus. Inside, from what I could see, there is an undersized kitchen with an even smaller “family room”, and a dining room that can accommodate a friendly family of four. The place was locked so I couldn’t see upstairs but I imagine the same lack of design was executed there, too.

This house is not worth the $4 million the bank’s owed. I would recommend it at $2 million, I guess, and, if someone really wanted this location, maybe $2.5, but that’s it. I’m sure there’s been far more money sunk in here than that, between land and construction costs, but it shouldn’t have been. I understand how a builder could let his optimism override his good sense; how could a local bank be so blind?

Who said I was infallible?

26 Circle Drive

When this house came on the market last fall I had not-kind things to say about it. I thought that given its location close to I-95 and the NHRR and the number of spec houses in its immediate vicinity that buyers would drive its price down, not withstanding its nice backyard. Well it went to contract soon thereafter, no doubt to spite me, and yesterday it sold for $2 million even, just about its asking price of $2.2. So there you go: listen to me at your peril.

Market Conditions

We have 638 single family houses for sale right now, of which 70 were built in 2008, 26 in 2007, 17 in 2006 and 13 in 2005. Not all of those 113 houses are spec houses, but it’s reasonable to assume that most are – certainly, 2008 homes are.

What’s going to happen to these, in a market that’s seen three houses go to contract all month (and, although twenty 2008 -built houses sold or went to contract in the past year, only six did in the past six months)?  I am guessing that we’ll have a mixed bag. Financially weak builders will lose everything and some of these will go for forty – twenty cents on the dollar. Those builders with the wherewithal to stay the course might lop a few million off their asking price but should, maybe, be able to eventually find buyers with the ability to pay millions of dollars for a house they like.

Long range, I think the best hope for builders is the realization that the houses they’ve erected won’t be available again for a long, time. No lender will ever again risk $6 million on a spec house until this crisis is long forgotten. Land values will fall to reflect the lower asking prices of new homes – let’s say, just for an example, Havemeyer drops back to the $950,000 range. A building lot then, will be worth something like $350,000, at best. The luxurious baths and kitchens buyers like so much just won’t be available in spec houses: the price of those homes won’t support them.

So I think we’ll see a new batch of modest homes with the occasional splendid, custom built mansion to accommodate the wants and tastes of, say, under-bosses from Queens or Ukraine. And a few heads of industry, perhaps. If you want a taste of what I think is our future, drive out Sherwood Avenue from Riversville to King Street, and cast an eye on what was built there during the seventies. I’m sure the houses are adequate to raise a family and enjoy a nice life, but they aren’t inspiring examples of the builder’s craft.

So if you think you may want something “special”, however you interpret that term, you may want to keep an eye out now for houses going under and houses selling for 70% of what they might have fetched two years ago. I have a feeling we won’t see their likes again. Which will come as a relief to many people but, judging from the way these things sold in their heyday, lots of folks liked them.

WSJ: Foreclosed Homes Haunt Builders

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.

Bloomberg discovers that Greenwich spec houses are in trouble

(Sigh) – spend an hour on the phone with a reporter and see it condensed to one snippet and one misidentification. Of well. Here’s the story.

What’s this supposed to mean?

The builder of a proposed house at 20 Langhorne Lane has dropped his price again, this time from $10.998 million to $9.998. Original price was $14.998 million, so I guess it shows progress, but is the builder still planning on building the 17,500 square foot (4,500 of which would be basement) monstrosity that no one wanted at $15 million? If so, why? And would corners be cut to reflect the $5,000,000 price drop or is this an indication of how much the builder had hoped to skin off a buyer? Neither choice inspires confidence.

This land is also for sale, by the way, for somewhere in the 2’s. Like 38 Langhorne, these parcels sold for around $2 and were put back up for sale at $4 million. No one bit, surprisingly. If I were interested in either parcel (and 38 looks quite nice) I think I’d negotiate as low as price as I could for the land and design the house to go on it anew.

Spec houses and their troubles

I recently received an inquiry from a client about a certain spec house (which I’ve written about before, to its agent’s fury, so I’ll leave the exact identification out this time). The builder has $3 million invested in the land, at least $3.5 million in construction costs and probably $4, and has priced it well above that total in order to recoup his expenses and nab a profit. It’s never going to happen.

At the top of the market, this place might have sold for $6.5 million, in my opinion. If I’m right, the builder was underwater before he even completed the project. But now it’s worth far less and there are nearby comps to prove that. Plus, I’ve shown my client some spec houses whose builders have given up the dream and are willing to walk away with millions of dollars in losses, just to be able to walk away (the curse of personal guarantees). How are you going to get a client back on the farm after he’s seen Paris? Even if it turns out that my client doesn’t want the spec houses he’s seen, he likes their price, and I doubt he’ll be willing to pay an extra $3-4 million for essentially the same house with a layout more to his liking. He’ll probably decide to wait the builder out, and I  wouldn’t blame him.

This is not a positive development for any spec builder without the resources to keep his unsold houses going for a couple more years.

Seller price guarantees?

Hyundai is offering car buyers a guarantee that should the buyer lose his job he can return the car within a year and be relieved of further obligation under his lease (or some thing like that – check with a Hyundai dealer if you’re interested). Toll Brothers offers something similar: lose your job and they’ll pay your mortgage for 6 months. The object of these offers, of course, is to try to reduce a consumer’s doubt and uncertainty about the future.

Which might work. I know several spec builders here in Greenwich who are trying the same sort of thing. Worried that if you buy their house now you’ll lose when its price drops 40% in the next few years? Fret not, they say, we’ll guarantee to buy back the house in 5 years for what you paid for it. I’m interested, sort of, but so far as I could tell they hadn’t exactly fleshed out the details of their promise like, what backs it up? One builder assured me that there was no need for a bond or any thing like that because “of course the market will recover – no way will anyone be willing to sell this back to me in five years because it will be worth so much more.” That’s nice but I’m not sold.

The personal promise of a builder isn’t going to keep me asleep at night – not when there’s no money available for him to borrow to buy out my customer. And as for bonds, aren’t most of them sold through AIG? That company may not be in business in five weeks, let alone five years. I suppose a builder could come up with some iron-clad guarantee that might work but I’m still dubious about buying his house at his inflated price. Even if my customer were to break even, I think he’d do better buying a new spec house at a hugely discounted price, perhaps from a bank. That way, if the market does continue to fall, he’ll have already secured his protection and if by some miracle prices rise the appreciation will belong to him, not the builder.

The New York Post discovers our housing woes

Leave it to the Post headline writers to indulge in just a wee bit of hyperbole: “Greenwich Ghost Town” . Well not quite, but it was nice here last week with the schools closed and everyone gone for vacation – I don’t think the writer was referring to that temporary absence of soccer moms and their broods, though.

Price Cuts, price increases

249 Bedford Road was once new construction (4 years ago) built on land that cost $1.520 million in 2003. It was listed for $5.885 million in September, 2005 and has sat empty ever since. I blame the location, at least in part, as this is at the far northern end of Bedford Road within a stone’s throw of New York. There’s a limited Greenwich market for houses up there. In any event, it’s been slowly whittled down and today it’s been priced at $4.995 million. Still a tough location.

25 Keofferam, in Old Greenwich, does have a great location, on a well-liked street, but it came on in the fall at $5.995 million just in time to watch the market dry up. Today it was reduced to $5.550 million but I question whether that size price cut will have any effect. I’d suspect that potential buyers had already discounted the place, in their minds, at least that much, so a builder’s confirmation that he’ll take less than his requested $6 million isn’t going to come as news.

56 Havemeyer Lane

Then there’s this new construction on Havemeyer Lane. It started at $2.195 million in March of ’08, dropped to $1.895 in September and expired unsold in December. It’s back on the market today at $2.195. I know all about our traditional spring market but I think buyers will look at the September price and wonder where an extra $200,000 in value came from.

53 Park Avenue South in Old Greenwich, that crazy Victorian with just three bedrooms, didn’t sell at $2.777 and quite rightly, in my opinion. But today it was knocked down to $1.495. There’s got to be value there, at that price, no?

New Construction open houses

62 Ridge Street, $7.450 million, is still available, much to its builder’s disappointment. It’s a really nice house and I like its architecture, inside and out, but Ridge Street? I don’t  get it and, so far, neither do buyers. This was one odd choice of locations to build such a beautiful house. But, as sellers love to point out, “all it takes is one buyer to fall in love with the place.” heck, valantine’s Day is just around the corner (and so is I-95, the car dealer and the rail road, for this house) so maybe we’ll see some action.

I saw another house, address not given here, that has me wondering. Beautiful yard but a squeezed, narrow archictecture that made me wonder why the designer didn’t take advantage of such a large lot. Not to make the house bigger – Lord knows, it’s big enough, but to spread out a little more. And an entire wing devoted to a master bedroom suite, especially when that suite is comprised of what are essentially a number of separate rooms, held no appeal to me. All of which should be taken with a huge grain of salt, though, because I start off from a personal bias against over-large houses and then temper that with whatever my current clients are looking for. If I see a house that’s large for my taste and has a layout that I know won’t satisfy my clients, of course I’m predisposed to dislike the thing. Doesn’t mean you won’t like it so don’t be put off by my comments, ever. Similarly, beware of the houses I do like. I know of several instances where clients of other agents inisted on seeing houses that I’d praised in my old column, even when their own agent who was working with them and knew what they liked told them they’d hate it. Each time, they went, they saw, they hated the place. So there you have it.

But all that said, there are still some awfully big price tags attached to houses that, in my opinion, are going to have a hard time finding buyers.