home builders still have wishfull thinking

[mathjak107]

we went looking at new homes over the last few weekends..we are looking both in pennsylvania and upstate new york at some adult communities.....i have to say for a sector starting to take a major hit these builders are still in la la land......the prices are firm and the options are many and very few incentives given...its not like these developments are even close to being sold out but the pricing is still way to high ,its as if the home buying craze is still going on.........we will look again next year and see where the levels are...... some communities are far from being finished,no clubhouse yet no pool finished ....as far as i would buy,id never buy anything unfinished at this stage...a few bad quarters and some of these builders may be out of business

 

[Texas Proud]

If they are selling a house that has NOT been built.. why reduce the price?? The only cost they have is the land... and they hold a huge amount of land for future building...

 

[Sam]

we are looking both in pennsylvania and upstate new york at some adult communities...

What is an adult community? 

 

[astromeria]

What is an adult community?

A community in which you can walk around naked and stop random strangers and tell dirty jokes--ba-dum-bump

But seriously, ladies and germs, it's typically a community where at least one homeowner in every home must be at least 55 years old, and there may be limits on how long younger visitrs can stay (like, say, grandchildren can visit only up to 2 weeks at a time).

 

[grumpy]

Mathjak,

Here in our "adult community" in Northern Virginia the builder has cut the price of several already built homes by $100,000 from the prices listed for new, unbuilt homes. Of course, you can't pick the options since they are already built. Our community has all the amenities completed: 21000 sq ft. clubhouse with indoor and outdoor pool, fitness center, etc. The building has definitely slowed down. There are currently about 620 occupied homes out of the eventual 800 planned. The construction traffic has dropped off noticably in the last few months. The builder is also offering incentives on the new homes like $50k toward decorating options, free sunrooms, etc. I guess the builders in Pa. and NY haven't woken up to the slowdown yet. Here in Va. they clearly have.

Grumpy

 

[audreyh1]

Home builders can go belly up! I remember several major homebuilders going bust in Texas in the late 80s. My neighborhood developer did. There were two blocks behind my house that remained undeveloped for 10 years. It was nice having double the back yard for the first 10 years that I lived in that house.

I think it's very, very wise of you to avoid any area where the clubhouse and other community facilities are not built yet.

Audrey

 

[spideyrdpd]

Hi
I dont think its wishful thinking. I think its a marketing issue. They need to keep up the illusion of demand for as long as possible. I do think they have to have so many buyers lined up at each point . So if you left a number/address they may send you an offer.

 

[brewer12345]

All the public builders are whacking earnings estimates again. The beat(ing) goes on...

 

[bbuzzard]

If they are selling a house that has NOT been built.. why reduce the price?? The only cost they have is the land... and they hold a huge amount of land for future building...

One word: carrying cost. Remember, the developer is paying interest on the money they borrowed to purchase the land on which to build a house and sell to you at a profit. They need an income stream to pay the interest. OK, some developers are well capitalized and own the property outright, but this is rare, rare, rare (at least here in Tejas).

 

[jazz4cash]

One word: carrying cost. Remember, the developer is paying interest on the money they borrowed to purchase the land on which to build a house and sell to you at a profit. They need an income stream to pay the interest. OK, some developers are well capitalized and own the property outright, but this is rare, rare, rare (at least here in Tejas).

I know for sure that one very large homebuilder in our area learned from the last down cycle how to limit thier exposure. They don't own much land. They have options to purchase fully developed lots from a developer that has to buy the property, excavate, etc. They even have it structued to the extent that they only purchase maybe 10 finished lots at a time from the developer to further limit exposure.

Another common practice is for the builder to form an LLC for each subdivision that protects the parent company (to some extent). If the subdivision fails, the parent company can continue with other projects.

 

[Brat]

I was talking to DH about all the high-rise condo projects planned for a nearby city. He said that after a certain point, often before they break ground, it is more expensive to bail than to go ahead. Cities have these projects in a squeeze as once the plans are in and approved the max they can go between inspections is 6 months without starting over, often subject to different code requirements.

 

[brewer12345]

I was talking to DH about all the high-rise condo projects planned for a nearby city.  He said that after a certain point, often before they break ground, it is more expensive to bail than to go ahead.  Cities have these projects in a squeeze as once the plans are in and approved the max they can go between inspections is 6 months without starting over, often subject to different code requirements. 

Plus most of these developments are done using a construction loan. If you stop midway through the deal, you default on the loan. If you default on the loan, you can pretty much forget about ever doing business with that (or any other) lender ever again. Since most developers use the same lenders over and over, they have a strong incentive not to default.

 

[jazz4cash]

Interesting article in the paper this week about this subject. The homebuilders are reluctanct to reduce pricing as they could face cancellations on contracts from buyers waiting for settlement as well as ire of recently closed new homeowners. One builder guarantees any price reductions or incentives on future contracts will be retroactive so buyers won't feel an urge to wait for a price reduction. Many builders are also going into the slow season now, anyway, so ther're hoping things will be better in the spring. I also notice lots of builder finance deals and give-aways that effectively lower the price without changing the value of the contract

 

[mathjak107]

We went looking at a few 55+ developments in pennsylvania and upstate new york.You would think that after a month since we were there that their sales staff would have at least contacted us again and made some incentive offers to us to try to interest us.Nope nothing from 3 major builders,not even a call.They are still living in last year i think.