Competitive new construction and schadenfreude
August 22nd, 2007 | by mbhunter |Home builders around here are engaging in retalitory advertising. You know those little signs on the side of the road that point toward a subdivision for a particular homebuilder (Somerset, Ryland, etc.)? Well, they’re sprouting up in clusters now — there will be half a dozen different homebuilders advertising right next to one another. “Go here! No, here! Wait — try here! No, check this one out!” Someone driving by would get into an accident trying to make sense of it all, so a lot of people probably just tune it out, which is what the homebuilders are after. If you can’t grab people’s attention, at least steal the thunder from your competitors.
This weekend, it looks like one home builder (or someone wanting to sell a home in a particular subdivison) went a step further. There was a group of signs, but all but one of them were pulled out of the ground! It’s getting nasty.
That, and pretty much every home builder is offering some kind of concession, like half-price upgrades, $5,000 toward closing, or a free sunroom.
For buyers, this is a good sign, but I’m not convinced that we’re anywhere near the bottom around where we are. These concessions are nice, but they’re still soft. Half-price upgrades means basically that they’re selling them to you close to cost. Whoopee. $5,000 toward closing? Yawn. A free sunroom? Eh. Still too expensive for my taste.
Maybe I’ve heard about so many people making so much easy money in real estate that I really want some of these folks (developers, builders, and speculative investors) to take it on the chin. But when the time comes that sellers are feeling the pain a bit more — OK, a lot more — I’ll go in and lowball someone. The worst that could happen is that they’d say no. More buyers have to leave the market for a few more months or a year for the really good concessions to come in, though. 
6 Responses to “Competitive new construction and schadenfreude”
By VirginiaGal on Aug 22, 2007 | Reply
Just remember that people who work for a home builder might be seeing things a little differently right now. Getting a house under cost is a great deal, but be aware that not all the $ in the construction market goes to the guy managing the company.
You’re also looking at framers, masons, painters, etc.; guys who might just have the one skill and no fall-back resources - guys who end up on unemployment (and costing you and me in the end) because even though they are looking for work, no one is hiring.
Maybe some of the large corporations which have been raking in money over the past few boom years could stand to take a hit, but don’t forget about the “little guys” who could take the brunt of the financial pain from this change in the market. And don’t forget that the cost of materials has gone up a great deal in the past few years, thanks to demand from the global economy - China being the top one sucking in materials and thus raising prices globally.
“At Cost” or below does have a “cost” to more than just the home buyer.
By Michelle Hope on Aug 22, 2007 | Reply
Banks aren’t even willing to take a loss on foreclosures yet! At least not here around Los Angeles. I see a lot more bank-owned foreclosures on the MLS, but the prices haven’t come down AT ALL. Maybe if you find a desperate seller before the bank forecloses . . . but, I think we should just wait it out.
By Kevin on Aug 23, 2007 | Reply
Agreed. I’d love to be in the rental business — but I still can’t find properties in my area that would generate positive cash flow. Prices are still out of balance even on existing homes.
I don’t think we’ve bottomed yet, especially with credit drying up for all but the very best credit risks. As buyers get pushed out of the market and more foreclosures go through, prices are going to fall a bit more.
Not in every market, maybe, but on average: the bubble hasn’t burst but merely subsided a little.
By Angie Hartford on Aug 25, 2007 | Reply
You’ve done a good job, by being in a position where you can afford to wait, then name your price. Congratulations!
By dong on Aug 29, 2007 | Reply
I don’t think we’ll really hit any kind of bottom until next year if that. Housing prices are too sticky on the way down. I see a huge glut of inventory come winter. While expect some to pull their listings, there are still going to be many people who need to sell… It’ll be a great time to be a buyer.
By mbhunter on Sep 1, 2007 | Reply
VAGal: Those are excellent points. Having lots of folks that were building the homes now unemployed would be unfortunate. I agree with that, and the post didn’t convey that because I didn’t think of it when I wrote the post. Didn’t think enough on that point.
I’m not sure how the economy would absorb these folks. The ones that stand a better chance of moving to employment outside of the homebuilding industry are the ones who have other skills to fall back on. But that’s true regardless of whichever industry goes south. Which is why it’s always a good idea to learn how to do something else before you actually need to.