Builders Simply Shutting Down-Inventory Dumping ans Skyrocketing Foreclosures
June 11, 2008
– Comments (5)
“But she said: ‘Certainly, anecdotally we are hearing from our members they have seen a good uptick in sales activity and that it is concentrated in the areas where you see the biggest decline in prices.’ The price declines, in turn, are most pronounced in the areas with the most foreclosures.”
http://www.pe.com/business/local/stories/PE_Biz_S_housing10.392ac25.html
Could you imagine how sales would pick up if homes were selling for $1?
Although sales have picked up recently, much of it has been due to drastic price cutting by lenders and builders. Such dramatic discounting will likely lead to more abandoned communities and more collateral foreclosures.
As stated in an earlier blog, once a builder can't sell a house for construction cost, it becomes a cash flow negative money losing proposition each time the builder goes vertical. Recently, the press seems to be reporting about more communities being abandoned midway or builders liquidating entire communities vertical inventory at cheap prices.
As gas prices keep rising, the value of outlying new development communities will likely keep falling as it becomes too expensive to commute long distances. As prices keep falling more and more builders will simply shut down.
AZUSA - Frustrated over problems at what will be a new 1,250-home community, some residents want a home builder to buy back their homes.
Two of four home builders at Rosedale, Fieldstone Homes and William Lyon Homes, stopped construction this year at the city's first master-planned community in the foothills.
Neighbors living in Fieldstone's Arborview neighborhood said they feel cheated, others said being surrounded by vacant homes and unkempt grounds causes safety concerns.
Even though Fieldstone representatives deny the allegations, residents feel the developer has walked away from the project.
"The bottom line from my perspective is that we were presented and purchased what was supposed to be a house in a master-planned community," said resident Neil Giles. "It's supposed to have all these amenities and what really happened is (Fieldstone) walked away from everything."
http://www.pasadenastarnews.com/news/ci_9470699
“ Sunday’s sales netted $4.5 million for Standard Pacific Homes, which had been struggling with sluggish sales in its Avondale subdivision in southeast Santa Rosa.”
“Minimum bids on the development’s remaining three-bedroom, two-bath homes just south of the fairgrounds started at about $200,000 — half off original asking prices. The majority of homes sold for about $240,000 to $260,000.”
http://www.pressdemocrat.com/article/20080608/NEWS/836438468/1036/BUSINESS01/Santa_Rosa_homes_fly_off_auction_block
An amazing new trend may be developing by upset homeowners seeing their type of home selling for half price............walking away from their home and buying another close by at a cheaper price creating even more foreclosure inventory.
Next month, Michelle Augustine plans to walk away from her four-bedroom house in a Sacramento, Calif., subdivision and let the property fall into foreclosure. But before doing so, she hopes to lock in the purchase of another home nearby.
"I can find the same exact house as what I live in right now for half the price," says Ms. Augustine ...
http://online.wsj.com/article/SB121314811278463077.html
In the above example, every new home purchase results in an additional foreclosure. A problem similar could arise if we start bailing out some homeowners and not all. Those that are struggling to keep up with their mortgage will simply stop paying waiting to be bailed out further exacerbating a rising default problem.
None of the above contemplates a further slowing economy and slowing jobs environment causing people to lose their homes from lack of income.
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