How will builders compete?
“As builders try to unload finished inventory or secure sales contracts to build new ones, they increasingly are competing against homes they recently sold but have come back on the market as resales, either from people seeking to avoid foreclosure or from banks that have seized properties.”
“Lenders, anxious to rid their books of foreclosure homes, tend to slash prices significantly lower than what it costs builders to construct a similar home, said Jack McCabe, of McCabe Research & Consulting in Deerfield Beach.”
“‘This renders builders uncompetitive,’ McCabe said. ‘If you can buy a new home from a developer for $300,000, or a year-old foreclosure home just like it for $200,000, it’s a no-brainer. Especially when it’s in the same neighborhood.’”
“A 4-bedroom, 2,134-square-foot home built in 2005 is on the market in the Live Oak Preserve neighborhood in New Tampa. It’s in foreclosure. List price: $202,500. The builder, Engle Homes, has a similar, recently completed home in the same neighborhood on the market for $329,990.”
This problem is playing out in a number of communities around the country. If a new homebuilder is trying to compete with a bank who is selling a similar model for $100K less, why would a buyer even consider the builder's product?
Where things get really ominous is the the foreclosure rates are skyrocketing around the country. Banks are taking in more and more inventory, not less. This just seems like it is only going to add additional negative pressure going forward. We will keep observing the data.