Builders struggle to compete with foreclosures
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How long will it be before building a house costs more than what California builders can charge for one? The question is raised in today’s Wall St. Journal story, ‘Foreclosed houses haunt home builders’:
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.
The article notes builders’ arguments, ‘that while they may look alike, new and foreclosed houses aren’t comparable.’
Some buyers clearly agree. ‘A foreclosure is like a used car,’ said Danny Hernandez, who bought a new, $237,000, five-bedroom KB house in Beaumont, Calif., in the hard-hit Inland Empire. Mr. Hernandez, a 41-year-old warehouse worker, said the fact KB paid his closing costs and a nonprofit group subsidized his down payment helped make the sale.
It’s amazing to me that people are still getting into homes with little investment of their own. That was part of the problem that led to the current housing state.
KB said its smaller houses are selling well, but the prices keep sinking. In November, KB was selling its line of smaller houses at a development in Beaumont for as little as $207,990. Now, it has dropped its starting price to $169,990 to match recent foreclosure values in Beaumont. Since it opened the Highland Vista development last summer, KB has sold 28 homes out of about 110 house lots. Analysts question how low builders can go before building a house costs more than they can charge for it. In some markets in California and Florida, builders have reached that point and have stopped building.
I’ve also wondered about this in markets where prices are lower. How can companies afford to build there? I know there are economies of scale, but anyone who has done a remodel can attest to how pricey materials and labor are.
-- Lauren Beale
Thoughts? Comments?
