San Diego Housing Bubble News and Analysis

Let's see how that works out for them when the subprime implosion begins to affect credit availability.

....

while i have no first hand knowledge of this, i really doubt they would stop building because of the amount of money they have already put in. Most of the maps have already been approved, all the environmentals have been permitted. If they are at a far along stage, they are not going to stop. They need to at least put it out there and try to get some money back, as opposed to just writing it off altogether.

I think it is a situation that is kind of win/win for you... First, and I to say this, "your ADD realtor" said something that just seems kind of peculiar about the builders... Regardless though, if what she said is true then you really cannot lose. If the builders stop building then that means the market has tanked and you will get a good resale deal. Otherwise you can simply buy from the builders right? I think that there could be alot of overextended buyers in 4S so you could well if you have some patience.

Holding off would only work if they actually believe the market is turning around sometime in the next 2 years. There are some bulls out there saying that yet, but the builders would have to really want to believe them at this point.

They probably took out construction loans to get as far as they did with the lots; those loans are short term instruments and do not have favorable terms for holding the lots for any length of time. Lenders aren't going to be that hot to extend those loan right now, either.

Holding the lots only increases their loss, especially in a declining market. Their only reasonable choice is to either build them out and sell them off ASAP or to sell the lots off to another developer at a loss. They're both bad situations for a builder, so they have to choose the lesser of the two losses.

What they could do is to reduce the size and quality of the house they put on the lots. It cuts way into their profits but it also cuts their costs and the houses could be priced even lower to attract those buyers who are out there.

all the builders got together and decided that they would not drop prices again
Hm...Isn't it illegal? I am not sure, but one would think that kind of agreement violates antitrust laws, doesn't it?

You mentioned that you didnt think the property was worth more than 650K ?....Just how did you arrive at that number ? 

In a declining asset market (avalanche) who would be foolish enough to place a number on something  while its sliding down ?

where this will stop nobody really knows, but I can almost assure you that the number you chose for its value (650K) is completely subject to speculation  

If you think its worth that...good luck then, offer that and god bless you, Iam sure the builders will probably sell for that...They are looking for the "Greater Fools" also.  

Sounds like standard wishful thinking gossip and rumors repeated so many times amongst the realtors that they all take it as fact.

One think I learned about realtors is that for the majority, 99% of what they claim is fact is drunk babble other realtors are trying to impress them with at the agent showing or realtor mixers.

They will stop building, and on a related note, their families pitched in by saying, they are going to go without air as well ...
I'd bet ... they will sell the lots to some bottom feeder builder, usually someone who is a splinter group that broke off from another bottom feeding builder, and they will go in and build for 1/2 the previous price. Its already happenng in miami condos. Someone is building and selling them for 159,000.
Cool.
Cow_tipping.

One of the most well-kept secrets in real estate is: it's possible for builders to make money, even in a downturn.

When prices go down, builders pressure the subcontractors to reduce construction costs. The subcontractors really have no choice but to comply, b/c all builders are doing this.

The prices of building materials also go down. The crucial thing is land cost. I think the land in 4S was purchased in 2001 or even earlier, so the cost is not so high.

>> If they are at a far along stage, they are not going to stop
I agree with surveyor on this.

>> the floor plan we are looking at sold last year for $880K and is now at $720K
That's a 18% reduction. What is the size (sq. ft.) of this floor plan ?

Agreed with gn and bugs bigtime. Builders don't hold on to things. I have a relative at Kehov and he was telling me that they recently repurchased some land that they gave back, (and of course at the deposit)less then two years ago due to market projects... Again it all depends on where they were at in the development cycle. I do not know of the margins that it takes to get an approval for the developers to move forward on land purchases and development. I do know that for products made for tech, at least for one company I have worked at, the projects would not get approved unless there were 50% net margins on the product line in production. Now this was for ASIC development. Again, I do not know what the margins are for a developer to move forward but I would imagine they are at least 40%.

SD Realtor

"You mentioned that you didnt think the property was worth more than 650K ?....Just how did you arrive at that number ?"

We just picked an arbitrary number to see how hungry they were. Since they jumped on it pretty quickly, they obviously weren't doing too well in the sells department.

Hi robyns_song, which builder was this? I found that builders were notoriously hard to negotiate. It's amazing how you could just get them down from $720K to $650K? Is it Silhouette by John Laing Homes? It's strange to see Silhouette is not selling as well as other communities in 4S ranch like Pienza even it got the the best $/sqft value and the plans look good.

It was John Laing. I was actually suprised that they had the lowest price/sq ft as well. They Laing homes appeared to be of the highest quality and best laid-out, in my opinion. At the time we were there, one of the last of phase 2 fell out of escrow...so maybe they just wanted to finish out the phase, I'm not really sure. I really don't know much about purchasing new homes since all that I deal with are pre-forclosures and REOs...so we've taken an interest in watching the builders.

We've driven by the home sites and it doesn't look like they've made any progress in the past two weeks even though they are supposed to be sold out of phase 2. I would think that the builder would want to hurry and finish so that they can start putting $$ in the bank.

Hi robyns_song -

I was also curious as this spring it has been really tough negotiating with the builders. Last summer it seemed like they were much more negotiable. So what was the exact time that you got them from 720 down to 650? Sorry if you already posted the exact time, it has been a long day...

SD Realtor

Hi robyns_song, I agree with you on John Laing's quality and layout, and we like Plan 2/3 a lot. If it was for plan 2 or 3, I'd think $600K would be a good deal. It seems there are quite a few in the forum interested in 4S ranch, would be nice if we can have a separate thread or something like to discuss 4s...

Everyone wants such precise details!

I think it was two weeks ago (definately no more than three). We'd looked at the John Laing homes before and the office in the previous weeks had been full but it was a Sunday afternoon and they were pretty slow. They had only one other couple there who was asking a lot of questions about prices of the upgrades (which they declined to show us a copy of the price list...they apparently won't provide that until after you sign the papers). Anyway we were talking with an older lady there for probably 20-30 minutes about the area and let her know we were very skeptical about the market...yada yada yada. We pointed out that the house they had availble just fell out of escrow. In the end, she asked if we were interested and we let her know that we liked it, but didn't think it was worth more than $650K so she said that she could work it out. Were it not for the high mello-roos and property taxes we would have been tempted.

We have a friend who is an agent who thought we were insane for not trying to get them to throw in the mello roos and take the offer (she said that the builders will sometimes pay the mello roos if you ask them to--I'm not sure how common that is). Like I said, we've never delt with builders before and weren't aware that it was unusual for them to negotiate.

A little late to the party, but my opinion is that it's someplace in the middle. I've been watching 4S Ranch for about a year now, and they have definitely slowed down construction. In my opinion, it's simply an issue of inventory control. Given the choice between empty lots and empty homes, I think some builders are choosing empty lots.

I agree with Bugs that at some point, the best thing to do is get these suckers built, sold, and get out of Dodge unless the builder believes things are going to turn around (which I don't think they really do).

Now with John Laing and these Silhouette homes specifcally, I can tell you that they have, for all practical purposes, stopped construction. The 10 or so completed homes you see were started a year ago and finished, I don't know, maybe 6 months ago. They can absolutely build more and faster, but they're not. Unless they've put up sticks in the last 3 weeks, the foundations you see have been there for almost a year.

They seem intent on finishing Rosemary Lane first and that is going pretty slowly as well although it is *almost* finished.

John Laing seems to be the slowest in 4S Ranch right now and while I agree that they seem as good (or better) than anything available right now, they're just not selling. They dropped their prices significantly (twice) in the last year, but it's been a while since the last reduction occurred (maybe 5 months?). I can get you exact dates and reductions if you're interested.

I think you're right on the money with a lower offer. They had one on the MLS since late last year that just went off (I assume it sold) and that was at $714,000. It never hurts to ask.

One other footnote is that John Laing was purchased about a year ago by Emaar Properties, a Dubai-based developer. I believe they have a gazillion dollars and certainly that could affect JLH's dynamics just a little differently than other builders. Of course, a lot of their money is in real estate, so perhaps it's only a matter of time before they only have a bazillion dollars...

Its just my intuition at work here, or maybe not ...
But do houses in remote areas and with weird useless features like heated and cooled door knobs or motion detecting mirror lights tend to go waaaay up in price over the less glamorous but practical houses like close to job centers and simple basic good areas but nothing in cool factor in markets that are shooting up. And the reverse happens in down markets. Aka useless remote crap crashes, and the well located and practical ones hold up far better.
The comparison I'd make is, stock of webvan and Pets.com were selling for much more than Bank of america or dupont in the tech boom. Its a fuzzy analogy but I cant think of any better.
Cool.
Cow_tipping.

Sdcellar, thanks for the info on when the foundations were poured. We were walking around on them trying to find a date, but weren't able to locate one. At what points last year did they reduce their prices?

We actually live off of Alva Rd, less than a mile from where Silhouette is building, so we've been tracking them lately...there's a whole lot of nothing going on.

Hi robyns_song - was the house you mentioned Plan 1? I went to their office, and there are only two plan 1 houses (about 2500 sqft) available. One fell out of escrow from Phase 1, ready to move in, with flooring/granite countertop/steel appliances/... included, it's funny that because they included flooring (claimed > $20K), so they actually raised the price tag to $72K from $70K (was the price at the end of last year). The other plan 1 house is from phase 2, move in date is this September.

Hi Sdcellar, Thanks a lot for your great infor on Silhouette. can you tell us the two price reductions last year (when and how much?), but this year it seems they have not reduced the price. While the strategy of Pienza (by fieldstone) seems to release as many houses as possible to catch this spring bounce (there is a another release this Sat), which I think is a good strategy, today the sales lady told me that John Laing's strategy is take it slow course it thinks it'll make more money in the long run...

If they're serious about moving those lots they mght be able to come up with some smaller floorplans, more stock finishes, and fewer doodads. By all rights there should be a few suckers willing to buy strictly on price and there's nothing wrong with building an average quality/average appeal home. The neighbors in their prior phases will be mad but they have bigger problems to worry about right now.

I'll bet 2,100 SqFt @ $550k would probably find a few buyers right now.

"I'll bet 2,100 SqFt @ $550k would probably find a few buyers right now."

I could go for that. I'm trying to convince my wife that 4S
is better than San Elijo- she like the views over there. The views are nice, but I'm afraid once they open the road to thru traffic San Elijo will be too congested.
Also, San Elijo is in San Marcos high territory and the API score there makes me hesitant. Any other points I could make with her?

If you like that house at $550k you'll probably really like it at $350k.

I don't think San Elijo is going to get more congested than it is right now without the connecting roads. It's not like outsiders are going to use those roads to cut through that area on their way to somewhere else.

4S is a little closer to the employment centers in San Diego - that's the factor that will drive the difference in value between these areas more than anything else.

In my opinion, the proximity to employment as an influence on value is highly underrated and the quality of the schools is overrated. $4/gallon gas is a factor that could tip the scales on prices in the more distant areas.

If you have kids and have to pick one over the other, would you rather have Poway Schools or San Marcos? This should be a fairly easy question. You choose San Marcos if you think the schools are basically good enough, and the housing is better bang for the buck. Otherwise, pick a better school system.

I went to San Elijo with the kids and wife last weekend. Played in the park, grabbed a smoothie in the cafe - very nice, great location with ocean breezes, many areas had ocean views. I would be very concerned about the increase in traffic once that road opens. The sales guy was hesitant when I asked him about the projected increase, but then admitted that 35,000+ cars will go past his cafe every day. Keep in mind that we are not talking about a side artery like they should have built, but a direct route through downtown San Elijo. For tens of thousands of people, if not hundreds of thousands, that route will be quicker than going San Marcos Blvd. to Palomar Airport Rd to the 5. This will be enough to ensure that there will be gridlock traffic in d-town San Elijo all day long IMO. And how about that new gas station? You'd think they would have enforced some architectural standards to make them build it with colors, brick etc. that fits in with the rest of the area. EG: Look at the new fire station San Marcos built on Rancho Santa Fe Rd. - very attractive and in line with the themes the city has developed at that new shopping center off of Las Posas, the main city building etc. I'm thinking they shouldn't even have a gas station in that spot to begin with. But who am I to comment, I am not a part of the landed gentry.

This forum is great.... We have been wandering about 4S ranch for the last few weeks...Seems like the builders are not negotiating much (or we don't know how to do it)...Have a question for the folks here...Have you considered Maybeck@4S...the builder in William Lyons...Seems like their price per sq. ft is lower than that of John Liang's...And the floor plans are decent...Any idea about this builder/development....They are asking ~ 724500 for a 3180sq. ft home...

Actually outtamojo, they built Amante at 1825 for $550K...but those weren't very high quality, in my opinion. Amante is sold out of all phases, but it won't be too much longer before you'll find you 2100 for $550K. There's that one house that's in foreclosure listed on craigslist (and everywhere else)...it's 1862sqft wanting to do a short sale for $549K. If you atleast wait until after the summer, you shouldn't have a hard time finding a 2100 sqft home for less $.

I've been through all the models in 4s Ranch around that size. Personally, I like maybeck the least since the garage is in the alley, which mean no drive way. That's horrible if you have guests. I like K. Hov. Evergreen the best. The only builder w/ nice double french front door. The floor plan also feel much more open than the rest.

I hate the recent trend when they put walk-in closet PAST the master bathroom and don't install a bathroom door. How stupid is that??